Judges: D. R. ALEXANDER
Agency: Public Service Commission
Latest Update: Dec. 04, 1980
Summary: Water and sewer utility application for rate increase approved.
80-1195.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
PONDEROSA PARKS, INC., )
)
Petitioner, ) CASE NO. 80-1195
) DOCKET NO. 791057-WS
vs. )
) CASE NO. 80-1196 FLORIDA PUBLIC SERVICE ) DOCKET NO. 790625-W COMMISSION, )
)
Respondent. )
)
RECOMMENDED ORDER
PURSUANT TO NOTICE, an administrative hearing was held before DONALD R. ALEXANDER, Hearing Officer with the Florida Public Service Commission, on June 24, 1980 in New Port Richey, Florida, (1) on the application of Ponderosa Parks, Inc. for an increase in rates and charges for water and sewer service provided to its customers in Pasco County, pursuant to Section 367.081, Florida Statutes, and (2) on the investigation of the rate structure for water service provided by Ponderosa Parks, Inc. to its customers in Pasco County. On July 1, 1980 the matters were transferred to the Division of Administrative Hearings, but continue to be assigned to Donald R. Alexander, as DOAH Hearing Officer, for a recommended order.
APPEARANCES
For Petitioner: G. Frank Parker, Jr. For Respondent: Paul Sexton, Esquire
By Order No. 9009 in Docket No. 790625-W, dated August 8, 1979 the Public Service Commission initiated an investigation of the rate structure of Ponderosa Parks, Inc. for water service provided to its customers in Pasco County. That order also required Ponderosa to file certain accounting, engineering and rate data prescribed in Rule 25-10.76, Florida Administrative Code, for the purpose of assisting the Commission establish permanent water rates for the utility at the conclusion of the investigation. This information was filed on December 26, 1979. Concurrently the utility filed an application seeking additional water revenues of $1,260 and additional sewer revenues of $4,293. By Order No. 9216, in Docket No. 791057-WS dated January 23, 1980, the Commission suspended the proposed rate schedules of the utility pursuant to Section 367.081(5), Florida Statutes, pending further order of the Commission and consolidated the two dockets for hearing purposes. The issues to be determined are whether the utility's water and sewer service meets all relevant quality standards, the establishment of an appropriate rate structure for the utility, and what amount of revenue is just, reasonable, compensatory, and not unjustly discriminatory in accordance with Section 367.081(2), Florida Statutes.
FINDINGS OF FACT
Quality of Service
Of more than 250 customers presently served by the utility, only four customers testified at the hearing. Two were concerned that water and sewer rates were already too high and no further increase in rates should be allowed, a third complained of the utility's water having a bad taste and odor, while the fourth objected to an odor emanating from the utility's sewerage treatment plant approximately one year ago. Additionally, a number of deficiencies in the quality of service were identified by the Commission in Order No. 9216, supra. However, all deficiencies have now been resolved to the Commission staff engineer's satisfaction. Based on the entire record, the evidence supports a finding that the utility's water and sewer service is satisfactory.
Rate Base
Petitioner has proposed a rate base of $10,897 and $36,832 respectively for its water and sewer operations for the twelve months ending June 30, 1979, which is the test period in this proceeding. The Commission staff proposed five further adjustments to water and sewer rate base, none of which were contradicted by the utility. These adjustments affect plant in service, accumulated depreciation, contributions in aid of construction (CIAC), accumulated depreciation on CIAC and the working capital allowance. The adjustments are supported by the record, and should be accepted. The following schedule portrays the adjusted rate base for the utility's water and sewer operations, and the basis for each of the adjustments made in arriving at those amounts.
Ponderosa Parks, Inc.
