percent on its utility investment. During the pendency of this proceeding, the Florida Public Service commission ("Commission") authorized an interim rate increase under bond for Petitioner of $34,644.00, before taxes. This proceeding is to determine the amount of Petitioner's utility investment which is used and useful, and on which the utility is entitled to an opportunity to earn a fair and compensatory rate of return, and, additionally, to determine the amount of the rate of return to be allowed to Petitioner.
Because of certain stipulations and agreements entered into between Petitioner and the Commission, no witnesses were called by either party to this proceeding. Petitioner and the Commission have, however, agreed to incorporate into the record of this proceeding all attachments and exhibits within the Appendix to the Petition, all adjustments, amendments and substitutions thereto filed or made a part of the Commission's docket herein, and each other document, exhibit, stipulation, pleading and order made a part of or filed in the Commission's docket.
On or about July 7, 1980, Timberland Utilities (hereinafter "Petitioner") filed a petition for permanent rate relief and immediate interim rate relief with the State of Florida, Public Service Commission (hereinafter "Commission") seeking authority to increase its authorized rates to realize an increase in authorized revenues from the provision and sale of natural gas to its customers within its service area pursuant to chapter 366, Florida Statutes.
Petitioner is a public utility as that term is defined within Section 366.02, Florida Statutes.
Petitioner provides and sells natural gas to its subscribing customers within its service area which comprises Cantonment, Florida, and the immediately surrounding rural and unincorporated territory in Escambia County, Florida.
Petitioner was last granted permanent rate relief by the Commission on or about June 25, 1975, pursuant to Commission Order No. 6746, Docket No. 74768- GU.
For purposes of this proceeding the Commission authorized Petitioner to use the twelve months beginning January 1, 1979 through and including December 3, 1979 as the test year period for this proceeding.
During the test period, at its existing rate structure Petitioner experienced a loss in net operating income of $24,680.00.
On or about September 4, 1980, the Commission authorized an interim rate increase under bond for Petitioner of $34,644.00, before taxes, pursuant to the Commission's Order No. 9520, Docket No. 800200-GU.
Petitioner and the Commission have agreed on the following salient points:
Capital Structure and Rate of Return
The capital structure as of December 31, 1979, is:
WEIGHTED
AMOUNT RATIO | COST | COST |
Partner's Equity | $137,465 | 55.18 | 12.34 | 6.81 |
Short Term Debt | 96,280 | 38.65 | 13.46 | 5.20 |
Customer Deposits | 15,381 | 6.17 | 8.00 | .49 |
| $249,126 | 100.00 |
| 12.50 |
The Commission has agreed to accept Petitioner's proposed overall return of 12.50 percent based on the year end 1979 capital structure.
Rate Base
The Petitioner and Commission agree on the following rate base as proposed by the Petitioner and adjusted by the Commission.
Utility's adjusted year end Rate Base: $359,485.00 Commission adjustments (explained below): $ 79,007.00 Rate Base (December 31, 1979): $280,478.00
Calculation of 13 Months Average Plant in Service:
Petitioner used a year end rate base in determining its requested rate relief whereas a 13-month average rate base is more appropriate. A 13-month rate base has been calculated which has the effect of increasing the Petitioner's rate base by $24,584.00.
Extraordinary Property Loss:
During the last month of the test year, Petitioner abandoned certain cathodic protection plant which was not used and useful. This was the result of a show-cause proceeding in Docket No. 79-650-GU, regarding the noncompliance with certain rules and regulations related to the cathodic protection of its distribution system. Since this plant was retired during the last month of the test year, it was not included in Petitioner's rate base but is included in the 13-month average rate base. This plant was not used and useful during the test year, therefore, it would be appropriate to remove it from plant in service together with the related reserve for depreciation which results in a net reduction to rate base in the amount of $19,268.00.
Pro Forma Plant Adjustment - 1981 and 1982 Construction Labor:
Petitioner included in its pro forma plant adjustment $23,380.00 and
$14,476.00 for estimated 1981 and 1982 labor for constructing its replacement of abandoned plant in service related to its cathodic protection system. Since this adjustment relates to estimated expenditures, so far removed from the test year, it should be disallowed from Petitioner's constructed rate base.
Meter and Regulator Change Out:
Petitioner included in its pro forma plant adjustment $33,523.00 and
$9,900.00 for changing out 683 meters and regulators, or virtually all of its meters and regulators. Petitioner is only required by Commission rules and regulations to change out 10 percent of its meters and regulators each year or a complete change out over a 10-year period. Because of the plant replacement program being undertaken currently, Petitioner has deferred this change out.
However, in order to make the test period as normal as possible, it would be appropriate to allow at least a 10 percent change out, or approximately 70 meters and regulators, which would require a reduction in Petitioner's constructed rate base of $38,453.00.
Plant In Service - Credit Memo
Subsequent to its test year, Petitioner received a credit memo from Sherrod and Associates for work performed during the test year and recorded in plant. Therefore, it is appropriate to reduce test year plant in service by
$600.00.
Plant In Service - Misclassified Expenses:
During the test year, Petitioner classified certain expenditures totalling $1,213.00 which more appropriately should have been expensed. This adjustment also affects the Company's Pro Forma Expense Adjustment No. (f), related to annual surveys and is discussed under Net Operating Income Adjustment No. (f).
