Case Background
The Woodlands of Lake Placid, L.P. (Woodlands
or utility) is a Class C water and wastewater utility providing service in Highlands
County. The utility serves about 338 water and
wastewater residential customers and two general service customers located in
Camp Florida Resort RV Park (resort or RV park), 38 water-only residential customers
(Hickory Hills and Lake Ridge Estates), and four water-only general service
customers outside of the Resort. The customer base is primarily residential,
comprised of single family homes, park homes, and RV sites. The utility
is in both the Highlands Ridge and Southern Water Use Caution Areas of the
Southwest Florida Water Management District (SWFWMD).
On January 29, 2003, L.P. Utilities Corporation (LPUC or utility) filed an application for
authority to transfer Water Certificate No. 620-W and Wastewater Certificate
No. 533-S from Woodlands to LPUC. According to the application, Highvest
Corporation (Highvest), lender of funds to Woodlands, foreclosed on a lien on
the utility assets and purchased the assets at the foreclosure sale. The
Woodlands did not defend against the foreclosure. Highvest then immediately
sold the assets to LPUC, lent LPUC the funds to purchase the utility, and
executed a new lien on the assets Highvest had just sold to LPUC.
In Order No. PSC-03-1053-PAA-WS,
issued September 22, 2003, the Commission denied the transfer to LPUC because
in the application LPUC stated that it would not assume any obligations of the
Woodlands prior to the foreclosure by Highvest. This is contrary to the
requirements of section 367.071(1), Florida Statutes, and Rule 25-30.037(2),
Florida Administrative Code.
The Commission ordered LPUC to file another application for transfer of the
Certificates within 30 days from the date the decision was final, in which LPUC
agreed to accept all regulatory obligations of the Woodlands. The Commission
further ordered that “Highvest, the current owner of the utility’s assets, was
responsible to provide service to the utility’s customers, submitting the
utility’s present and past due regulatory assessment fees . . . and honoring
any refunds to the utility customers ordered by the Commission, until an
appropriate transfer to LPUC is approved by the Commission.”
On October 20, 2003, LPUC filed an application for the transfer of wastewater utility
facilities of Woodlands to Camp Florida Property Owners Association, Inc. (Camp
Florida or Association), and for the transfer majority organizational control
of LPUC to Camp Florida. Mr. Anthony Cozier is a limited partner of Woodlands,
Director of LPUC, and President of Highvest. Camp Florida’s primary property
owner is Highvest Corporation, which owned 246 of the 397 lots within the resort
at the time of the Association’s vote to purchase the utility assets from
LPUC. On October 31, 2003, the Office of Public Counsel filed an objection to
the application.
A Prehearing Conference was held
on August 2, 2004, in Tallahassee, Florida. The technical and customer service
hearings were held on August 11, 2004, at the Sebring Civic Center, Sebring, Florida.
Fifteen customers testified at the morning session of the customer service
hearing, and one customer testified at the evening session. Most customers
were opposed to the transfer because they did not want to enter into a
financial relationship with Anthony Cozier, they were distrustful of Mr.
Cozier, and they were concerned about a lien being placed on their homes for
the purchase of the water and wastewater system. No comments were made
concerning the quality of service from the utility.
This recommendation addresses all
issues related to LPUC’s application to transfer the utility facilities of
Woodlands to LPUC, to transfer the wastewater utility facilities of Woodlands
to Camp Florida Property Owners Association, Inc., and to transfer majority
organizational control of LPUC to Camp Florida Property Owners Association,
Inc. The Commission has jurisdiction pursuant to section 367.071, Florida
Statutes.
Stipulations
The Commission found that the following stipulation reached by the parties was reasonable
and accepted the stipulated matter set forth below.
The purchase
price resulting from the loan from Highvest Corporation to L.P. Utilities
Corporation in the amount of $409,959 is greater than the combined amount of
water and wastewater rate base in the amount of $380,609. Therefore, pursuant
to Rule 25-30.0371, Florida Administrative Code, no acquisition adjustment
should be made. (Issue 3)
Discussion of Issues
Issue
1: Is Camp Florida Property Owners
Association, Inc. an exempt entity pursuant to Section 367.022(7), Florida
Statutes?
