Florida Public Service Commission native order document 03639-2026

FILED 6/22/2026
DOCUMENT NO. 03639-2026
FPSC 	- COMMISSION CLERK
BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION
In re: Water and wastewater industry annual
reestablishment of authorized range of return
on common equity for water and wastewater
utilities pursuant to Section 367.08 l(4)(f), F.S.
DOCKET NO. 20260006-WS
ORDER NO. PSC-2026-0223-PAA-WS
ISSUED: June 22, 2026
The following Commissioners participated in the disposition of this matter:
GABRIELLA PASSIDOMO SMITH, Chairman
GARY F. CLARK
MIKE LA ROSA
BOBBY PAYNE
ANA ORTEGA
NOTICE OF PROPOSED AGENCY ACTION
ORDER ESTABLISHING AUTHORIZED RANGE OF RETURN ON
COMMON EQUITY FOR WATER AND WASTE WATER UTILITIES
BY THE COMMISSION:
NOTICE 	is 	hereby 	given by 	the 	Florida 	Public 	Service Commission 	that 	the 	action
discussed herein 	is preliminary 	in nature and will become 	final unless a person whose 	interests
are 	substantially 	affected 	files a petition 	for a formal proceeding, pursuant 	to Rule 	25-22.029,
Florida Administrative Code (F.A.C.).
Background
Section 367.08 l(4)(f), 	Florida 	Statutes 	(F.S.), 	authorizes 	us 	to 	establish, not 	less 	than
once each year, a leverage formula to calculate a reasonable range of returns on equity (ROE) for
water 	and 	wastewater (WAW) 	utilities. 	The 	original 	leverage 	formula 	methodology 	was
established by Order No. PSC- 2001-25 14-FOF-WS. 1On October 	23, 	2008, we held a formal
hearing 	in Docket No. 20080006-WS 	to allow interested parties 	to provide testimony regarding
the 	validity of 	the 	original 	leverage 	formula. 2 Based 	on 	the 	record 	in 	that 	proceeding, we
1Order No. PSC-2001-2514-FOF-WS, issued December 24, 2001, in Docket No. 20010006-WS, In 	re: Water and
wastewater 	industry annual 	reestablishment of authorized range of return on common 	equity of water and
wastewater utilities pursuant to Section 367. 081 (4) (f), F.S.
2At the May 20, 2008, Commission Conference, upon request of the Office of Public Counsel, we voted to 	set the
establishment of the appropriate leverage formula directly for hearing.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 2
approved the 2008 leverage formula by Order No. PSC-2008-0846-FOF-WS. 3 In that order, we
reaffirmed the methodology that was previously approved by Order No. PSC-2001-2514-FOF-
WS.4
On November 8, 2017, our staff held a workshop to solicit input from interested persons
regarding potential changes to the then-current leverage formula methodology. The only
stakeholders that filed comments in the docket were the Office of Public Counsel (OPC) and
Sunshine Water Services Company (formerly Utilities, Inc. of Florida). OPC also filed post-
workshop comments on January 31, 2018. On June 26, 2018, we approved the current leverage
formula by Order No. PSC-2018-0327-PAA-WS (2018 Order).5 The 2018 Order approving the
current leverage formula provided necessary and timely updates to the leverage formula
methodology.
We have jurisdiction pursuant to Section 367.081, F.S.
Decision
Methodology
In the instant docket, we updated the current leverage formula using the most recent
financial data applied to the methodology approved by Order No. PSC-2001-2514-FOF-WS,
reaffirmed by Order No. PSC-2008-0846-FOF-WS, and modified by the 2018 Order. The
methodology uses ROEs derived from widely accepted financial models applied to a proxy
group of natural gas and WAW companies that have actively traded stock and forecasted
financial data. To establish the proxy group, we selected six natural gas companies and six
WAW companies that: (1) are followed by Value Line, (2) pay a dividend, (3) derive at least 50
percent of their total revenue from regulated operations, and (4) have an investment grade
Standard & Poor’s (S&P) credit rating. The selected proxy group companies have market power,
are influenced significantly by economic regulation, and have an average S&P bond rating of
“A-.”
