Discussion
of Issues
Issue 1:
Is the quality of service provided by LP Waterworks,
Inc. satisfactory?
Recommendation:
Yes. LP has been responsive to customer complaints
and is currently in compliance with the Department of Environmental Protection
(DEP); therefore, staff recommends that the quality of service should be
considered satisfactory. (L. Smith)
Staff Analysis:
Pursuant
to Section
367.081(2)(a)1, F.S., and Rule 25-30.433(1), Florida Administrative Code
(F.A.C.), in water and 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 product and the utility's attempt to
address customer satisfaction. The Rule further states that the most recent
chemical analysis for the water system, outstanding citations, violations, and
consent orders on file with the DEP and the county health department, and any
DEP or county health department official’s testimony, comments, or complaints
received by the Commission are also reviewed. The operating condition of the
water and wastewater systems are addressed in Issue 2.
Quality of Utility’s Product
In
evaluating LP’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. Staff reviewed the DEP’s
Safe Drinking Water Program chemical analysis of samples dated April
15, 2024, and June 26, 2024. The disinfection by-products were tested in
the distribution system on August 19, 2024. All of the contaminants were below
the maximum contaminant level set by the DEP.
The Utility’s Attempt to Address Customer Satisfaction
Staff
reviewed complaints filed during the test year and four years prior in the
Commission’s Consumer Activity Tracking System (CATS); received by the utility;
and filed with the DEP. There were 10 complaints recorded in CATS, 2 complaints
recorded by the DEP, and 46 complaints recorded by the utility. A review of the
customer complaints indicates the utility resolved all complaints filed with
the Commission, the DEP, and the utility. Table 1-1 summarizes the number of
complaints by source and subject for the test year and four years prior.
Table 1-1
Number of Complaints by Source and
Subject
|
Subject of Complaint
|
CATS Records
|
DEP Records
|
Utility Records
|
Total
|
|
Water Quality
|
2
|
-
|
3
|
5
|
|
Water Leak
|
-
|
-
|
11
|
11
|
|
Repair
|
1
|
-
|
3
|
4
|
|
Customer Service
|
1
|
-
|
-
|
1
|
|
Did Not Get Boil Water Notice
|
-
|
2
|
-
|
-
|
|
Disconnected
|
-
|
-
|
1
|
1
|
|
Service Interruption
|
-
|
-
|
15
|
15
|
|
Water Pressure
|
-
|
-
|
9
|
9
|
|
Sewer Backup
|
-
|
-
|
1
|
1
|
|
Billing
|
6
|
-
|
-
|
6
|
|
Delay in Connection
|
-
|
-
|
3
|
3
|
|
Total*
|
10
|
2
|
46
|
56
|
*A
single customer complaint may be counted multiple times if it fits into
multiple categories.
A customer meeting was held on July
9, 2025. No customers spoke at the meeting, and no customer comments were filed
in the docket file. Staff performed a supplemental review, through August 14, 2025,
of complaints filed in CATS following the customer meeting and found one
additional complaint for improper billing.
Conclusion
LP has been responsive to customer complaints and is
currently in compliance with the DEP standards; therefore, staff recommends
that the quality of service should be considered satisfactory.
Issue 2:
Are the infrastructure and operating conditions of LP Waterworks, Inc.’s water and wastewater systems
in compliance with the DEP regulations?
Recommendation:
Yes. The LP water and wastewater systems are
currently in compliance with the DEP. (L. Smith)
Staff Analysis:
Rule
25-30.225(2), F.A.C., requires each water and 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, compliance evaluations, inspections,
citations, violations, consent orders issued to the utility, customer
testimony, comments, complaints, utility testimony, and responses to the
aforementioned items.
Water and Wastewater System
Operating Conditions
LP's water treatment system has a permitted capacity of 95,900
gallons per day (gpd). The system consists of two wells rated at 850 gallons
per minute (gpm) and 350 gpm and two ground storage tanks totaling 25,000
gallons in capacity. Groundwater from the wells is treated with chlorine gas.
There are seven fire hydrants present throughout the service area. The
distribution system is comprised of varying sizes of polyvinyl chloride (PVC)
pipes ranging from 1 inch to 8 inches. Staff reviewed the utility's last DEP
Sanitary Survey, dated January 27, 2023. The DEP noted five deficiencies, which
the utility corrected. The deficiencies included two minor plant repair items,
an overdue inspection and cleaning for the hydropneumatic tanks, an overdue
water quality test for total xylenes, and no standby plan on site for the
generator. LP provided photos of the repair items, performed the overdue
inspections, cleanings and water quality tests, and supplied the required
generator standby plan. The DEP issued a return to compliance letter on April
26, 2024.