Recommendation: No. Based on the
evidence in the record, Camp Florida’s provision of water and wastewater service would not be exempt
from Commission jurisdiction pursuant to Section 367.022(7), Florida Statutes.
(Fleming, Brown)
Position of the Parties
LPUC: Yes, Camp Florida Property Owners Association, Inc.,
is a Florida not-for-profit corporation formed on July 10, 1990, and is in good standing with the Florida Department of State.
OPC:
No. Based on the evidence produced at the hearing, Camp Florida is not an exempt
entity.
Staff Analysis: According to
LPUC witness Lovelette, LPUC was formed in 2001 and currently serves about 338
water and wastewater residential customers and two general service customers
located in the Resort, as well as 38 water-only residential customers and four
water-only general service customers outside of the Resort. The customer base
is primarily residential, comprised of single family homes, park homes, and RV
sites. Some customers reside there all year, but the majority of residents own
and maintain their lots for recreational purposes for use during the winter.
(TH TR 20-21) LPUC claims that Camp Florida is exempt from
Commission jurisdiction under section 367.022(7), Florida Statutes, which
provides an exemption for:
(7) Nonprofit corporations,
associations, or cooperatives providing service solely to members who own and
control such nonprofit corporations, associations, or cooperatives.
LPUC
states that Camp Florida is a not-for-profit corporation in good standing with the
Florida Department of State and is exempt from Commission regulation because
section 367.022(7), Florida Statutes, specifically exempts nonprofit
corporations, associations, and cooperatives providing service solely to
members who own and control such. (LPUC BR 2-3)
OPC argues that Camp Florida
would not be exempt under section 367.022, Florida Statutes. According to OPC, to qualify for an
exemption, a nonprofit association cannot provide service to any person who is
not a member of the association. OPC argues that Camp Florida does not meet this requirement for either its water or
wastewater operations. OPC contends, and the utility agrees, that Camp Florida’s water operations
would not be exempt because it provides service to customers who are not
members of the Association. OPC also contends that Camp Florida wastewater operations would not be exempt because Camp Florida provides
wastewater service to the front office of the resort, which is owned by
Highvest. According to OPC, Highvest’s membership in the Association stems from its
ownership of the Camp Florida rental lots, not from its ownership of the front office.
Therefore, OPC
claims that the wastewater service provided to the front office prevents Camp Florida from attaining
exempt status. (OPC BR 2-3)
Witness Lovelette testified that Camp
Florida Property Owners Association, Inc. is a not for profit Florida corporation
organized in 1990 for the purpose of owning and managing the resort. (TH TR
22) In addition, the Articles of Incorporation, Bylaws and Amendments indicate
that Camp Florida is a not for
profit Florida
corporation and is registered with the Florida Division of Corporations. (EXH
2) The Association’s membership consists of all the owners of lots in the resort.
Each lot has one vote in the Association’s affairs. There are 397 platted lots
in the RV Park. Currently, Highvest Corporation owns 240 lots, and thus votes
the shares attributable to the lots. Witness Lovelette also testified that the
Association has assured him that it will provide service solely to its members
who own and control it. (TH TR 22, 24)
The utility is currently providing water
service to 38 residential customers and four general service customers outside
of the resort; thus, the water operations are subject to Commission regulation
because it serves more than just members of the Association. With regard to
the wastewater operations, at the customer service hearing Anthony Cozier
testified that the front office (sales office building) was originally part of
the common area until he was asked to purchase it by the property owners,
making the front office no longer part of the common area.
(SH TR 114-115) Camp Florida’s membership consists of the 397 platted lots
in the Park, which does not include the front office owned by Anthony Cozier. (TH
TR 22) Since the utility is providing wastewater service to the front office,
which is not part of Camp Florida, the Association’s provision of wastewater
service would not be exempt from Commission jurisdiction pursuant to Section
367.022(7), Florida Statutes.
