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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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May 21, 2025
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Economics (Bethea, Bruce,
Hudson)
Division of Engineering
(Watts)
Office of the General
Counsel (Dose, Crawford)
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RE:
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Docket No. 20240106-WU – Application for a
revenue-neutral uniform water rate restructuring limited proceeding in
Alachua, Duval, Leon, Okaloosa, and Washington Counties, by North Florida
Community Water Systems, Inc.
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AGENDA:
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06/03/25 – Regular Agenda – Proposed Agency Action – Interested
Persons May Participate
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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Fay
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CRITICAL DATES:
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None
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SPECIAL INSTRUCTIONS:
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None
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Case Background
North Florida
Community Water System, Inc. (NFCWS or utility) owns six water and three
wastewater systems in Alachua, Duval, Franklin, Leon, Okaloosa, and Washington
counties. Service is provided to approximately 2,213 water and 243 wastewater
customers. According to NFCWS’s 2024 Annual Report, the combined operating
revenues were $1,468,386 for water and $449,525 for wastewater. NFCWS also
recorded combined net operating expenses of $1,271,683 for water and $384,890
for wastewater. This proceeding is for the water systems, which are in all
counties except for Franklin.
The six water
systems are Gator Waterworks, Inc. (Gator); Duval Waterworks, Inc. (Duval),
Lake Talquin Waterworks, Inc. (Lake Talquin), Seminole Waterworks, Inc.
(Seminole), Okaloosa Waterworks, Inc. (Okaloosa), and Sunny Hills Utility
Company, Inc. (Sunny Hills). In February of 2023, the Commission acknowledged
the corporate reorganization and name change of these systems to NFCWS. The
corporate reorganization resulted in no change in ownership or control of the
utilities and each NFCWS system continued to charge its own Commission-approved
rates and charges.
On July 25,
2024, NFCWS filed an application for a revenue-neutral rate restructuring
limited proceeding for the purpose of consolidating the rates of the six water
systems into uniform rates. In its application, NFCWS states that there is a
wide disparity in rates among the systems. The utility believes that
implementing uniform rates will result in a more equitable disbursement of
operating costs among the customer group. Three of NFCWS systems have had rate
cases before the Commission, which established rate base, operating income,
rate of return on equity, and rates. The following table reflects the rate
proceedings in which rates were last established for NFCWS’s respective systems
in this proceeding.
Last
Proceedings Establishing Rates for NFCWS Water Systems
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County
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Former Utility Name
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Order
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Issuance Date
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Alachua
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Gator
Waterworks, Inc.
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PSC-2020-0086-PAA-WU
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March 24, 2020
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Duval
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Duval
Waterworks, Inc.
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PSC-2012-0436-PAA-WS
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August 24, 2012
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Leon
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Lake Talquin
Waterworks, Inc.
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N/A
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N/A
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Leon
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Seminole
Waterworks, Inc.
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N/A
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N/A
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Okaloosa
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Okaloosa
Waterworks, Inc.
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N/A
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N/A
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Washington
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Sunny Hills
Utility Company
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PSC-2022-0335-PAA-WS
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September 28, 2022
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Source: NFCWS’s
petition
Rule
25-30.445(6), Florida Administrative Code (F.A.C.), provides that a limited
proceeding will not be allowed if the utility has not had a rate case within
seven years of the date of the petition for limited proceeding is filed with
the Commission. Lake Talquin, Seminole, and Okaloosa have never had a rate case
before the Commission and it has been more than seven years since Duval’s last
rate proceeding. Therefore, on August 2, 2024, NFCWS sought a partial variance
or waiver of a requirement of Rule 25-30.445, F.A.C. On November 25, 2024, the
Commission approved NFCWS’s petition to waive Rule 25-30.455(6) for the limited
purpose requested.
In
each of the system’s last rate cases, before the consolidation into NFCWS, the
Commission found the overall quality of service to be satisfactory except for
Sunny Hills. In its 2022 rate case, the Commission found Sunny Hills’ overall
quality of service to be marginal due to noncompliance with the Department of
Environmental Protection’s (DEP) iron limits in its 2021 secondary water
quality tests for Well No. 1. Sunny Hills was ordered to submit a report
to Commission staff six months from the date of the order on the status of the
improvements to Well No. 1. Sunny Hills provided the required status report,
and followed up with a second report as it was not able to complete the work
within the six months due to supply chain issues. The issue was resolved, and
the docket closed. As stated above, Lake Talquin, Okaloosa, and Seminole have
not had a rate case before the Commission and therefore have not previously had
a quality of service determination.