LP only
provides wastewater service to a portion of its service territory, primarily
the Camp Florida Resort. Furthermore, the wastewater system serves seasonal
customers which have peak flows from January through March. The wastewater
treatment system consists of a 50,000 gallons per day (gpd) extended aeration
system, a lift station, 8,549 feet of PVC collecting mains, and a 918-foot
force main. Staff reviewed the utility’s last DEP Compliance Evaluation
Inspection report, dated October 29, 2024. The DEP noted eight deficiencies,
which the utility corrected. Five of the deficiencies noted excessive solids
and scum in various parts of the wastewater treatment plant (WWTP). The utility
addressed these by having the sludge built up in the system hauled away and the
timing of processes adjusted to prevent the buildup. The cost for the sludge
hauling required to correct this deficiency is included in LP’s pro forma
request and is addressed in Issue 7. One of the deficiencies concerned an
overdue Elapsed Time Meter calibration at the lift station pumps, which LP
completed and submitted to the DEP. One deficiency noted transcription errors
on some of the Discharge Monitoring Reports (DMRs). The utility corrected and
resubmitted the DMRs. The final deficiency concerned an effluent exceedance
reported on one of the DMRs. After conferring with the plant operator and
hearing the explanation, the DEP inspector concluded there was no exceedance.
The DEP issued a return to compliance letter on December 10, 2024.
Conclusion
LP’s water and wastewater systems are currently in
compliance with the DEP.
Issue 3:
What are the used and useful percentages (U&U)
of LP Waterworks, Inc.’s water treatment plant (WTP), water storage, WWTP, and
distribution and collection systems?
Recommendation:
The utility’s WTP, WWTP, water storage, water
distribution system, and wastewater collection system should all be considered
100 percent U&U. Staff recommends that no adjustment is necessary for
excessive infiltration and inflow (I&I); however, a 7.7 percent adjustment
to purchased power and chemical expenses should be made for excessive
unaccounted for water (EUW). (L. Smith)
Staff Analysis:
As
stated in Issue 2, LP’s water treatment system has two wells
rated at 850 gpm and 350 gpm. The utility's water system has two ground storage
tanks totaling 25,000 gallons in capacity. There are seven fire hydrants
present throughout the service area. The distribution system is comprised of
varying sizes of PVC pipes. The LP WWTP is permitted by the DEP as a 50,000
gallon per day annual average daily flow extended aeration facility. According
to the utility, the LP wastewater collection system is comprised of varying
sizes of PVC collecting mains and a 918-foot force main. There are 47 manholes
and 1 lift station present throughout the service area.
Water Treatment Plant, Distribution System, and Storage U&U
Rule
25-30.4325, F.A.C., addresses the method by which the U&U of a water system
is determined. LP’s U&U percentages were last determined in Docket No. 20160222-WS,
and the Commission found the water treatment facilities, distribution system,
and storage were 100 percent U&U. The utility has not increased the
capacity of its facilities and the service area is built out. Staff
evaluated the circumstances under which the system was considered 100 percent
U&U and it appears that there has been no change to the system. Therefore,
consistent with Commission practice, staff recommends that the WTP,
distribution system, and storage be considered 100 percent U&U.
Wastewater Treatment Plant and Collection System U&U
As stated in
Issue 2, the utility only provides wastewater service to a portion of its
service territory and serves seasonal customers whose peak flows occur from
January through March. Rule 25-30.432, F.A.C., addresses the method by which
the U&U of a wastewater system is determined. LP’s U&U percentages were
last determined in Docket No. 20160222-WS and the Commission found the
wastewater treatment facilities and collection system were 100 percent U&U.
The utility has not increased the capacity of its facilities and the service
area is built out. Staff evaluated the circumstances under which the system was
considered 100 percent U&U and it appears that there has been no change to
the system. Therefore, consistent with Commission practice, staff recommends
that the WWTP and collection
system be considered 100 percent U&U.
Excessive Unaccounted for Water
Rule
25-30.4325(1)(e), F.A.C., defines EUW as unaccounted for water in excess of 10
percent of the amount produced. Unaccounted for water is all water produced
that is not sold, metered, or accounted for in the records of the utility. In
determining whether adjustments to plant and operating expenses are necessary
in accordance with Rule 25-30.4325(10), F.A.C., staff considers several
factors. These include the causes of EUW, any corrective action taken, or the
economic feasibility of a proposed solution. 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 for the test year.
The
Monthly Operating Reports that the utility files with the DEP indicate that the
utility treated 10,694,237 gallons during the test year. In response to a staff
data request, the utility indicated that it purchased no water and used 601,400
gallons for other uses during the test year. According to the staff audit
report, the utility sold 8,197,000 gallons of water for the test year.