Based
on the evidence in the record, staff believes that Camp Florida’s provision of
water and wastewater service would not be exempt from Commission jurisdiction pursuant
to Section 367.022(7), Florida Statutes, because it serves customers who are
not members of the Association. Staff notes, however, that the determination
of whether Camp
Florida is an
exempt entity is not ultimately material to the Commission’s decision on
whether the transfer is in the public interest.
Issue 2: Should
the Commission approve the transfer of Certificate Nos. 620-W and 533-S from
The Woodlands of Lake Placid, L.P. to L.P. Utilities Corporation?
Recommendation:
Yes. The transfer of Certificate Nos. 620-W
and 533-S from The Woodlands of Lake Placid, L.P.
to L.P. Utilities Corporation is in the public interest and should be approved,
effective on the day of the Commission vote. A description of the
territory granted to Certificate Nos. 620-W and 533-S is appended as Attachment
A. LPUC should continue charging the rates
and charges approved for Woodlands, until authorized to change by the
Commission in a subsequent proceeding. LPUC should be required to file revised
tariff sheets reflecting the transfer to LPUC, including the currently approved
rates and charges, within 30 days of the Order. The tariff pages reflecting
the transfer should be effective for services provided or connections made on
or after the stamped approval date on the tariff sheets. (Clapp, Redemann)
Position of the Parties
LPUC: Yes.
OPC: No. The transfer, as proposed, with the
subsequent sale of the wastewater assets to Camp Florida Property Owners
Association, Inc. (Camp Florida) and transfer of L.P. Utilities Corporation to Camp Florida does not meet the
standard for transfer specified in Section 367.071 of the Florida Statutes.
Staff Analysis: LPUC
applied for a transfer of Certificate Nos. 620-W and 533-S from Woodlands to
LPUC on January 29, 2003. A description of the territory granted to
Certificate Nos. 620-W and 533-S is appended as Attachment A. (EXH 3) Section 367.071(1), Florida Statutes, requires that no
utility shall sell, assign, or transfer its certificate of authorization,
facilities or any portion thereof, or majority organization control without
determination and approval that the transfer is in the public interest and that
the transferee will fulfill the commitments, obligations, and representations
of the utility. Rule 25-30.037, Florida Administrative Code, details
the application requirements. LPUC believes the transfer should be approved.
Public Counsel did not express specific concerns regarding the transfer from
Woodlands to LPUC except that this would be the first in a chain of transfers
to ultimately lead to the transfer to the Association.
Woodlands, LPUC,
Highvest, Camper Corral, Inc., Anbeth, and Camp Florida are all related
entities. Mr. Anthony Cozier is a limited partner in Woodlands, President of
Camper Corral, Inc., director and primary decision maker for LPUC, and
President of Highvest. Mr. Cozier and his wife also formed a trust, Anbeth
Corporation, which is the sole shareholder of LPUC. Mr. John Lovelette is a
director of LPUC, Vice President of Highvest, and President of Camp Florida
Property Owners Association, Inc. The Association’s primary property owner is
Highvest Corporation, which owned 246 of the 397 lots within the resort at the
time of the Association’s vote to purchase the utility assets from LPUC.
Charts detailing the entities and their relationships are found in Order No. PSC-03-1051-FOF-WS,
issued September 22, 2003, in Docket No. 020010-WS, In Re: Application for
staff-assisted rate case in Highlands County by the
Woodlands of Lake Placid, L.P., at pgs. 16-19 and in Order
No. PSC-03-1053-PAA-WS, at pgs. 7-8. OPC witness DeRonne also included a copy
of the chart as an exhibit to her testimony, appended hereto as Attachment B.
(TH TR 74; EXH 10)
Application.