Staff
reviewed each system’s customer complaint record from July 2019 through August
2024. There were four complaints filed with the Commission regarding secondary
water quality standards. Two complaints were for low water pressure, one for
Sunny Hills and one for Seminole. When Sunny Hills investigated the low
pressure complaint, it found that the water pressure tested within the DEP’s
approved limits. The low pressure issue for Seminole was determined to be
caused by the freezing temperatures in Tallahassee, and that no line breaks
occurred. The third complaint was for dirty water for Okaloosa, and the fourth
complaint was for excessive chlorine in Sunny Hills. Each of these complaints
was resolved through flushing.
The
DEP also received two secondary water complaints for Sunny Hills after its last
rate case was processed. Both DEP complaints involved odor and color problems
that were due to low chlorine. One was due to a line break that was fixed. The
other was due to problems at one of the two water treatment plants (WTP). The
first WTP was shut down and the second WTP serviced the area until repairs were
made to the first plant. All of the other systems that make up the NFCWS system
are passing DEP’s secondary water standards.
A
customer meeting was held virtually on March 26, 2024. One customer
participated and voiced concerns regarding water pressure issues. Two comments
were filed in the docket file pertaining to water quality. One identified the
water as being brown in color, and the customer also reported low water
pressure regarding Sunny Hills. The other stated that the water from Gator
smelled strongly of chlorine.
This
recommendation addresses the request for a revenue-neutral uniform rate
restructuring limited proceeding. The Commission has jurisdiction to consider
this matter pursuant to Sections 367.0822 and 367.0816, Florida Statutes
(F.S.).
Discussion
of Issues
Issue 1:
Should North Florida Community Water System’s
request for a revenue-neutral restructuring limited proceeding for uniform
rates be approved?
Recommendation:
Yes. The Commission should approve NFCWS’s request
for a revenue-neutral rate restructuring limited proceeding for uniform rate.
(Hudson, Bethea)
Staff Analysis:
NFCWS indicated that the implementation of uniform
rates would result in a more equitable disbursement of operating costs among
the customers. NFCWS believes it would be more efficient to have a uniform rate
structure that would allow it to consolidate the accounting records and
financial information into one set of books. It would allow a less stringent
and more meaningful, understandable rate structure for the Okaloosa water
system.
In prior dockets, the Commission has approved rate
consolidation because it encourages large utilities to acquire small utilities;
recognizes economies of scale attributable to large utilities with respect to
combined operations; results in cost savings associated with regulatory
filings; and produces rate stability across all systems. In
evaluating consolidated rates in prior decisions, the Commission has set a
subsidy limit and evaluated the consolidated rates at the average consolidated
residential demand for the individual systems.
The last subsidy limit was set by the Commission in 2023
at $17.27 for water and wastewater. To put the $17.27 subsidy limit in
perspective, if the limit is indexed from 2024 and 2025, using the
Commission-approved indexes, it results in a subsidy limit of $18.23 for the
instant docket. The indexed subsidy limit for water is based on 7,000 gallons.
The average consolidated water residential demand is approximately 4,000
gallons and should be used to evaluate subsidies for water. Since the subsidy
limit is based on 7,000 gallons, for 4,000, the subsidy limit is $10.42. As
reflected in Table 1-1, the Gator, Okaloosa, and Seminole systems are paying a
subsidy for water using staff’s recommended rates. However, the subsidies are
below the subsidy limit of $10.42.
Table 1-1
Residential Water Bill Comparison
Based on 4,000 Gallons a Month
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System
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Bill at Stand
Alone Rates
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Bill at
Consolidated Rates
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Subsidy Paid
(Received)
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Gator
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$41.73
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$46.91
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$5.18
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Lake Talquin
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$52.77
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$46.91
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($5.86)
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Okaloosa
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$45.64
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$46.91
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$1.27
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Seminole
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$39.98
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$46.91
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$6.93
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Sunny Hills
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$58.31
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$46.91
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($11.40)
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Based on
the above, the proposed consolidation of rates results in rates that are below
the subsidy limit of $10.42 for those systems paying a subsidy based on average
usage. This is consistent with the Commission’s previous analysis methodology
for similar dockets. As discussed previously, there are many benefits of rate
consolidation. As a result, the Commission should approve NFCWS’s request for a
revenue-neutral rate restructuring limited proceeding for uniform rates.
Issue 2:
What is the appropriate revenue requirement for
restructuring the rates?