Consistent with the approved methodology, we used a market-capitalization-weighted
average for: (1) the Discounted Cash Flow (DCF) model results, (2) the Beta values in the
Capital Asset Pricing Model (CAPM), and (3) the equity ratio of the proxy group.
3 Order No. PSC-2008-0846-FOF-WS, issued December 31, 2008, in Docket No. 20080006-WS, In re: Water and
wastewater industry annual reestablishment of authorized range of return on common equity for water and
wastewater utilities pursuant to Section 367.081(4)(f), F.S.
4 Order No. PSC-2001-2514-FOF-WS.
5 Order No. PSC-2018-0327-PAA-WS, issued June 26, 2018, in Docket No. 20180006-WS, In re: Water and
wastewater industry annual reestablishment of authorized range of return on common equity for water and
wastewater utilities pursuant to Section 367.081(4)(f), F.S.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 3
Assumed Cost of Debt
We used a projected yield on corporate Baa bonds to estimate the bond yield of an
average Florida WAW utility in the calculation of the weighted average cost of capital of the
proxy group. A projected yield is used because required returns are forward-looking and based
on projections.
Consistent with the methodology approved by the 2018 Order, we used the average of the
projected corporate Baa-rated bond yield of 6.350 percent for the upcoming four quarters as
published in the May 1, 2026, Blue Chip Financial Forecasts (Blue Chip). We then added the
120-month historical average spread of 0.115 percent between the Baa and A Corporate Utility
Bond yields to the projected corporate Baa-rated bond yield of 6.350 percent to estimate a
projected Baa3-rated utility bond yield of 6.46 percent.6
We added a 50-basis-point adjustment for small-company risk and a 50-basis-point
adjustment for a private placement premium to the projected Baa3-rated utility bond yield of
6.46 percent to reflect the risk for a typical Florida WAW utility. Consistent with the
methodology approved by the 2018 Order, these adjustments resulted in a projected assumed
debt cost rate of 7.46 percent.
6.350% + 0.115% + 0.50% + 0.50% = 7.46%
Estimated Cost of Equity
The current leverage formula relies on two ROE models described below. We adjusted
the results of these models to reflect differences in risk and debt cost between the proxy group
and the average Florida WAW utility. Both ROE models include an adjustment of approximately
four percent for flotation costs. The ROE models are as follows:
1) 	A multi-stage DCF model applied to an index of natural gas and WAW utilities that have
publicly traded stock and are followed by Value Line. This DCF model is annually
compounded and uses prospective dividend growth rates published by Value Line.
2) 	A CAPM that relies on a market return for companies followed by Value Line, the
average projected yield on 30-Year U.S. Treasury bonds as of May 1, 2026, as published
by Blue Chip, and the weighted average beta for the index of natural gas and WAW
utilities. The market return for the CAPM was calculated using a quarterly DCF model
with stock prices as of May 4, 2026. Consistent with our approved methodology since
2001, the CAPM result was adjusted upward by 20 basis points to reflect flotation costs.
6 We relied on the A- and Baa/BBB-rated Corporate Utility Bond yields published by Value Line from April 2016
through October 2024 (103 months). On November 29, 2024, Value Line discontinued providing corporate utility
bond yields in its Selection & Opinion publication. For November 2024 through March 2026 (17 months), we relied
on the corporate Aaa and Baa bond yields published by Blue Chip for calculating the 120-month historical average
spread.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 4
Consistent with the 2018 Order, we averaged the results of the DCF and CAPM models
and adjusted the result of 8.45 percent as follows:
1) 	A bond yield differential of 34 basis points was added to reflect the difference in yields
between an A-/A3 rated bond, which is the median bond rating for the combined utility
index, 	and 	a 	BBB-/Baa3 	rated 	bond. 	Florida 	WAW 	utilities 	are 	assumed 	to 	be
comparable to companies with the lowest investment grade bond rating, Baa3. This
adjustment compensates for the difference between the credit quality of “A-” rated debt
and the assumed lower credit quality of a typical Florida WAW utility.