Rule 25-30.037(2)(g), Florida Administrative Code, requires that a copy of the
contract for sale and purchase of the utility is to be provided with the
application. According to the application filed on January 29, 2003, because the utility system was purchased in a foreclosure proceeding by Highvest
Corporation and almost immediately “flipped” to LPUC, there is no written
contract for purchase or sale of the utility. In addition, the application
contained a statement that LPUC would fulfill the commitments and obligations
of the utility that accrued subsequent to the foreclosure. (EXH 3) By Order
No. PSC-03-1053-PAA-WS, issued on September 22, 2003, the Commission denied the proposed transfer to LPUC and ordered the utility to file another
application within 30 days in which the utility would agree to accept all of
the regulatory obligations of Woodlands, which included the obligations to make
refunds from overcharges and to install meters. See, Order No.
PSC-03-1051-FOF-WS in Docket No. 020010-WS.
On October 21, 2003, LPUC filed an amended application for the transfer of wastewater utility
facilities of Woodlands to Camp Florida Property Owners Association, Inc., and
for the transfer of majority organizational control of LPUC to the Association.
On November 12, 2003, LPUC filed a statement agreeing to fulfill the
commitments, obligations, and representations of the prior owner with regard to
utility matters. (EXH 7)
Financial and
Technical Viability. LPUC has been running the utility since October 1, 2002. (EXH 3) Since that time, according to Mr. Lovelette, the meter
installation required by the Commission in Order No. PSC-02-1739-PAA-WS has
been completed. The utility has been crediting customer bills $43.88 per month
for the refund required by Order No. PSC-03-1051-FOF-WS. The refund is due to
be completed by September, 2004. (TH TR 16, 25-26, 39)
LPUC witness Lovelette
testified that the mortgage on the Woodlands property was assigned to Highvest
Corporation, whose President is Anthony Cozier. Woodlands defaulted on the
note and in September, 2002, Highvest foreclosed on the mortgage. Woodlands
did not contest the foreclosure. On October 1, 2002, Highvest sold the utility assets to LPUC for $409,959, financed over 10 years at 10% interest. (TH TR
22; EXH 2; EXH 3) According to Witness Lovelette, the LPUC mortgage with
Highvest for the utility assets is not current. He testified that the reason
the principal amount on the mortgage reported on the 2002 and 2003 annual
reports had not changed was because no payments had been made. (TH TR 46-47;
EXH 5)
The overwhelming
customer testimony at the service hearing was that the customers oppose the
proposed transfers and do not trust Mr. Cozier, the utility owner, or Mr.
Lovelette, the utility manager. Several customers specifically referred to the
fact that Mr. Cozier, through his corporation, Highvest, has foreclosed on
other entities he controls as a reason to question his trustworthiness. There
were no complaints regarding quality of service. (SH TR 12-130)
Conclusion. Although
the utility has filed the information required by Rule 25-30.037, Florida
Administrative Code, the Commission must find that the transfer is in the
public interest based on the buyer’s financial and technical ability to manage,
maintain and operate the utility, and in consideration of any other public
interest factors that may have a bearing on the proposed transfer. Although
there do not appear to be any significant problems with the operating condition
of the utility, there are concerns regarding the utility’s ongoing financial
viability and the owner’s lack of responsiveness to the requirements of chapter
367, Florida Statutes, and Commission orders.
