HomeMy WebLinkAboutHandouts_Regular_08/09/2007
Report on Utility Billing Issue Under
Village Ordinance No. 547
Rose, Sundstrom & Bentley, LLP
August 9, 2007
~ ~ ~ ~ ~ i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Scope of Services
• Introduction to Rose, Sundstrom & Bentley
• Scope of Investigation:
- Review of current and prior ordinances
- Review of current and prior Rate Studies
- Review of 1999 Council Agenda Package
- Discussions with Rate Consultant
- Interviews with staff
- Legal research and analysis
~ ~ ~ ~ ~ ~ ' ~ ~ ~ ~ ~ ~ ~ r ~ ~ ~ ~
Presentation
• Explain the issue
• Background information
- Prior ordinances
- Rate Study
• Explanation of rate setting
• Law on the subject
• Findings of Investigation
• Recommendations
The Issue
• Narrow water system billing issue affecting certain customers:
Meter Size Single Family Customers
5/8" 3858
3/4" 310
1" 217
1 1 /2" 4
2" 1
• Residential water customers with meters 1" or larger are billed based on a
rate structure inconsistent with Ordinance No. 547
Meter Size Block 1 Block 2 Block 3
5/8" 0-12,000 12,001-25,000 25,001-40,000
3/4" 0-12,000 12,001-25,000 25,001-40,000
1 " 0-30, 000 30, 001-62, 000 62, 001-100, 00
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ r ~ ~ ~ ~
Prior Ordinances
• 1995 -Ordinance No. 482
• 1997 -Ordinance No. 529
• Historically separated residential and non-
residential rate schedules
• Demand on system by residential customers
the same regardless of meter size.
Rate Study
• Village of Tequesta Florida Water Rate
Evaluation dated August, 1999 prepared by
Public Resources Management Group.
• Recommended changes to both residential
and non-residential rates.
• Did not recommend a change in the
residential rate structure.
Rate Studv «o~t•d,
• Letter dated May, 2007 from PRMG the
Village Manager:
"It appears that in drafting the Current
Rate Ordinance, the Village may have
copied the commercial water quantity
charges inadvertently into the residential
component of the Current Rate
Ordinance. "
Agenda Package
• September, 1999, memorandum from Utility
Director Matthew Morrison:
"The Ordinance codifies PRMG's
recommended changes in Chapter 18-3
of the Village Code. "
• Attachment 3 did not state that consumption
blocks were to be adopted for residential
customers. and was consistent with Rate
Study recommendations.
Municipal Rate Setting Authority
• Article VIII, Section 2(b), Florida Constitution
and Chapters 166 and 180 Florida Statutes
• City may establish just and equitable rates or
charges to be paid for the use of utility
• Little guidance in case law regarding a
mistake in drafting ordinance
Implementation of
Ordinance No. 547
• Utility Department implemented provisions
consistent with Rate Study.
. Utility Department never implemented rate
structure for residential customers dependent
on meter size.
Rate Setting Case Law
• Federal Power Commission v. Hope Natural Gas Co.
Under the statutory standard of `just and reasonable' it is
the result reached not the method employed which is
controlling....lt is not theory but the impact of the rate order
which counts....The fact that the method employed to reach
that result may contain infirmities is not then important.
• City of Pompano Beach v. Oltman
[L]ike other actions taken by legislative bodies, a utility rate
ordinance is presumed valid...
Rate Setting Principles
• Utility system funding:
- Impact fees
- Customer rates (and miscellaneous charges).
• Two distinct aspects of rate-making:
• Step 1: Development of revenue requirement
• Money a utility must collect to pay its bills.
• Five year planning horizon and determination of annual
revenue requirement.
Rate Setting Principles c<o~~d,
• Operating and maintenance expenses (labor,
power, chemicals... )
+ General and administrative expenses
(management, human resources, risk
management... )
+ Debt Service (bond payments)
+ Rana~nial and RAnla~Amant (rACArvACI
= Revenue Requirement
Rate Setting Principles ,~o~t~d,
• Step 2: Allocation of cost to customers
through rates.
- Costs are fixed or variable.
• Fixed costs (e.g. debt) in base monthly charge
• Variable costs (e.g. power) in gallonage charge.
- Rate structure equitably allocates revenue
requirement among customer classes based on
demand they place on system.
Discussion of the Case
• No information has been found that Rate Study was
incorrect.
• The revenue requirement and rate structure were
implemented in a manner consistent with the Rate
Study (although not Ordinance No. 547)
• If Rate Study was correct, and rates were collected
in accordance with Rate Study, the rates and
revenues collected from Village customers were
correct as well.
• The subject rate was therefore consistent with the
recommendations of staff and the rate consultant,
and was just, reasonable and appropriate.
Discussion of the Case ,~o~~•d,
• Had Ordinance No. 547 been implemented as
written, Village would have a revenue shortfall.
• All customer rates would have had to be increased
to cover the shortfall in revenue.
• Result: all rate payers would subsidize the
residential customers with 1 " meters.
• As it is, no class of customer was improperly
benefited or harmed by the Village's billing practice.
• Under the statutory standard of `just and reasonable'
it is the result reached, not the method employed,
which is controlling.
Findings and Conclusions
• Rate Study did not recommend changing the
Village's billing practices.
• Based on the weight of the evidence Ordinance No.
547 inadvertently incorporated the non-residential
consumption blocks into the residential billing.
• There is no reason to believe Council intended to
deviate from recommendations of staff, rate
consultant and prior practice.
Findings and Conclusions
• Following adoption of Ordinance No. 547,
Village's billing practices remained consistent
with general rate making principles.
• Based upon the Rate Study, rates charged
by the Village following Ordinance No. 547
were reasonable and non-discriminatory.
Recommendations
• Adopt a corrective ordinance
• Revise internal Village procedures for
drafting/implementing ordinances
• Follow up on the Rate Consultant's
recommendations regarding billing system