2) 	A private placement premium of 50 basis points is added to reflect the difference in
yields on publicly traded debt and privately placed debt, which is illiquid. Investors
require a premium for the lack of liquidity associated with privately placed debt.
3) 	A small-utility risk premium of 50 basis points is added because the average Florida
WAW utility is too small to qualify for privately placed debt, and investors consider
smaller companies to be riskier than larger companies.
After the above adjustments, the resulting cost of equity estimate of 9.79 percent is
included in the weighted average capital structure of the proxy group to derive the leverage
formula. The derivation resulted in an adjustment of 46 basis points to reflect an estimated
required return of 10.25 percent at an equity ratio of 40 percent. Table 1 shows the components
that comprise the upper range of the leverage formula.
Table 1
Adjusted Return on Equity
DCF Model 	7.43%
CAPM 	9.47%
Average 	8.45%
Bond Yield Differential 	0.34%
Private Placement Premium 	0.50%
Small-Utility Risk Premium 	0.50%
Adjusted ROE Average 	9.79%
Adjustment to Reflect Required
Equity Return at 40% Equity Ratio 	0.46%
Upper Range of ROE 	10.25%
Source: Commission Staff Worksheets.
Leverage Formula
Using the most recent financial data in the leverage formula increases the lower end of
the current allowed ROE range by 7 basis points and decreases the upper end of the range by 26
basis points. Overall, the spread between the ROE range based on the updated leverage formula
is 167 basis points (8.58 percent to 10.25 percent). In comparison, the ROE range for the 2025

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 5
leverage formula is 200 basis points (8.51 percent to 10.51 percent). The change in the range
from 2025 is due to a decrease of 15 basis points in the average result of the ROE models (8.60
percent to 8.45 percent), a decrease of 2 basis points in the bond differential (36 basis points to
34 basis points), and a decrease of 10 basis points in the adjustment reflecting the required return
at a 40 percent equity ratio (56 basis points to 46 basis points).
The leverage formula depends on four basic assumptions:
1) 	Business risk is similar for all WAW utilities;
2) 	The cost of equity is an exponential function of the equity ratio but a linear function of
the debt to equity ratio over the relevant range;
3) 	The marginal weighted average cost of investor capital is constant over the equity ratio
range of 40 percent to 100 percent; and
4) 	The debt cost rate at an assumed Moody’s Baa3 bond rating, plus a 50-basis-point private
placement premium and a 50-basis-point small-utility risk premium, represents the
average marginal cost of debt to an average Florida WAW utility over an equity ratio
range of 40 percent to 100 percent.
For these reasons, the leverage formula is assumed to be appropriate for the average
Florida WAW utility.
Based on the aforementioned, we find the leverage formula methodology approved by the
2018 Order applied to a proxy group of natural gas and WAW utilities with updated financial
data based on market-capitalization-weighted averages, produces a reasonable range of ROEs for
WAW utilities and reflects current financial conditions. As such, we find that the following
leverage formula be used until a new leverage formula is determined in 2027:
Return on Common Equity = 7.46% + (1.115 ÷ Equity Ratio)
Where: Equity Ratio = Common Equity ÷ (Common Equity + Preferred Equity + Long-
Term Debt + Short-Term Debt)
Range of Returns: 8.58% at 100% equity to 10.25% at 40% equity
The equity ratio shall be calculated using the averaging methods pursuant to Rule 25-
30.433(5), F.A.C. Additionally, we shall cap returns on common equity at 10.25 percent for all
WAW utilities with equity ratios less than 40 percent, which serves to discourage imprudent
financial risk and is consistent with the methodology approved by the 2018 Order.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 6
Based on the foregoing, it is
ORDERED by the Florida Public Service Commission that the appropriate range of
returns on common equity for water and wastewater utilities pursuant to Section 367.08l(4)(f),
F.S., is the leverage formula methodology approved by Order No. PSC-2018-0327-PAA-WS,
using a proxy group comprised of natural gas and WAW utilities and updated financial data.