Therefore, the total amount of unaccounted for water is 1,895,837 gallons or
17.7 percent. ([10,694,237 - 601,400 – 8,197,000] / [10,694,237 + 0]). Ten
percent of the gallons produced is allowed per the rule; therefore the EUW is
7.7 percent. Accordingly, staff recommends an adjustment of 7.7 percent
be made to reduce operating expenses.
Infiltration and Inflow
Rule
25-30.432, F.A.C., provides that in determining the amount of U&U plant,
the Commission will consider I&I. 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 500 gpd per inch diameter pipe per mile, with an additional 10
percent of water sold allowed for inflow. In addition, adjustments to operating
expenses, such as chemical and electrical costs, are considered necessary if such
costs are excessive. Excessive I&I is a calculation that is based on a
comparison of the allowable wastewater treated to the actual amount of
wastewater treated. Allowable treated wastewater was calculated as 4,633,300 gallons
and the actual amount of wastewater treated was 3,808,000 gallons. The actual
amount does not exceed the allowable amount; therefore, there is no excessive
I&I and no adjustment to operating expenses is
necessary.
Conclusion
The utility’s WTP, WWTP, water storage, water distribution
system, and wastewater collection system should all be considered 100 percent
U&U. Staff recommends that no adjustment is necessary for excessive
I&I; however, a 7.7 percent adjustment to purchased power and chemical
expenses should be made for EUW.
Issue 4:
What are the appropriate average test year water
rate base and wastewater rate base amounts for LP Waterworks, Inc.?
Recommendation:
The appropriate average test year rate bases for LP
are $195,680 for water and $136,706 for wastewater. (Folkman)
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 October 31, 2024, for
the instant rate case. Commission audit staff determined that the utility’s books
and records are in compliance with the National Association of Regulatory
Utility Commissioners’ Uniform System of Accounts (NARUC USOA). A summary of
each component and the recommended adjustments are discussed below.
Utility Plant in Service
The utility recorded
UPIS of $685,567 for the water system and $513,667 for wastewater system. Staff
decreased this amount by $4,713 for water UPIS and $35,835 for wastewater UPIS
to reflect averaging adjustments and therefore recommends an average UPIS of
$680,854 for water and $477,832 for wastewater.
Used and Useful
As discussed
in Issue 2, the utility’s system is considered 100 percent U&U. Therefore,
no U&U adjustment is necessary.
Land and Land Rights
The utility recorded a test year
land and land rights balance of $27,412 for the water system and $36,000 for
the wastewater system. Staff did not make any adjustments to this account and
therefore recommends a land and land rights balance of $27,412 for water and
$36,000 for wastewater.
Accumulated Depreciation
The utility recorded
accumulated depreciation of $497,127 for the water system and $385,888 for the
wastewater system. Audit staff increased accumulated depreciation by $4,900 for
water and decreased accumulated depreciation by $5,419 for wastewater to reflect
the use of the correct depreciation rates per Rule 25-30.140, F.A.C.
Additionally, staff decreased accumulated depreciation by $7,721 for water and
$4,674 for wastewater to reflect averaging adjustments. Therefore, staff
recommends an average accumulated depreciation balance of $494,306 for water
and $375,795 for wastewater.
Contributions In Aid of
Construction
The utility recorded CIAC of
$271,795 for water and $92,400 for wastewater. Staff made no adjustments to
CIAC and therefore recommends average CIAC balances of $271,795 for water and
$92,400 for wastewater.
Accumulated Amortization
of CIAC
The utility recorded accumulated
amortization of CIAC of $236,585 for water and $77,650 for wastewater. Audit
staff increased accumulated amortization by $1,910 for water and decreased
accumulated amortization by $816 for wastewater to reflect the effect of the
change in accumulated depreciation. Staff made averaging adjustments to reduce
accumulated amortization of CIAC by $4,602 for water and $706 for wastewater.
Therefore, staff recommends average accumulated amortization of CIAC balances
of $233,893 for water and $76,128 for wastewater.
Working Capital Allowance
Working
capital is defined as the short-term investor-supplied funds that are necessary
to meet operating expenses. Consistent with Rule 25-30.433(3), F.A.C., staff
used the one-eighth operation and maintenance (O&M) expense (less rate case
expense) formula for calculating the working capital allowance. As such, staff
removed the rate case expense of $1,147 for water and $420 for wastewater.[4] This
resulted in an adjusted O&M expense balance of $156,977 for water and
$119,536 for wastewater. Applying this formula, staff recommends a working
capital allowance of $19,662 for water and $14,942 for wastewater.