The default on the
Woodlands’ mortgage, the subsequent foreclosure by Highvest on the Woodlands’
property, and the sale of the utility assets to LPUC were all decisions made by
Mr. Cozier without regard to the utility transfer requirements of chapter 367,
Florida Statutes. While the Commission has tolerated less than perfect
adherence to its statutes and rules in foreclosures by banks or other investors
not familiar with the Commission’s regulations, Mr. Cozier has been familiar
with those regulations since 1999 when Woodlands applied for an original
certificate. For example, when Highvest sold the utility to LPUC, Highvest and
LPUC, through Mr. Cozier, had every opportunity to prepare a contract that
would comply with the requirements that the transfer be contingent on
Commission approval and that LPUC would assume the commitments, obligations,
and representations of the utility. Instead, in its January 29, 2003, application, it appears that LPUC attempted to avoid its responsibilities stating
that it was responsible for only those utility obligations incurred after LPUC
took over the utility. (EXH 3)
With respect to the
utility’s financial viability, LPUC is now in arrears on the current mortgage
to Highvest. (TH TR 46-47) The utility’s witness offered no
explanation as to why the mortgage payments had not been made or why the mortgage
was financed over 10 years. In addition, the utility was given 12 months, pursuant
to Rule 25-30.360, Florida Administrative Code, to make a refund in excess of
$78,000 plus interest. Since the utility has been crediting the monthly
customer bills to complete the refund, the utility’s monthly cash flow for the
past 12 months has been reduced by the amount of those monthly credits. In
addition, Highvest’s failure to pay for utility service to its rental lots
until November 2003, has put an additional strain on the utility’s financial
viability. (TH TR 36)
In these unique circumstances, the Commission’s options are limited. If
the Commission denies the transfer, the utility certificate would remain with
Woodlands, even though title to the assets has been transferred to LPUC.
Woodlands is no longer an active corporate entity with the Secretary of State,
Division of Corporations. (EXH 4) The assets would have to be transferred
back to Woodlands and that entity would have to be reinstated with the Florida
Department of State, which may present additional problems. As the Commission
found in Order No. PSC-03-1053-PAA-WS, the transactions that transferred the
utility from the Woodlands to Highvest and from Highvest to LPUC were not arms
length transactions and no real transfer of facilities or operational control
has taken place. Because the utility assets are now owned by LPUC, staff
believes that the public would be better served by transferring the utility
certificates to LPUC. Although it is clear that LPUC has significant cash flow
problems, the Commission has set rates for the utility, based on all customers
paying for their water and wastewater service, which will allow the utility an
opportunity to recover its prudent operating costs and earn a fair return on
its investment. It is up to the utility to adhere to the provisions of chapter
367, Florida Statutes, its tariffs, and to operate the utility in a financially
responsible manner.
Based on the record, staff recommends that the transfer of Certificate
No. 620-W and 533-S from Woodlands to LPUC is in the public interest and should
be approved effective on the day of the Commission
vote. A description of the territory granted to Certificate Nos. 620-W
and 533-S is appended as Attachment A. LPUC should continue charging the rates
and charges approved for Woodlands, until authorized to change by the
Commission in a subsequent proceeding. LPUC should be required to file revised
tariff sheets reflecting the transfer to LPUC, including the currently approved
rates and charges, within 30 days of the Order. The tariff pages reflecting
the transfer should be effective for services provided or connections made on
or after the stamped approval date on the tariff sheets.
Issue 3: Should the Commission approve an
acquisition adjustment for the transfer of The Woodlands of Lake Placid, L.P.
to L.P. Utilities Corporation?
Recommendation: No. The purchase price
resulting from the loan from Highvest Corporation to L.P. Utilities Corporation
in the amount of $409,959 is greater than the combined amount of water and
wastewater rate base in the amount of $380,609. Therefore, pursuant to Rule
25-30.0371, Florida Administrative Code, no acquisition adjustment should be
made. (Clapp, Redemann)
Staff Analysis: The parties have
stipulated that no acquisition adjustment should be made pursuant to Rule
25-30.0371, Florida Administrative Code, because the purchase price resulting
from the loan from Highvest Corporation to L.P. Utilities Corporation in the
amount of $409,959 is greater than the combined amount of water and wastewater
rate base in the amount of $380,609.
Issue 4: Is the transfer of L.P. Utilities to Camp Florida
in the public interest?
Recommendation:
No. It is not in the public interest to approve the transfers of the
wastewater system or the LPUC stock to the Association. (Clapp, Redemann)
Position of the Parties
LPUC: Yes.
OPC: No. Before the transfer of majority
organizational control can take place, the Commission must approve the transfer
as being in the public interest. Based on all the reasons presented in the
evidence, it is clear that the transfer to Camp Florida is not in the public interest.