Accordingly, the following leverage formula shall be used until the leverage formula is
addressed again in 2027:
Return on Common Equity = 7.46% + (1.115 ÷ Equity Ratio)
Where the Equity Ratio = Common Equity ÷ (Common Equity + Preferred Equity +
Long-Term Debt + Short-Term Debt)
Range of Returns: 8.58% at 100% equity to 10.25% at 40% equity
The equity ratio shall be calculated using the averaging methods pursuant to Rule 25-30.433(5),
F.A.C. Returns on common equity shall be capped at 10.25 percent for all WAW utilities with
equity ratios less than 40 percent. It is further
ORDERED that the provisions of this Order, issued as proposed agency action, shall
become final and effective upon the issuance of a Consummating Order unless an appropriate
petition, in the form provided by Rule 28-106.201, Florida Administrative Code, is received by
the Commission Clerk, 2540 Shumard Oak Boulevard, Tallahassee, Florida 32399-0850, by the
close of business on the date set forth in the “Notice of Further Proceedings” attached hereto. It
is further
ORDERED that this docket shall remain open to allow us to monitor changes in capital
market conditions and to readdress the reasonableness of the leverage formula as conditions
warrant.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS
PAGE 7
By ORDER of the Florida Public Service Commission this 22nd day of June , 2026 	.
Florida Public Service Commission
2540 Shumard Oak Boulevard
Tallahassee, Florida 32399
(850)413-6770
www.floridapsc.com
Copies 	furnished: A copy 	of 	this document 	is
provided 	to 	the 	parties 	of record 	at 	the 	time 	of
issuance and, 	if applicable, interested persons.
ZB
NOTICE OF FURTHER PROCEEDINGS OR JUDICIAL REVIEW
The 	Florida 	Public 	Service 	Commission 	is 	required 	by 	Section 	120.569(1), 	Florida
Statutes, 	to 	notify 	parties of any 	administrative hearing 	that 	is 	available under 	Section 	120.57,
Florida Statutes, as well as the procedures and time 	limits that apply. 	This notice should not be
construed to mean 	all requests for an administrative hearing will be granted or result in the relief
sought.
Mediation may be 	available on a case-by-case 	basis. 	If mediation 	is conducted, 	it does
not affect a substantially interested person's right to a hearing.
The 	action 	proposed 	herein 	is 	preliminary 	in 	nature. Any 	person whose 	substantial
interests 	are 	affected by 	the 	action 	proposed by 	this 	order may 	file 	a 	petition 	for 	a 	formal
proceeding, 	in 	the 	form 	provided 	by 	Rule 	28-106.201, 	Florida 	Administrative 	Code. 	This
petition must be received by 	the 	Office of Commission 	Clerk, 2540 Shumard Oak Boulevard,
Tallahassee, Florida 32399-0850, by the close of business on July 	13, 2026 	.
In the absence of such a 	petition, 	this order 	shall become 	final and 	effective upon the
issuance of a Consummating Order.
Any objection or protest filed in this/these docket(s) before the issuance date of this order
is considered abandoned unless 	it 	satisfies 	the foregoing 	conditions and 	is renewed within the
specified protest period.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 8 	Page 1 of 6
Summary of Results
2026 Water and Wastewater Leverage Formula
Updated
Results
(1) DCF ROE for Proxy Group 	7.43%
(2) CAPM ROE for Proxy Group 	9.47%
Average 	8.45%
Bond Yield Differential 	0.34%
Private Placement Premium 	0.50%
Small-Utility Risk Premium 	0.50%
Adjustment to Reflect Required
Equity Return at 40% Equity Ratio 0.46%
Cost of Equity for Average Florida
WAW Utility at 40% Equity Ratio 10.25%
2026 Commission Approved Leverage Formula (Updated Results)
Return on Common Equity = 7.46% + (1.115 ÷ Equity Ratio)
Range of Returns on Equity = 8.58% to 10.25%

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 9 	Page 2 of 6
Marginal Cost of Investor Capital
Average Water and Wastewater Utility
Weighted
Marginal 	Marginal
Capital Component 	Ratio 	Cost Rate 	Cost Rate
Common Equity 	47.86% 	9.79% 	4.69%
Total Debt 	52.14% 	7.46%* 	3.89%
100.00% 	8.58%
A 40% equity ratio is the floor for calculating the required return on common equity.