Plant In Service - Radio Tower:
Petitioner recorded on its books a radio tower which was owned by a previous partner and not used by the utility. Petitioner and the Commission agreed to reduce Petitioner's rate base by the net cost of $124.00.
and Working Capital - 1/8 Operating and Maintenance
and Tax Lag:
Because of certain adjustments to operating and maintenance expenses together with two items involving taxes other than income taxes, which were improperly classified as operating expenses, it is appropriate to reduce the allowance by $804.00. Also, since adjustments were made to income taxes, it is also appropriate to reduce rate base for the related tax lag in the amount of
$273.00.
Net Operating Income
The Petitioner shows a net operating loss of $24,680.00 for the test year. The commission has made adjustments of $38,616.00 as described below to show an adjusted net operating income of $19,936.00. The utility has accepted these adjustments which are:
Interim Increase in Revenues:
Petitioner was authorized by Order No. 9520, issued September 4, 1980, to increase its rates on an interim basis, which would generate $34,644.00 in additional annual revenues. N.O.I. was increased by this amount less related revenue taxes of $34,081.00.
Insurance Expense:
Subsequent to the test year, Petitioner changed insurance agents resulting in lower insurance rates in the amount of $2,453.00. N.O.I. was adjusted by this amount which is proper to reflect known changes.
Non-Utility and Out-of-Period Expenses:
During the test year, Petitioner recorded as operating expenses
$1,118.00 which related to a prior period and non-utility expenses. Therefore, it is appropriate to reduce expenses by this amount.
Depreciation Expense:
During the test year, Petitioner depreciated certain plant that was abandoned subsequent to the test year. The abandoned plant was removed from plant as a pro forma adjustment but the related depreciation expense was not adjusted. Depreciation expense was accordingly reduced by $1,698.00, since it is nonrecurring in nature.
Amortization Expense:
Petitioner originally included certain items in its extraordinary property loss account, which more appropriately should have received normal retirement treatment. Since these items were improperly included in the amortization of these property losses, Petitioner and the Commission have agreed to reduce same by $298.00.
Pro Forma Survey & Consultant Fees:
Petitioner made a pro forma adjustment to this expense to reflect a normal recurring cost of performing annual surveys. Petitioner stated that the annual recurring amount was $1,952.00 but it recorded only $950.00 for the test year, because of $1,213.00 in expenses misclassified as plant in service during the test year. After adjusting the Company's pro forma adjustment, the effect is to reduce this expense by $211.00.
State and Federal Income Taxes:
Petitioner was originally organized as a partnership and has not been subject to state and federal income taxes. However, effective January 1, 1981, Petitioner plans to incorporate and will be subject to these taxes. Net operating income, therefore, has been adjusted to recognize income taxes as a proper expense in the amount of $1,243.00.
Rate Design
(a) Petitioner and the Commission have agreed to the use of flat rates for residential and commercial rate schedules.
Petitioner and the Commission have agreed to eliminate the net gross billing feature for residential and commercial rate schedules.
Petitioner has agreed that its tariff should be revised to comply with current Commission rules, practices and procedures.
Petitioner has agreed that revised pages 75, 76, 86, 88, 89 in the "R" section of the MFR's will be filed consistent with discussion with Commission staff at Petitioner-Staff conference.
Petitioner has agreed with the Commission to increase the connection and reconnection charges for village and rural service areas to $10.00 and
$15.00, respectively.
Petitioner and the Commission have agreed that the N.O.I. deficiency, expansion factor and revenue requirements are as follows:
Timberland Utilities Revenue Requirements Calculation
Staff Adjusted Rate Base: $ 280,478.00 Rate of Return (Requested by Petitioner):
12.5 percent
Required N.O.I.: $ 35,060.00
Staff Adjusted N.O.I.: 13,936.00
N.O.I. Deficiency $ 21,124.00
N.O.I. Deficiency at 17 percent Rate: $ 17,570.00 Expansion Factor at 17 percent F.I.T. Rate:
:- 78.0888 percent
Revenue Requirements: $ 22,500.00
N.O.I. Deficiency at 20 percent Rate: $ 3,554.00 Expansion Factor at 20 percent F.I.T. Rate:
:- 75,3553 percent
Revenue Requirements $ 4,716.00 TOTAL ADDITIONAL REVENUE REQUIREMENTS: $ 27,216.00
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes.
Petitioner is a public utility as defined by Section 366.02, Florida Statutes, and is, therefore, subject to the jurisdiction of the Commission pursuant to Chapter 366, Florida Statutes, the substantive provisions of which control this proceeding.
Petitioner is entitled to a rate structure and authorized revenues which will afford it an opportunity to earn a reasonable and fair rate of return on the value of its invested capital and property used and useful in its utility operations. Operating under its presently authorized rate structure and schedule which has been in effect since on or about June 25, 1975, Petitioner will effectively be deprived of an opportunity to realize a fair and reasonable return on its invested capital and property used and useful in its utility operations and a continuation of the present rate structure and schedule would be confiscatory.
Based upon the record herein and the above and foregoing findings of fact, Petitioner has demonstrated entitlement to affirmative rate relief and an increase in authorized revenues is justified, warranted and reasonable to allow Petitioner an opportunity to earn a fair rate of return. Further and additional authorized revenue of $27,216.00 are required by Petitioner, in addition to the interim rate increase heretofore authorized by the Commission, to authorize and allow Petitioner a 12.50 percent rate of return which is reasonable and justified under the record herein and will provide Petitioner an opportunity to earn a fair rate of return on the value of its invested capital and property used and useful in its utility operations.
