Public Service Commission index adjustment that commissioners agreed to in 2020 put at 7.07% this year, but staff may seek lower increase
In early July 2020, Mike Mylett, director of the Sarasota County Public Utilities Department, stood before the county commissioners to talk about the need for sufficient funding to pay for the major infrastructure initiatives they already had approved.
Among the measures Mylett proposed was an annual county rate adjustment based on the index that the Florida Public Service Commission (PSC) provides.
“This price index is widely used,” Mylett pointed out during that presentation, by both private and public utilities.
A Dec. 17, 2019 PSC document regarding the 2020 index explains, “Since March 31, 1981, pursuant to guidelines established by Section 367.081(4)(a) [of the Florida Statutes] and Rule 25-30.420 [of the Florida Administrative Code], we have established a price index increase or decrease for major categories of operating costs on or before March 31 of each year. This process allows water and wastewater utilities to adjust rates based on current specific expenses without applying for a rate case [a hearing before the PSC].”
The document also notes, “Inflation should be a major factor in determining the index …”
Crediting agencies look favorably upon the use of the index, Mylett told the commissioners during that July 2020 meeting, because it allows utility departments to “keep up with the increased cost of doing business without negatively impacting their bottom line.”
Ultimately, the commissioners agreed to the use of the index for county utilities customers.
This week — on March 22, during the board members’ first budget workshop focused on the 2024 fiscal year — Mylett once again addressed them about the PSC index. This time, he reported that the 2023 PSC index is 7.07%, though he said he planned to appear before them again in May to propose the final figure to be implemented.
Mylett reminded them that the county’s commitment to convert all three of its regional wastewater treatment plants to Advanced Wastewater Treatment (AWT) status is “one of the largest single programs for water quality in our community.”
Last year, he reported that the expense is expected to be more than $750 million.
The Bee Ridge Water Reclamation Facility (WRF) project already is underway, he noted on March 22.
“Three years from concept to concrete,” as Chair Ron Cutsinger described the timeline, referencing a remark that Mylett himself had made during an earlier board discussion.
The AWT conversion will lead to a significant decrease in red tide-fueling nutrients going into area waterways, Mylett pointed out.
A chart that Mylett showed the commissioners in May 2019 said that the Bee Ridge WRF produces 238,000 pounds of nitrogen each year, which ends up in the waterways. Nitrogen is the primary food for the red tide algae.
The AWT conversion will reduce that nitrogen loading to 38,000 pounds a year, the slide said.
Additionally, the capacity of the Bee Ridge facility, which stands at 5550 Lorraine Road in Sarasota, is being increased by 50%.
The design of the AWT conversion of the Venice Gardens WRF is still at the preliminary stage, Mylett continued on March 22; it should be complete this summer.
Finally, the AWT conversion of the Central County WRF, which is located on Palmer Ranch, will be undertaken after the first two projects have been finished, so those two facilities can handle the wastewater that would have flowed to the Central County WRF.
Then he reminded the commissioners that the majority of them approved an annual 5% increase in utility rates through the 2028 fiscal year to generate the revenue necessary to cover the county government bonds issued to pay for the wastewater treatment facility initiatives.
Mylett also talked about his department’s expenses in general.
“As everyone who runs a business knows,” he said, “prices are increasing … everywhere. … We see a lot of cost increases in our utility rates.”
Florida Power & Light Co. (FPL) is implementing a 10% hike, Mylett pointed out. The county utility system, he continued, “is the single largest FPL [customer] in county government. Of the county’s approximately 1,200 FPL accounts, Mylett pointed out, about 800 of them are within his department. “When FPL rates go up, that has a major impact.”
A chart he showed the commissioners said the Public Utilities Department would be paying an extra $600,000 to FPL in the 2023 fiscal year because of that rate hike.
The expense for chemicals, water purchases and personnel also have been climbing for his department, Mylett added.
His chart said that the cost of chemicals has risen in a range from 40% to 300%; therefore, staff expects the $5.7 million expense for chemicals this year to rise to $7.6 million in the 2023 fiscal year.
Further, the cost of the water the county purchases from the Peace River Manasota Regional Water Supply Authority will go up 9% in the 2023 fiscal year, meaning staff is faced with paying $2.3 million more, for a total of approximately $22.3 million.
The 2023 PSC index hike
Finally, Mylett turned to the PSC index, explaining that it was created for the investor-owned utilities that operate in the state, so they can “maintain their competitiveness in the face of ongoing price escalations.”
The index dates to 1981, he noted.
Usually, in January, he said, he and his staff learn of the PSC’s proposed new index; he has been presenting it to the commissioners in the spring, so they can implement it.
The PSC index adjustment has fluctuated over the years, as noted on another slide Mylett showed the commissioners. It was 1.18% in 2011, for example, and then it rose to 2.41% the next year. In 2018, it was 1.76%; in 2019, it jumped to 2.36%.
The 2022 index, the slide noted, was 4.53%. This year, Mylett told the board members, it is 7.07%.
He plans to appear before them in May to discuss implementation of the new index, he said, pointing out that his staff evaluates the Public Utilities Department’s rate structure “on a continuous basis,” and he is working with the staff to implement cost cuts wherever possible.
Commissioner Joe Neunder, who was just elected in November 2022, asked Mylett whether the commissioners would need to keep the 5% annual customer rate increases in effect after the 2028 fiscal year.
Mylett replied that that annual rate increases would be necessary until staff has paid off the bonds that are covering the wastewater treatment plant projects — a period of 30 years.
“You know I get upset about rate increases,” Commissioner Nancy Detert told Mylett. “The consumer doesn’t care that [they are] to pay off a debt.”
When she asked whether Mylett planned to propose the full PSC index adjustment, he responded, “Not necessarily commissioner. … We’re evaluating that right now.”
The goal, he said, is “to figure out the minimum amount we need in order to keep the utility viable.”
“The consumer’s still smarting from the 5% increases,” she told him.
“We purchase the majority of our water from outside the county,” he replied. “Those utilities are increasing their rates as well.”
County Administrator Lewis reminded Detert that when the board members considered the rates for county utility customers in the aftermath of the major red tide event that began in the fall of 2017 and lingered into early 2019, staff learned that it had been approximately 15 years since a rate adjustment had been implemented, “and the state of the utility reflected it.”
County employees found that a considerable amount of maintenance had not been taking place, Lewis pointed out, referencing decisions of Mylett’s predecessor, Scott Schroyer, who left county employment in April 2019.
Moreover, Lewis continued, “You guys have added a significant number of staff so that [the Public Utilities Department] can be more pro-active, both on the wastewater side and the water side.”
Lewis added, “We’re still not quite where we need to be.”
Chair Cutsinger said that when he meets with people in the community, he hears many comments about red tide. That is all the more reason, he continued, that he is eager to be able to tell constituents that the commissioners recognize the importance of clean water and that they made the decision to convert the three regional wastewater treatment facilities to AWT status. “We need to remind the community there’s a cost for that.”
Cutsinger added, “I think we’re doing the best we can in terms of keeping [utility] rates as low as possible.” Nonetheless, he acknowledged that implementing the latest PSC index “would be difficult.”