Rate Base Summary
Based on the foregoing, staff recommends that the
appropriate average test year rate bases are $195,680 for water and $136,706
for wastewater. Rate base is shown on Schedule No. 1-A for water and Schedule
No. 1-B for wastewater. The related adjustments are shown on Schedule No. 1-C.
Issue 5:
What is the appropriate return on equity and overall
rate of return for LP Waterworks, Inc.?
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 8.30 percent. (Folkman)
Staff Analysis:
The utility’s
capital structure consists of common equity and customer deposits. 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.[5]
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 8.30 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 LP Waterworks, Inc.’s water and wastewater systems?
Recommendation:
The appropriate test year operating revenues are
$190,201 for LP’s water system and $143,112 for the wastewater system. (Bethea)
Staff Analysis:
The utility
recorded total test year operating revenues of $172,065 for water and $124,079
for wastewater. The water revenues included $167,675 of service
revenues and $4,390 of miscellaneous revenues. The wastewater revenues included
$124,080 of service revenues and no miscellaneous revenues.
Subsequent
to the test year, LP was approved for a price index rate adjustment, which was
effective September 1, 2024. Based on staff’s review of the utility’s billing
determinants and the service rates, staff annualized service revenues by
applying the number of billing determinants to the rates in effect as of September
1, 2024. As a result, staff determined test year service revenues
should be $190,201 for water and $143,112 for wastewater. This
results in an increase to service revenue of $18,136 ($190,201 – $172,065) for
water and $19,033 ($143,112 – $124,079) for wastewater.
Staff also annualized
miscellaneous revenues by applying the number of occurrences to the rates in
effect as of September 1, 2024, resulting in
miscellaneous revenues of $5,496. The utility recorded all miscellaneous
revenues to the water system. When both water and wastewater services are
provided, only a single miscellaneous service charge is appropriate. Since
water customers represent approximately 64 percent of the customer base, staff
determined miscellaneous revenues should be allocated as $3,517 for water and
$1,979 for the wastewater system.
Based on the
above, the appropriate test year operating revenues for LP’s water
system are $190,201 ($186,684 + $3,517) and $143,113 ($141,133 + $1,979) for
the wastewater system.
Issue 7:
What are the appropriate operating expense for LP
Waterworks, Inc.?
Recommendation:
The appropriate amount of operating expenses are
$182,112 for water and $134,811 for wastewater. (Folkman)
Staff Analysis:
The utility
recorded operating expense of $177,247 for water and $135,326 for wastewater.
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 – Officers and Directors
(603/703)
The utility recorded Salaries and
Wages - Officers and Directors expense of $6,300 for water and $6,300 for
wastewater. Staff made no adjustments to these amounts and therefore recommends
Salaries and Wages – Officers and Directors expenses of $6,300 for water and
$6,300 for wastewater.
Sludge Removal (711)
The utility recorded $2,420 for
sludge removal. Staff made no adjustments to this amount and therefore
recommends a sludge removal expense of $2,420.
Purchased Power (615/715)
The utility recorded purchased
power expense of $3,520 for water and $7,654 for wastewater. Staff decreased
water to reflect an EUW adjustment of $271. Therefore, staff recommends
purchased power expenses of $3,249 for water and $7,654 for wastewater.
Chemicals Expense (618/718)
The utility recorded chemicals
expense of $505 for water and $3,034 for wastewater. Staff decreased water by
$39 to reflect an EUW adjustment. Therefore, staff recommends chemicals
expenses of $466 for water and $3,034 for wastewater.
Contractual Services – Accounting (632/732)
The utility recorded Contractual
Services - Accounting expense of $262 for water and $263 for wastewater. Staff
made no adjustments to these amounts and therefore recommends Contractual
Services - Accounting expenses of $262 for water and $263 for wastewater.
Contractual Services – Legal (633/733)
The utility recorded Contractual
Services - Legal expense of $150 for water and $150 for wastewater. Staff made
no adjustments to these amounts and therefore recommends Contractual Services -
Legal expenses of $150 for water and $150 for wastewater.
Contractual Services – Testing
(635/735)
The utility recorded Contractual
Services - Testing expense of $524 for water and $0 for wastewater. Staff made
no adjustments to these amounts and therefore recommends Contractual Services –
Testing expenses of $524 for water and $0 for wastewater.