The return on equity at a 40% equity ratio: 7.46% + (1.115 ÷ 0.40) = 10.25%
Marginal Cost of Investor Capital
Average Water and Wastewater Utility at 40% Equity Ratio
Weighted
Marginal 	Marginal
Capital Component 	Ratio 	Cost Rate 	Cost Rate
Common Equity 	40.00% 	10.25% 	4.10%
Total Debt 	60.00% 	7.46%* 	4.48%
100.00% 	8.58%
*Assumed Baa3 rate for May 2026 plus a 50-basis-point private placement premium and a 50-
basis-point small-utility risk premium.
Sources:
Blue Chip Financial Forecasts
Company 10-K Filings
Value Line Selection & Opinion

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 10 	Page 3 of 6
Discounted Cash Flow Model Results
April 1, 2026 - April 30, 2026
DCF
STOCK PRICE 	DCF 	Weighted
Company 	High 	Low 	Avg. 	Results 	Weight 	Results
Atmos Energy Corporation 	192.51 	181.32 	186.92 	7.36% 	24.97% 	1.84%
NiSource Inc. 	48.92 	46.43 	47.68 	6.52% 	18.66% 	1.22%
Northwest Natural Holding 	55.99 	51.88 	53.94 	6.97% 	1.75% 	0.12%
ONE Gas, Inc. 	90.78 	85.06 	87.92 	8.47% 	4.29% 	0.36%
Southwest Gas Holdings 	94.41 	86.32 	90.37 	7.33% 	5.26% 	0.39%
Spire Inc. 	95.31 	88.40 	91.86 	8.86% 	4.47% 	0.40%
American States Water 	81.24 	74.26 	77.75 	8.20% 	2.54% 	0.21%
American Water Works 	139.63 	126.12 	132.88 	7.51% 	23.22% 	1.74%
California Water Service 	48.08 	41.93 	45.01 	6.87% 	2.37% 	0.16%
Essential Utilities, Inc. 	41.23 	37.54 	39.39 	8.19% 	9.90% 	0.81%
H20 America 	61.87 	55.82 	58.85 	6.72% 	1.75% 	0.12%
Middlesex Water 	56.30 	49.89 	53.10 	8.62% 	0.83% 	0.07%
Average Weighted DCF Result: 	7.43%
The ROE of 7.43% represents the expected cost of equity required to match the average stock
price, less three percent for flotation costs, with the present value of expected cash flows.
Sources:
Stock prices obtained from Yahoo Finance for the 30-day period April 1 through April 30, 2026.
Natural Gas company dividends, earnings, and ROE obtained from Value Line Ratings &
Reports, issued February 20, 2026.
Water and Wastewater company dividends, earnings, and ROE obtained from Value Line
Ratings & Reports, issued April 3, 2026.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 11 	Page 4 of 6
Capital Asset Pricing Model Cost of Equity for
Water and Wastewater Industry
CAPM analysis formula
K 	= 	RF + Beta (MR - RF) + 0.20%
K 	= 	Investor’s required rate of return
RF 	= 	Risk-free rate
(May 2026 Blue Chip forecast for 30-year U.S. Treasury bond yield)
3Q 2026 	4Q 2026 	1Q 2027 	2Q 2027 	3Q 2027
4.90% 	4.80% 	4.80% 	4.80% 	4.80%
Average = 4.82%
Beta 	= 	Measure of industry-specific risk (market-cap-weighted average for the proxy
group of natural gas and WAW utilities)
MR 	= 	Market Return (Value Line Investment Analyzer Web Browser)
9.47% = 4.82% + 0.802 (10.37% ˗ 4.82%) + 0.20%
Note:
We calculated the market return using a quarterly DCF model for a large number of dividend
paying stocks followed by Value Line. As of May 4, 2026, the result was 10.37%. The market
return is adjusted to reflect a flotation cost of three percent for the companies included in the
DCF market return calculation. We added 20 basis points to the CAPM result to reflect flotation
costs for the proxy group.