Staff Analysis: Section
367.071, Florida Statutes, provides that no utility shall sell, assign, or
transfer its certificate of authorization, facilities, or any portion thereof,
or majority organizational control without determination and approval of the
Commission that the proposed sale, assignment, or transfer is in the public
interest. The Commission has exclusive authority to decide whether to approve
the transfer of the utility facilities and certificates. The Commission
considers many factors in determining whether a transfer is in the public
interest, including the buyer’s financial and technical ability to continue
operating the utility, as well as any other factors that are relevant to the
public interest of the transfer. Issues 6 and 7 also address whether the
transfers of LPUC’s wastewater assets and LPUC’s stock with respect to the
water facilities are in the public interest.
The utility argues that the majority of the lot owners voted in
favor of the transfers, customers cannot choose their utility, and the
Commission has no authority to vindicate breaches, if any, in land sales
practices or private contracts. (LPUC BR 5-6) OPC argues that the
Commission has broad discretion in determining what is in the public interest, and
should rely on the majority of the individual customers’ votes against the
transfer to determine whether that transfer is in the public interest. OPC argues
that the public interest question in this case is whether customers should be
forced into an ownership relationship with Mr. Cozier. (OPC BR 4, 7) The
customers’ testimony at the hearing regarding their concerns with the transfers
did not represent their desire to choose which utility will provide their
utility service, but rather their reluctance to be in the utility business
themselves. For example, several customers expressed concern with being forced
to invest their money in a utility business about which they had no
understanding or knowledge. (SH TR 12-24, 32, 35-44, 55, 67)
As stated above,
Section 367.071, Florida Statutes, gives the Commission specific authority to
determine whether a transfer of a privately-owned water or wastewater utility is
in the public interest and Commission precedent supports the Commission’s broad
discretion in determining what is in the public interest.
As the Commission stated in Order No. PSC-94-0114-FOF-TI, issued January 31, 1994, in Docket No. 930396-TI, In Re: Application for certificate to
provide interexchange telecommunications service by Atlas Communication
Consultants, Inc., at p. 3:
The public interest
standard gives latitude and discretion to the Commission to legislate
regulatory rules of behavior and fashion appropriate remedies to fix regulatory
problems.
The Commission has
also found that it has discretion in determining what is in the public interest
and it is not precluded from considering a variety of factors, where
appropriate, in the interpretation of what is in the public interest. See,
Order No. PSC-93-1376-FOF-EI, issued September 20, 2003, in Docket No. 921155-EI, In Re: Petition for approval of plan to bring generating units into
compliance with the Clean Air Act by Gulf Power Company, at p. 15. See
also, Order No. 21834, issued September 5, 1989, in Docket No. 881361-WU, In
Re: Application for transfer of Certificate No. 364-W from Linadale Water
Company to Troy Alan Eagan in Marion County, where the Commission denied a
transfer for failure to demonstrate financial viability. In this case, the
financial and technical viability of the buyer is critical to the public
interest determination. Issues 6 and 7 contain staff’s analysis of the financial
and technical ability with respect to the proposed transfers. In those issues,
staff recommends that Camp Florida has not shown that it has the financial and
technical ability to operate the utility.
The Commission’s
public interest determination should not be based on the organization and membership
of the Association. The public interest determination should be based on other
factors such as technical and financial viability. Staff recommends that it is
not in the public interest to approve the transfers of the wastewater system or
the LPUC stock to the Association based on Camp Florida’s failure to show that
it will have the financial and technical ability to operate the utility
successfully. It should be noted that the transfer contract states that the transfer
of the water and wastewater systems are contingent upon the closing of each
other. (EXH 7)
Issue 5: Does the evidence demonstrate that
Camp Florida will fulfill the obligations and commitments of Woodlands?
Recommendation: Yes. It appears that Camp Florida will
fulfill the commitments, obligations, and representations of the utility if the
transfers are approved. (Clapp, Redemann)
Position of the Parties
LPUC: Yes.