Contractual
Services – Other (636/736)
The utility
recorded Contractual Services - Other expense of $126,147 for water and $97,938
for wastewater. LP is requesting cost recovery for submitting a National
Primary Drinking Water Regulations: Lead and Copper Rule Revision (LCRR)
inventory to the state DEP. On January 15, 2021, the United States
Environmental Protection Agency (EPA) issued the LCRR that amended the Lead and
Copper Rule (40 C.F.R. §§ 141.80 - .93). This amendment requires all water
systems to create an inventory of all service lines. The LCRR also required the
inventory to be sent to the state DEP no later than October 16, 2024. The
utility contracted with U.S. Water Services Corporation (U.S. Water) to perform
this inventory. This project was outside of the normal operations contracted
with U.S. Water. The project was completed and the LCRR inventory was submitted
on October 15, 2024. The invoice for this project is $12,751.51. LP stated this
amount was not included in the O&M expenses filed in this SARC. Since this
project was required by the EPA, the utility has submitted a paid invoice, and
the costs appear reasonable, staff believes LP should be allowed to recover the
project’s costs. Staff increased this amount by $2,550 ($12,751.51/5) for the
water system to reflect a pro forma expense amortized over five years
associated with a required Lead Service Line Inventory, and therefore
recommends a Contractual Services - Other expense of $128,697 for water and
$97,938 for wastewater.
Insurance Expense (655/755)
The utility recorded insurance
expense of $1,057 for water and $1,057 for wastewater. Staff made no
adjustments to these amounts and therefore recommends insurance expenses of
$1,057 for water and $1,057 for wastewater.
Rate Case
Expense (665/765)
The utility recorded
an instant rate case expense of $336 for water and $336 for wastewater. Audit
staff made an adjustment of $362 to reflect the utility’s prior regulatory
commission expense of $698 for the water system as prescribed by Order No.
PSC-2023-0101-PAA-WS.
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 $1,496. The utility stated that its representatives will
not be traveling to the Commission Conference; therefore, staff did not include
travel and lodging expense. Additionally, the utility paid a filing fee of
$2,000.
Staff
recommends a total current rate case expense, consisting of noticing costs and a
filing fee of $1,797 for water and $1,680 for wastewater. When amortized over
four years, this amounts to $449 per year for water and $420 per year for
wastewater. Therefore, staff recommends an increase of $811 for water and $84
for wastewater, resulting in a total regulatory commission expense of $1,147
for water and $420 for wastewater.
Bad
Debt Expense (670/770)
The utility recorded bad debt
expense of $161 for water and $121 for wastewater. Staff notes that it is
Commission practice to calculate bad debt expense using a three-year average
when the information is available.[6] In its
three most-recent Annual Reports (2022, 2023, and 2024), the utility recorded
bad debt expenses of $2,856, ($1,959), and $848 for water and $123, $121, and
$0 for wastewater. Staff calculated the average bad debt expense for these
previous three years to be $582 for water and $81 for wastewater, which
represents an increase of $421 for water and a decrease of $40 for wastewater.
Therefore, staff recommends bad debt expenses of $582 for water and $81 for
wastewater.
Miscellaneous Expense (675/775)
The utility recorded miscellaneous
expense of $15,690 for water and $639 for wastewater. Staff made no adjustments
to these amounts and therefore recommends miscellaneous expenses of $15,690 for
water and $639 for wastewater.
Operation
and Maintenance Expense Summary
The utility recorded test year
O&M expense of $154,652 for water and $119,912 for wastewater. Based on the
above adjustments, staff recommends that O&M expenses be increased by
$3,472 and $44 for water and wastewater, respectively. This results in a total
O&M expense of $158,124 for water and $119,956 for wastewater. Staff’s
recommended adjustments to O&M are shown on Schedule No. 3-D and Schedule
No. 3-E, respectively.
Depreciation Expense
The utility recorded
depreciation expense of $18,414 for water and $11,360 for wastewater. Using the
depreciation rates prescribed in Rule 25-30.140, F.A.C., staff decreased these
amounts by $80 for water and $2,048 for wastewater. Therefore, staff recommends
depreciation expense of $18,334 for water and $9,312 for wastewater.
Amortization Expense of
CIAC
The utility recorded amortization
expense of CIAC of $7,342 for water and $2,228 for wastewater. Staff decreased
amortization expense by $32 for water and $336 for wastewater to reflect
corrected depreciation rates set forth by the Commission. Therefore, staff
recommends amortization expense of CIAC of $7,310 for water and $1,892 for
wastewater.
Taxes Other Than Income (TOTI)
The utility recorded
TOTI of $11,523 for water and $6,282 for wastewater. Audit staff increased
these amount by $314 for water and $25 for wastewater to reflect 2024 property
tax assessments.
Based
on revenues discussed in Issue 6, TOTI should be increased by $816 for water
and $856 for wastewater to reflect a Regulatory Assessment Fee (RAF) rate of
4.5 percent applied to the change in revenues. As such, staff recommends the
appropriate amount of test year RAFs are $8,559 for water and $6,440 for
wastewater.