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 12 	Page 5 of 6
Bond Yield for Water and Wastewater Industry
Equity Bond Yield Differential Adjustment
Credit Rating 	(A) 	Spread 	(A-) 	Spread 	(BBB+) 	Spread 	(BBB) 	Spread 	(BBB-)
NA 	0.115 	0.115 	0.115
120-Month Avg. Spread: 	0.115%
Total Equity Bond Yield Differential: 0.115% × 3 = 0.345%
Blue Chip Financial Forecasts - Corporate Baa Bond Rate
2Q 2026 	3Q 2026 	4Q 2026 	1Q 2027
Forecast Corporate Baa Bond Yield 	6.30% 	6.30% 	6.40% 	6.40%
Average Forecasted Corporate Baa Bond Rate: 6.350%
Assumed Bond Yield for Baa3 Utilities: 0.115% + 6.350% = 6.465%
Currently 	Updated
in Effect 	Results
Private Placement Premium 	0.50% 	0.50%
Small-Utility Risk Premium 	0.50% 	0.50%
Assumed Bond Yield for Baa3 Utilities 	6.17% 	6.46%
Assumed Bond Yield for Florida WAW Utilities 	7.17% 	7.46%
Sources:
Value Line Selection & Opinion and Blue Chip Financial Forecasts (120-Month Avg. Spread)
Blue Chip Financial Forecasts issued May 1, 2026 (Forecast Corporate Baa Bond Yield)

ORDER NO. PSC-2026-0223-PAA-WS
DOCKET NO. 20260006-WS 	Attachment 1
PAGE 13 	Page 6 of 6
2026 Leverage Formula Proxy Group
S&P 	Value Line 	Equity 	Value 	Value Line
Bond 	Regulated 	Market Capital 	Equity 	Ratio 	Line 	Beta
Company 	Rating 	Revenue 	(in millions) 	Ratio 	(Weighted) 	Beta 	(Weighted)
Atmos Energy Corporation 	A- 	94.10% 	$28,500 	60.12% 	15.01% 	0.80 	0.1997
NiSource Inc. 	BBB+ 	98.65% 	21,300 	41.83% 	7.81% 	0.85 	0.1586
Northwest Natural Holding 	A- 	88.82% 	2,000 	36.15% 	0.63% 	0.80 	0.0140
ONE Gas, Inc. 	A- 	99.09% 	4,900 	50.49% 	2.17% 	0.75 	0.0322
Southwest Gas Holdings 	BBB+ 	100.00% 	6,000 	53.03% 	2.79% 	0.80 	0.0420
Spire Inc. 	BBB+ 	89.14% 	5,100 	39.58% 	1.77% 	0.75 	0.0335
American States Water 	A 	70.53% 	2,900 	52.87% 	1.34% 	0.75 	0.0191
American Water Works 	A 	91.52% 	26,500 	40.62% 	9.43% 	0.80 	0.1857
California Water Service 	A+ 	97.92% 	2,700 	51.33% 	1.21% 	0.75 	0.0177
Essential Utilities, Inc. 	A- 	98.56% 	11,300 	45.29% 	4.48% 	0.80 	0.0792
H20 America 	A- 	98.31% 	2,000 	43.80% 	0.77% 	0.75 	0.0131
Middlesex Water 	A 	93.33% 	950 	54.27% 	0.45% 	0.80 	0.0067
Average 	A- 	93.33% 	$9,513 	47.45% 	47.86% 	0.783 	0.802
Sources:
Company 10-K Filings
Standard & Poor’s (S&P)
Value Line Ratings & Reports