Letter dated Oct. 17, 1996 re:  Proposed Public Service Commission Margin Reserve Rule

Material Information

Letter dated Oct. 17, 1996 re: Proposed Public Service Commission Margin Reserve Rule


Subjects / Keywords:
South Florida ( local )
Commissioners ( jstor )
Financial margins ( jstor )
Business executives ( jstor )
Spatial Coverage:
North America -- United States of America -- Florida


Jake Varn Collection - Letter dated Oct. 17, 1996 re: Proposed Public Service Commission Margin Reserve Rule (JDV Box 90)
General Note:
Box 24, Folder 1 ( Governmental Rules, Regulations, Legislation and Administrative Laws - 1996 ), Item 17
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South Florida Water Management District

3301 Gun Club Road, West Palm Beach, Florida 33406 (407) 686-8800 FL WATS 1-800-432-2045


(407) 687-6200

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Mike Slayton, Deputy Executive Director

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Gove, nilg BRoard:
Valerie Bowd. Chairman
Frank Williimson, Jr., Vic Chairnaiin
Williiam E. Grahain

William lHanmmoni d
Beisy Krant
Richard A. Macliek

Eugene K. Penis
Nathanicl P. Reed
Miriam Sinrger

Samuel E. Poole III, Executive Director
Michael Slaytorn, Dcpry Executive Director

Mailing Address: P.O. Box 24680, West PI':m Beach. FL 33416-4680


W 10/18 '96 10:53




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South Florida Water Management District
3301 Gun Club Road, Wcst Palm Bcach, 'lorida 33406 (407) 686-8800 PLWATS 1-800-432-2045

GOV 04-34

October 17, 1996

Chairman Susan P. Clark
Commissioner J. Terry Deason
Commissioner Joe Garcia
Commissioner Julia L. Johnson
Commissioner Diane K. Keisling

Florida Public Service Commission
2540 Shumard Oak Blvd.
Tallahassee, Florida 23299-0850

Subject: Proposed Public Service Commission Margin Reserve Rule

Dear Chairman Clark and Commissioneri:

In an effort to coordinate with the Public Service Commission (PSC) in providing for the safe,
reliable, and affordable water supply to the citizens of Florida, this letter is written to provide
you with several of the water management districts' collective comments on your rule proposal.

Considering Florida's burgeoning population as well as its increased focus on satisfaction of
environmental water supply demands, the water management districts have in recent years
expended considerable amounts of staff time and resources on long-term water supply planning
and development. The Governor's recent Executive Order and the newly established Water
Supply Development and Funding Work Group are reflections of the now intense interest in
water supply issues. Our various agencies efforts are generally directed toward satisfying the
demands of all users, human and environmental. As you know, this task requires a delicate
balance to satisfy these sometimes competing demands. A significant part of the sol, tion of this
state-wide effort involves innovative use of alternative water supplies and an increased focus on
water conservation. Future use of alternative supplies is coupled with on-going requirements
placed on all permitted users to conserve water. We think coordination between ou programs'
conservation goals and additional user reliance on alternative sources must be matched with the
PSC's rate-setting authority in a manner which fosters accomplishment of the state-wide water

The PSC's proposed rules may impact the districts in the areas of long-term plan ing, water
conservation and alternative supply development. Defining the margin reserve period to be
eighteen months and the relationship of this component to the "used and useful" rate base
determination seems to dissuade utilities from implementing alternative water supply projects
designed to meet the utilities' anticipated and even permitted demand. Generally, the districts
authorize public water supply uses on the basis of anticipated demand projected to occur over the
ensuing ten years. In this manner, the districts and utilities are better able to anticipate short-
GCtvtning lound l:
Valerc Boyd, Chairrir n William Hlanmmond Eugene K. Pe(ls Samuel E. Poole III, Executive Director
Frank Willianison, Jr., Vice Chairnan Bctsy Krant N'lthanicl P. Reed Miclael Slayton, Deputy Execucve Director
William E. Graham Richard A, Machck Miriam Singer
Mailing Address: P.O. Box 24680, West Palm Beach, FL 33416-4680

10/18 '96 10:54




Chairman Susan F. Clark
Commissioner J. Terry Deason
Commissioner Joe Garcia
Commissioner Julia L. Johnson
Commissioner Diane K. Keisling
October 17, 1996
Page 2

falls in supply and, where appropriate, develop alternative sources. For example, the typical
time period necessary to plan, construct and begin supplying reclaimed water will far exceed the
proposed eighteen month margin reserve period due to the complexities associated with timing
of improvements undertaken by the supplier and end-users. While some reuse projects may be
for the purpose of accommodating new customers, many rouse projects are for the purpose of
allowing utilities to meet existing uses with a lower quality source, thus conserving higher quality
sources for the benefit of both existing and future customers. As such, the "used and useful"
method of accounting (with the margin reserve period), which seems to be designed to address
expansion of capacity, does not appear to be adequate in considering these factors which are
unique to reuse and the development of alternative supplies. If "used and useful" is continued
to be applied to allow recovery of costs for rouse projects, then the margin reserve period needs
to be significantly longer. Over the years, users from all use classes, including public water
suppliers, have championed longer duration water use permits to obtain more secure capital
financing for the facilities which they forecast will be necessary to satisfy demand during the
duration of the permit.

The margin reserve "used and useful" rule appears to be incongruent with this public water
supply utility trend. Innovative approaches such as marginal cost rate structures might well be
an effective substitute for the proposed rule. Discussions during last week's meeting between
several of our respective staffs seemed to indicate an interest on the part of the PSC to entertain
alternatives to the margin reserve rule which would support the districts' and public water supply
utilities' desire to implement alternative water supply technologies including reuse and
conservation. We strongly support continued discussion on this issue between the PSC and the
water management districts, and other interested parties.

To address those concerns, we recommend that the published rule be amended to include a
specific recognition that reuse and other alternative water supply projects required by a water
management district be allowed a significantly longer margin reserve period. Under the spirit
of our "MOU" on conservation, we plan to work with the PSC staff to prepare a proposed
amendment to the draft language for your consideration during the rule adoption hearing.

In making these comments and recommendations, the districts recognize we are not the only
agencies in Florida charged with addressing water supply issues. The PSC clearly plays an
important role in this complex arena. Of particular import in regard to the proposed rule is the
apparent intent to defer the costs of future facilities away from existing customers. Achieving
equity between existing and future water users is certainly an important goal. However, we hope
this goal can be accomplished in a manner which recognizes the districts' equally important


10/18 '96 10:56


Chairman Susan F. Clark
Commissioner J. Terry Deason
Commissioner Joe Garcia
Commissioner Julia L. Johnson
Commissioner Diane K. Keisling
October 17, 1996
Page 3

resource related objectives and the desire to assure an adequate and reliable supply for all water
users. We do understand that the environmental protection mandated by state law and state water
policy often increases the need for planning and imposes higher costs for water and wastewater
service. However, we maintain that the objective of maintaining affordable rates for essential
water, wastewater and reuse services can and should be balanced with the nood to protect the
State's water resources.

We are hopeful that continued dialogue between our agencies, as well as joint participation in
each agencies' rulemaking processes, will improve our collective management of water related
issues. Thank you for the opportunity to comment.


amuel B. Poole MIn
Executive Director
South Florida Water Management District


10/18 '96 10:57