As discussed
in Issue 9, staff recommends revenues be increased by $22,220 for water and $10,006
for wastewater in order to reflect the change in revenue required to cover
expenses and allow an opportunity to earn the recommended operating margin. As
a result, TOTI should be increased by $311 for water and $272 for wastewater to
reflect RAFs of 4.5 percent of the change in revenues. Therefore, staff
recommends TOTI of $12,964 for water and $7,435 for wastewater.
Operating Expense Summary
The utility recorded
operating expenses of $177,247 for water and $135,326 for wastewater. The
application of staff’s recommended adjustments to the utility’s recommended
operating expense results in a total operating expense of $182,112 for water
and $134,811 for wastewater. Operating expenses are shown on Schedule No. 3-A
for water and Schedule No. 3-B for wastewater, with the related adjustments
shown on Schedule No. 3-C.
Issue 8:
Does LP Waterworks, Inc. meet the criteria for
application of the operating ratio methodology?
Recommendation:
Yes, LP does meet the requirement for application of
the operating ratio methodology for calculating the water and wastewater
revenue requirements. (Folkman)
Staff Analysis:
Rule
25-30.4575(2), F.A.C., provides that, in rate cases processed under Rule
25-30.455, F.A.C., the Commission will use the operating ratio methodology to
establish the utility’s revenue requirement when its rate base is not greater
than 125 percent of O&M expenses, less regulatory commission expense, and
the use of the operating ratio methodology does not change the utility’s qualification
for a SARC.
With respect to LP, staff has recommended a rate base of
$195,680 for water and $136,706 for wastewater. After removal of rate case
expense, staff has calculated an adjusted O&M expense of $156,977 for water
and $119,536 for wastewater. Based on staff’s preliminary recommended amounts,
the utility’s water rate base is 124.66 percent of its adjusted O&M expense
and wastewater rate base is 114.36 percent of its adjusted O&M expense.
Based on this, the utility does qualify for application of the operating ratio
methodology.
Issue 9:
What is the appropriate revenue requirement for LP
Waterworks, Inc.?
Recommendation:
The appropriate revenue requirement is $197,112 for
water and $149,156 for wastewater, resulting in an annual increase of $6,911 (3.63
percent) for water and $6,044 (4.22 percent) for wastewater. (Folkman)
Staff Analysis:
LP
should be allowed an annual increase of $6,911 (3.63 percent) for water and
$6,044 (4.22 percent) for wastewater. This should allow the utility the
opportunity to recover expenses and earn an operating margin of $15,000 for
water and $14,344 for wastewater. The calculations of revenue requirement are
shown on Table 8-1 and Table 8-2.
Table
8-1
Water Revenue Requirement
|
Adjusted O&M Expense
|
$156,977
|
|
Operating Margin (%)
|
12.00%
|
|
Operating Margin ($)
|
$15,000
|
|
Water O&M Expense
|
158,124
|
|
Depreciation Expense
|
18,334
|
|
Amortization
|
(7,310)
|
|
Taxes Other Than Income
|
12,964
|
|
Revenue Requirement
|
$197,112
|
|
Less Test Year Revenues
|
$190,201
|
|
Annual Increase
|
$6,911
|
|
Percent Increase
|
3.63%
|
Source: Staff
calculations.
Table 8-2
Wastewater Revenue Requirement
|
Adjusted O&M Expense
|
$119,536
|
|
Operating Margin (%)
|
12.00%
|
|
Operating Margin ($)
|
$14,344
|
|
Wastewater O&M Expense
|
119,956
|
|
Depreciation Expense
Amortization
|
9,312
(1,892)
|
|
Taxes Other Than Income
|
7,435
|
|
Revenue Requirement
|
$149,156
|
|
Less Test Year Revenues
|
$143,112
|
|
Annual Increase
|
$6,044
|
|
Percent Increase
|
4.22%
|
Source: Staff calculations.
Issue 10:
What are the appropriate rate structures and rates
for LP Waterworks, Inc.?