Average Rate Base Year Ending June 30, 1979
WATER
ADJUST TEST
UTILITY ADJUST. YEAR
Utility Plant |
| $52,293 | 9,142 | (1) | $61,435 |
Accum. Deprec. |
| (9,335) | (1,055) | (2) | 10,390 |
CIAC |
| (33,926) | (5,938) | (3) | (39,864) |
Accum. Deprec.- | CIAC | -0- | 6,742 | (4) | 6,742 |
Working Capital |
| 1,865 | 60 | (5) | 1,925 |
Rate Base |
| $10,897 |
|
| $19,848 |
|
|
| SEWER |
|
ADJUST |
|
|
|
|
| TEST |
|
| UTILITY | ADJUST. | YEAR |
Utility Plant |
| $92,962 | ($15,631)(6) | $77,331 |
Accum. Deprec. |
| 18,270 | 5,718 (7) | (12,552) |
CIAC |
| (39,188) | 254 (8) | (38,934) |
Accum. Deprec.- | CIAC | -0- | 6,320 (9) | 6,320 |
Working Capital |
| 1,328 | (215)(10) | 1,113 |
Rate Base $36,832 $33,270
Adjusts water plant in service by (a) reallocating a portion of sewer plant to water operations, (b) readjusting the cost of certain water meters, and (c) adjusting the plant accounts from a year-end basis to a 13-month average balance.
Adjusts accumulated depreciation to (a) reflect the use of a composite depreciation rate of 2.5 percent of all water plant and lines except meters for which a 2.63 percent rate is used, and (b) restate the balance in the account using a 13-month average balance in lieu of year-end balance.
Adjusts contributions in aid of construction by (a) restating an amount previously improperly booked as revenues during the years 1970-1974, and
(b) restating the year-end balance to a 13-month average.
Adjusts the balance in the accumulated depreciation on CIAC account to reflect the use of a 13-month average rather than a year-end balance.
Recomputes the working capital allowance to reflect one-eighth of adjusted operating and maintenance expenses.
Adjusts sewer plant in service by (a) reallocating certain water lines from sewer to water operations, (b) removing certain non-utility land from the land account, (c) deleting that portion (50 percent) of the sewage treatment costs not used and useful in providing sewer services, and (d) adjusting the plant accounts from a year-end balance to a 13-month average balance.
Adjusts accumulated depreciation by (a) using a 2.5 percent composite depreciation rate on all sewer plant and lines except for a 2.63 percent rate on meters, and (b) reflecting the use of a 13-month average in said account.
Adjusts contributions in aid of construction by (a) adding to that account contributions previously recorded as revenues in 1970-1974, and (b) using a 13-month average in lieu of a year-end balance.
Restates accumulated depreciation on CIAC by using a 13-month average in lieu of a year-end balance.
Recomputes the working capital allowance to reflect one-eighth of operating and maintenance expenses.
Net Operating Income
Petitioner's Exhibit No. 1 shows adjusted test year gross operating revenues of $20,370 for water operations and $14,692 for sewer operations. The utility's net operating income for the same time period on water and sewer services was $1,282 and $48 respectively. Staff Exhibit Nos. 2 and 4 make adjustments to operating revenues, operating and maintenance expenses, depreciation expense, and taxes other than income, none of which were contested by the utility. The record supports a finding that these adjustments are appropriate, and should be accepted. The following schedule shows the net operating income of the utility for the year ending June 30, 1979 and the derivation of those amounts.
Ponderosa Parks, Inc.
Average Rate Base Year Ending June 30, 1979
WATER
ADJUST TEST
UTILITY ADJUST. YEAR
Operating Revenues $20,370 2,083(1) $18,287 Operating Expenses:
Operation 16,137 (736)(2) 15,401
Depreciation 1,663 (1,119)(3) 544
Taxes other than 1,228 (52)(4) 1,236 Income
Net Operating Income $ 1,282 $ 1,106
SEWER
ADJUST TEST
UTILITY ADJUST. YEAR
Operating Revenues $14,692 4,293 (5) $10,399 Operating Expenses:
Operation 10,121 (1,216)(6) 8,905
Depreciation 2,741 (1,781)(7) 960
Taxes other than 1,783 (107)(8) 1,675 Income
Net Operating Income $ 48 $ 1,141
Adjusts test year water revenues by (a) removing that amount requested by the utility to show actual results of operations, and (b) reflecting a new surcharge rate (66/1000 gal.) charged by Pasco Water Authority.
Adjusts operating and maintenance expenses by (a) removing costs associated with excessive unaccounted for water, (b) disallowing purchased water costs related to a prior accounting period, and (c) annualizing the new cost of water ($1.03/1000 gal.) purchased from Pasco Water Authority.