Recommendation:
The appropriate revenue requirement for
restructuring the water rates is $1,537,556. (Hudson)
Staff Analysis:
In its application, NFCWS requests the rate
restructuring for uniform rates be revenue neutral. In its revised filing, the
utility proposed to use the operating revenues that were generated by billing
determinants and rates for 2023, increased by the 2024 price index and reduced
by the 2023 operating revenues associated with overearnings by the Duval water
system. In addition, NFCWS requested rate case expense to cover the cost
incurred in this proceeding.
Subsequent to its 2023 test year, the utility was approved
for price index rate adjustments for all water systems, except Duval, effective
September 1, 2024. NFCWS’s billing analyses are generated based on base
facility charges. Therefore, when there is a rate change in a month, the
prorated base facility charge shows up as two bills with a proration of usage
for each customer in the billing analysis. The additional bills will overstate
the operating revenues. The prorated usage will understate the operating
revenues for the systems with tiered rate structures because the total usage
would not be reflected in the appropriate tier. Staff adjusted the billing
analyses to correct the issues that take place when there is a rate change
during the month. Annualizing the operating revenues using the current rates,
and the revised billing analysis resulted in water operating revenues of
$1,548,370.
The utility requested rate case expense to cover the
filing fee, customer noticing, newspaper noticing, final notice, and travel
expense to attend the Commission Conference. NFCWS
paid a filing fee of $2,250, newspaper noticing costs of $407, and $3,485 for
mailing customer meeting notice. The utility estimated cost of $3,485 for the
final notice, $350 for mileage, and $145 for lodging. NFCWS is required by Rule
25-22.0407, F.A.C., to mail notices for the customer meeting, final rates, and
four-year rate reduction. The utility’s final notice cost was based on the cost
incurred to mail notices for the customer meeting. However, the customer
meeting notice was five pages while the final notice would only be two pages.
The average cost per page for noticing the customer meeting was $697
($3,485/5). For the two page final notice, the cost for noticing would be
approximately $1,394. In addition, the utility did not include any cost for
mailing the notices for the pending rate reduction, which would also be a two
page notice resulting in a cost of $1,394. Staff has examined the requested
expenses and supporting documentation and recommends total rate case expense of
$9,425 ($2,250 + $407 + $3,485 + $1,394 + $350 + $145 + $1,394). The
recommended total rate case expense should be amortized over four years, which
represents an annual expense of $2,356 ($9,425/4 Years). The annual expense
grossed-up for regulatory assessments fees (RAFs) results in $2,467 that should
be recovered in rates.
The annualized 2023 water operating revenues of $1,548,370
should be increased by $2,467 for the rate case expense. In addition, as
mentioned above, the total 2023 overearnings of $13,281 for water should be
removed.
Based on the above, the appropriate revenue requirement for restructuring the
water rates is $1,537,556 ($1,548,370 + $2,467 - $13,281).
Issue 3:
What are the appropriate rate structures and rates
for the water systems?
Recommendation:
The staff recommended rate structure and rates for the
water systems are shown on Schedule No. 1. 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 notices and the notices have been received
by the customers. The utility should provide proof of the date notices were
given within 10 days of the date of the notice. (Hudson)
Staff Analysis:
For its consolidated water rates, NFCWS proposed a
rate structure which consists of recovering 40 percent of the operating
revenues from the base facility charge (BFC) and a three-tier inclining block
rate structure. The proposed rate blocks are: (1) 0-6,000 gallons, (2) 6,001-12,000
gallons, and (3) all usage in excess of 12,000 gallons per month. The general
service rate structure consists of a BFC and uniform gallonage charge.
NFCWS provides water service to approximately 2,121
residential customers and 92 general service customers. A review of the
consolidated billing data indicates that approximately 15 percent of the
residential bills had zero gallons, which signifies a slightly seasonal
consolidated customer base. The average consolidated water demand is approximately
4,000 gallons per month. Staff performed an analysis of the utility’s
consolidated billing data in order to evaluate the appropriate rate structure
for the residential water customers. The goal of the evaluation was to select
the rate design parameters that: (1) produce the recommended revenue
requirement; (2) equitably distribute cost recovery among the utility’s
customers; (3) establish the appropriate non-discretionary usage threshold for
restricting repression; and (4) implement, where appropriate, water conserving
rate structures consistent with Commission practice.