Recommendation:
Staff recommends that the rate increase of 3.70
percent for water and 4.28 percent for wastewater be applied as an
across-the-board increase to service rates. The recommended rate structure and
monthly water rates are shown on Schedule Nos. 4-A and 4-B. The utility should
file revised tariff sheets and a proposed customer notice to reflect the
Commission-approved rates. The approved rates should be effective for service
rendered on or after the stamped approval date on the tariff sheets pursuant to
Rule 25-30.475(1), F.A.C. In addition, the approved rates should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by the customers. The utility should provide proof of
the date notice was given within 10 days of the date of the notice. (Bethea)
Staff Analysis:
Water Rates
LP is
located in Highlands County within the South Florida
Water Management District. The utility provides water service to
approximately 418 residential customers, 22 general service customers, and 2
private fire protection customers. Approximately 54 percent of the residential
customer bills during the test year had zero gallons, indicating a highly
seasonal customer base. The average residential water demand is 1,102 gallons
per month. The average water demand, excluding zero gallon bills, is 2,394
gallons per month. Currently, the utility’s water rate structure consists of a
monthly base facility charge (BFC) and a two-tier inclining block rate
structure, which includes separate gallonage charges for discretionary and
non-discretionary usage for residential water customers. The rate blocks are:
(1) 0-3,000 gallons; and (2) all usage in excess of 3,000 gallons per month.
The general service rate structure consists of a monthly BFC and a uniform
gallonage charge.
LP
in its application did not request a change in the percent BFC allocation. In
its 2022 SARC, the Commission approved that 60 percent of the revenue
requirement by recovered through the BFC because of the very seasonal customer
base coupled with low average consumption. Due to the continued customers’ low
average monthly consumption and high seasonal customer base, staff recommends a
continuation of the existing rate structure, BFC allocation, and the percentage
increase be applied as an across-the-board increase to existing service rates. To
determine the appropriate percentage increase to apply to the service rates,
miscellaneous revenues should be removed from the test year revenues.
|
Water
|
|
Total
Test Year Revenues
|
$190,201
|
|
Less:
Miscellaneous Revenues
|
$3,517
|
|
Test
Year Revenues from Service Rates
|
$186,684
|
|
Revenues
Increase
|
$6,911
|
|
%
Service Rate Increase (Line 4/ Line 3)
|
3.70%
|
Wastewater
Rates
LP provides
wastewater service to approximately 360 residential customers and 17 general
service customers. Currently, the residential wastewater rate
structure consists of a uniform BFC for all meter sizes and a gallonage charge
with a 6,000 gallon cap per month. The general service rate structure consists
of a BFC by meter size and a gallonage charge that is 1.2 times higher than the
residential gallonage charge.
In
addition, for the same reasons provided for the water system, staff recommends
a continuation of existing rate structure and the percentage increase be
applied as an across-the-board increase to existing service rates. To determine
the appropriate percentage increase to apply to the service rates,
miscellaneous revenues should be removed from the test year revenues.
|
Wastewater
|
|
Total
Test Year Revenues
|
$143,112
|
|
Less:
Miscellaneous Revenues
|
$1,979
|
|
Test
Year Revenues from Service Rates
|
$141,133
|
|
Revenues
Increase
|
$6,044
|
|
%
Service Rate Increase (Line 4/ Line 3)
|
4.28%
|
Based on the above, staff recommends that the
rate increase of 3.70 percent for water and 4.28 percent for wastewater be
applied as an across-the-board increase to service rates. The
recommended rate structure and monthly water rates are shown on Schedule Nos. 4-A
and 4-B. The utility should file revised tariff sheets and a proposed customer
notice to reflect the Commission-approved rates. The approved rates should be
effective for service rendered on or after the stamped approval date on the
tariff sheets pursuant to Rule 25-30.475(1), F.A.C. In addition, the approved
rates should not be implemented until staff has approved the proposed customer
notice and the notice has been received by the customers. The utility should
provide proof of the date notice was given within 10 days of the date of the
notice.
Issue 11:
What is the appropriate initial customer deposits
for LP Waterworks, Inc.?
Recommendation:
The appropriate initial customer deposit
should be $54 for the 5/8 inch x 3/4 inch meter size for water and $64 for the 5/8
inch x 3/4 inch meter size for wastewater. The initial customer deposit for all
other residential meter sizes and all general service meter sizes should be two
times the average estimated bill for water. The approved initial customer
deposits should be effective for connections made on or after the stamped
approval date on the tariff sheets pursuant to Rule 25-30.475, F.A.C. The utility
should be required to collect the approved deposits until authorized to change
them by the Commission in a subsequent proceeding. (Bethea)
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.[7] Currently,
the utility’s initial deposit for water customers is $48 for the 5/8 inch x 3/4
inch meter size and two times the average estimated bill for the general
service customers. For wastewater, the utility’s initial deposit is $50 for the
5/8 inch x 3/4 inch meter size and two times the average estimated bill for the
general service customers. However, this amount does not cover two months’
average bills based on staff’s recommended rates. Based on the staff
recommended rates the appropriate initial customer deposit should be $54 for
water and $64 for wastewater to reflect an average residential customer bill
for two months. The monthly average residential water bill is $26.78 and the monthly
average residential wastewater bill is $31.65
Based on the above, the appropriate initial customer
deposits for the residential 5/8 inch x 3/4 inch meter size are $54 for water
and $64 for wastewater. The initial customer deposit for all other residential
meter sizes and all general service meter sizes should be two times the average
estimated bill for water. The approved initial customer deposits should be
effective for connections made on or after the stamped approval date on the
tariff sheets pursuant to Rule 25-30.475, F.A.C. The utility should be required
to collect the approved deposits until authorized to change them by the
Commission in a subsequent proceeding.