Adjusts depreciation expense by (a) reflecting a composite depreciation rate of 2.5 percent for plant and lines and 2.63 percent for meters, and (b) removing depreciation expense on CIAC from operating expenses in accordance with Section 367.081(2) Florida Statutes (1980).
Adjusts taxes other than income taxes by removing gross receipts taxes associated with the requested revenues previously removed in item (1)(a) above. However, an appropriate amount of taxes ($52) should be added back after the new revenue requirements are determined.
Adjusts test year sewer revenues by removing the
revenues requested by the utility to show actual results of operations.
Adjusts operating and maintenance expenses by amortizing the cost of nonrecurring repair work over a 3-year period instead of charging the total cost to test year operations.
Adjusts depreciation expense by (a) recomputing the balances using a 2.5 percent composite depreciation rate for all sewer plant and lines except
for a 2.63 percent rate on meters, and (b) removing depreciation expense on CIAC in accordance with Section 367.081(2), Florida Statutes (1980).
Restates taxes other than income by removing gross receipts taxes associated with the requested revenues previously removed in item (5). However, an appropriate amount of taxes ($107) should be added back after the new revenue requirements are determined.
Cost of Capital
Ponderosa has not requested a specific rate of return on utility investment. However, the requested revenues on water operations equate to a rate of return of 11.76 percent on water rate base while the requested amount of sewer revenues produces a rate of return on sewer operations of 9.15 percent. The utility and Commission staff agree such returns are reasonable given the circumstances of this proceeding. These rates of the returns are supported by the record, and should be used.
Revenue Requirements
The application of a 11.76 percent rate of return to the adjusted rate base for water operations reflects the utility is entitled to increase its water revenues by $1,260 in order to achieve that return. Similarly, it is necessary to increase sewer revenues by the amount requested, or $4,293, to produce the requested return of 9.15 percent. The utility should be permitted to revise its tariffs to generate these amounts of additional revenues.
Rate Structure
The utility's present rate structure imposes a minimum charge for the first 3,000 gallons of water used, and a gallonage charge for each 1000 gallons thereafter. Sewer charges for residential customers are presently assessed on a flat rate basis irrespective of the usage of the individual customer. This type of rate structure has two inherent deficiencies. First, it offers no means by which a customer may control the amount of his bill by consuming more or less amounts of water. Second, it fails to allocate in a fair and impartial manner the minimum costs associated with providing water and sewer service. A base facilities charge will remedy these deficiencies. Under this structure, a minimum charge will be imposed for the purpose of recovering the fixed or base costs of providing water and sewer service, such as depreciation, taxes and a portion of billing and customer accounting expenses. Thereafter, a charge for each thousand gallons used will be made. The latter charge will cover costs relating to purchased water, transmission and treatment expenses, and a portion of billing, collecting and customer accounting expenses. This type of rate structure is supported by the evidence, and should be used.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the petitioner and the subject matter of this proceeding.
The quality of service rendered by the utility is satisfactory and meets all applicable standards.
The water rate base of the utility for the test period is $19,848.
The sewer rate base of the utility for the test period is $33,278.
A fair rate of return on the water and sewer rate base is 11.76 percent and 9.15 percent respectively.
The utility is entitled to increase water revenues by $1,260 and sewer revenues by $4,293.
These revenues are just, reasonable, compensatory, and not unjustly discriminatory in accordance with Section 367.081(2), Florida Statutes.
The base facilities charge constitutes a fair and reasonable rate structure in accordance with Section 367.081(2), Florida Statutes.
RECOMMENDATION
Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Ponderosa Parks, Inc., 301 Embassy
Boulevard, Port Richey, Florida 33568, be granted and that the utility be
authorized to file new tariffs to be approved by the Florida Public Service Commission that will generate additional annual gross water revenues of $1,260 and additional annual gross sewer revenues of $4,293. It is further
RECOMMENDED that the utility be required to implement a base facility charge in structuring its water and sewer rates.
THIS RECOMMENDED ORDER entered on this 21st day of July, 1980, in Tallahassee, Florida.
DONALD R. ALEXANDER
Hearing Officer
Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
Docket for Case No: 80-001195
Orders for Case No: 80-001195