Due to approximately 30 percent of the bills being 1,000
gallons or less, staff recommends that the utility’s proposal that 40 percent
of the water revenue be generated from the BFC is appropriate. The 40 percent
BFC allocation provides revenue stability. The average people per household
served by the systems on a consolidated basis is approximately 2.5; therefore,
based on the number of people per household, 50 gallons per day per person, and
the number of days per month, the non-discretionary usage threshold should be
4,000 gallons per month.
Based on the consolidated billing analysis, the utility’s
three-tier inclining blocks rate structure was too aggressive for the usage
distribution and the revenues. Staff recommends a BFC and a two-tier inclining
block rate structure, which includes separate gallonage charges for
non-discretionary and discretionary usage for residential water customers. The
rate blocks are: (1) 0-4,000 gallons and (2) all usage in excess of 4,000
gallons per month. General service customers should be billed a BFC and a
gallonage charge. Private fire protection customers should be billed
one-twelfth of the BFC for the respective meter size pursuant to Rule
25-30.465, F.A.C.
On a consolidated basis, approximately 36 percent of the
total residential consumption is discretionary. However, based on the moderate increase
in bills for the customers in the Gator, Okaloosa, and Seminole systems, the
number of gallons reduced is de minimis. Therefore, staff recommends no
repression adjustment.
The staff recommended rate structure and rates for water
are shown on Schedule No. 1. 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 notices and the notices have been received by the
customers. The utility should provide proof of the date notices were given
within 10 days of the date of the notice.
Issue 4:
What is the appropriate amount of rate case expense
and 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 appropriate amount of rate case expense is $9,425.
The total rate case expense should be amortized over four years, resulting in
an annual expense of $2,467, when grossed-up for RAFs. The rates should be
reduced as shown on Schedule Nos. 1-A and 1-B, to remove rate case expense
grossed-up for RAFs and amortized over a four-year period. In addition, for
prior unamortized rate case expense, the rates should be reduced as shown on
Schedule No. 2. 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. NFCWS should be required to file revised tariffs and a
proposed customer notice setting forth the lower rates and the reason for the
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 or pass-through rate adjustment, the utility should file separate data
for the price index and/or pass-through increase or decrease and the reduction
in the rates due to the amortized rate case expense. (Hudson)
Staff Analysis:
Section 367.081(8), F.S., requires that the rates be
reduced immediately following the expiration of the recovery period by the
amount of the rate case expense previously included in rates. The appropriate
amount of rate case expense is $9,425. The total rate case expense should be
amortized over four years, resulting in an annual expense of $2,467, when
grossed-up for RAFs. The reduction will reflect the removal of revenue
associated with the amortization of rate case expense and the gross-up for
RAFs, as shown on Schedule No. 1.
In addition, in a prior docket, Sunny Hills was allowed a
four-year amortization period for rate case expense of $1,627. The amortization
period has not expired. The amortization of prior rate case expense is set to
expire on December 1, 2026. The dollar amount of the rate reductions at the end
of the amortization period were defined in the order. The
rate reductions were calculated based on the percentage of rate case expense to
the revenue requirement and was applied to the Commission-approved rates. With
the recommendation of consolidation, the prior amortization rate case expense
is embedded in the consolidated rates. The amount of rate case expense for
Sunny Hills relative to the consolidated revenue requirement results in a
lesser amount of rate reduction compared to the amount on a stand-alone basis.
Using the rate reductions defined in the prior order for Sunny Hills would
result in more rate case expense being removed than appropriate. Therefore,
staff has recalculated the amount of the reductions based on the recommended
consolidation. The amount of the rate reductions that should be applied to the
consolidated rates, which will be applicable to all systems, at the end of the
amortization period for the Sunny Hills water system is shown on Schedule No.
2.
Staff recommends that the rates be reduced as shown on
Schedule No. 1, to remove rate case expense grossed-up for RAFs and amortized
over a four-year period. In addition, for prior unamortized rate case expense,
the rates should be reduced as shown on Schedule No. 2. The decrease in rates
should become effective immediately following the expiration of the rate case
expense recovery period, pursuant to Section 367.081(8), F.S. NFCWS should be
required to file revised tariffs and a proposed customer notice setting forth
the lower rates and the reason for the 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 or pass-through rate adjustment,
the utility should file separate data 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 5:
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 notices have been filed by the utility and approved
by staff. Upon staff’s approval of the tariff sheets and customer notices, this
docket should be closed administratively. (Dose)
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 notices have been filed by the utility and approved
by staff. Upon staff’s approval of the tariff sheets and customer notices, this
docket should be closed administratively.