Issue 12:
What 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 as required by Section 367.081(8),.F.S.?
Recommendation:
The rates should be reduced as shown on Schedule Nos.
4-A and 4-B, 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. LP should be required to file revised tariffs and a
proposed customer notice setting forth the lower rates and rationale no later
than one month prior to the effective date of the new rates. If the utility
files revised tariffs reflecting this reduction in conjunction with a price
index or pass-through rate adjustment, separate data should be filed for the
price index and or pass-through increase and the reduction in the rates due to
the amortized rate case expense. (Folkman, Bethea)
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 $470 for water and $440 for wastewater.
Staff recommends that the rates should be reduced as shown
on Schedule Nos. 4-A and 4-B, 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. LP 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 13:
Should the
recommended rates be approved for LP Waterworks, Inc. 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. LP should file
revised tariff sheets and a proposed customer notice reflecting the
Commission-approved rates. The approved rates should be effective for services
rendered on or after the stamped approval date on the tariff sheet, pursuant to
Rule 25-30.475(1), F.A.C. In addition, the temporary rates should not be
implemented until staff has approved the proposed notice, and the notice has
been received by the customers. Further, prior to implementing any temporary
rates, the utility should provide appropriate financial security.
If the recommended rates are approved on a temporary
basis, the rates collected by the utility should be subject to the refund
provisions discussed below in the staff analysis. In addition, after the
increased rates are in effect, pursuant to Rule 25-30.360(6), F.A.C., the utility
should file reports with the Commission’s Office of Commission Clerk no later
than the 20th of each month indicating both the current monthly and total
amount subject to refund at the end of the preceding month. The report filed
should also indicate the status of the security being used to guarantee
repayment of any potential refund. (Folkman)
Staff Analysis:
This
recommendation proposes an increase in rates. A timely protest might delay a
rate increase resulting in an unrecoverable loss of revenue to the utility.
Therefore, pursuant to Section 367.0814(7), F.S., in the event of a protest
filed by a party other than the utility, staff recommends that the proposed
rates be approved on a temporary basis. LP should file revised tariff sheets
and a proposed customer notice reflecting the Commission-approved rates. The
approved rates should be effective for service rendered on or after the stamped
approval date on the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C. In
addition, the temporary rates should not be implemented until staff has
approved the proposed notice, and it has been received by the customers. The
additional revenue produced by staff’s recommended rates and collected by the utility
should be subject to the refund provisions discussed below.
LP 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 $15,241 for water and $6,863 for wastewater. 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 14:
Should LP Waterworks, Inc. 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. LP should be required to notify the Commission,
in writing, that it has adjusted its books in accordance with the Commission’s
decision. The utility should submit a letter within 90 days of the Commission’s
final order in this docket, confirming that the adjustments to all applicable
NARUC USOA primary accounts have been made to the utility’s books and records.
In the event the utility needs additional time to complete the adjustments, a
notice providing good cause should be filed not less than seven days prior to
the deadline. Upon providing a notice of good cause, staff should be given
administrative authority to grant an extension of up to 60 days. (Folkman)
Staff Analysis:
LP should be required to notify the Commission, in
writing, that it has adjusted its books in accordance with the Commission’s
decision. The utility should submit a letter within 90 days of the Commission’s
final order in this docket, confirming that the adjustments to all applicable
NARUC USOA primary accounts have been made to the utility’s books and records.
In the event the utility needs additional time to complete the adjustments, a
notice providing good cause should be filed not less than seven days prior to
the deadline. Upon providing a notice of good cause, staff should be given
administrative authority to grant an extension of up to 60 days.
Issue 15:
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 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. In addition, this docket should remain
open until the report with the summary of the results of the customer meeting
has been submitted by the utility. Once these actions are complete, this docket
should be closed administratively. (Imig)
Staff Analysis:
If no person whose
substantial interests are affected by the proposed agency action files a
protest within 21 days of the issuance of the 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. In addition, this docket should remain open until the report
with the summary of the results of the customer meeting has been submitted by
the utility. Once these actions are complete, this docket should be closed
administratively.