OPC:
No. Florida Statutes require that before a transfer can be approved, the
Commission must make an affirmative determination that the transferee will
fulfill the obligations and commitments of the transferor. There is no reason
to conclude the transferee would be able to fulfill the transferor’s regulatory
obligations and commitments.
Staff Analysis: Section 367.071, Florida Statutes, provides that in
considering a transfer application, the Commission must determine whether the
buyer will fulfill the commitments, obligations and representations of the
seller with regard to utility matters. LPUC indicated that Camp Florida will
fulfill the commitments, obligations, and representations with regard to
utility matters. Public Counsel believes that Camp Florida will not
be able to fulfill the utility’s commitments, obligations, and representations.
OPC
argues that the refunds ordered by the Commission in the staff assisted rate
case docket will not be paid off prior to the transfer. (OPC BR 14-16) In
its brief, OPC pointed out that as of July, 2004, the amount of outstanding
refunds due to customers was $53,148.87 and the total amount of the credit
balance on customers’ bills was $10,399, with only a few months remaining to
complete the refund. (TH TR 99-100) This would make the individual customers,
as members of the Association, responsible for the net credit balance on
customers’ bills at the time of transfer. Effectively, the customers would be
paying their own refunds. Further, according to OPC, the utility would have
significant cash flow problems for an extended period of time as a result of the
large credit balances on the customers’ utility bills. OPC states that absent
the proposed transfer, the obligation for the large credit balance would be the
responsibility of LPUC and Highvest, not the customers. (OPC BR 15-16)
The utility included a
statement in its application that Camp Florida would fulfill the commitments,
obligations and representations with regard to utility matters. (EXH 7) Mr.
Lovelette’s testimony supported that statement. Specifically, Mr. Lovelette
testified that the meters had been installed as required by Order No. PSC-02-1739-PAA-WS.
He also testified that the refunds would be completed by September, 2004 as
required by Order No. PSC-03-1051-FOF-WS. (TH TR 16, 39)
The evidence in the
record supports the conclusion that Camp Florida has acknowledged its
responsibility to fulfill the commitments, obligations, and responsibilities of
the utility if the transfers are approved. (EXH 7) At the hearing, the
utility has asserted that all the refunds, required in Docket No. 020010-WS, would
be made by September, 2004. OPC’s arguments to the contrary are speculative.
Commission rules and statutes do not prohibit utilities from making refunds by
credits to customer bills. Therefore, staff recommends that based on the record
it appears that Camp Florida will fulfill the commitments, obligations, and
representations of the utility if the transfers are approved. Other concerns
regarding the ongoing financial viability of the utility if the transfers are
approved are discussed in Issues 6 and 7.
Issue 6: Should the Commission approve the
transfer of the wastewater facilities to Camp Florida Property Owners
Association, Inc. and cancel Certificate No. 533-S?
Recommendation: No. The transfer
of the wastewater facilities to Camp Florida Property Owners Association, Inc. is
not in the public interest and should not be approved. (Clapp, Redemann)
Position of the Parties
LPUC: Yes.
OPC:
No. The facts of this case are such that the Commission should not approve
this transfer as in the public interest or determine that the transferee will
fulfill all of the obligations of the utility.
Staff Analysis: On October 21, 2003, LPUC
applied for a transfer of the wastewater utility facilities of
Woodlands to Camp Florida Property Owners Association, Inc. and cancellation of
Certificate No. 533-S. (EXH 7) The application
has met the minimum filing requirements of section 367.071, Florida Statutes,
and Rule 25-30.037, Florida Administrative Code, which details the application
requirements. LPUC believes the application should be approved. Public
Counsel does not believe that the transfer is in the public interest or that
the transferee will fulfill the obligations of the utility.
Purchase Price and
Financing. A written contract for the purchase of the wastewater
facilities is included with the application. According to the contract, the
wastewater system purchase price is $191,523, which is to be financed by a
loan, from Anbeth or its assigns, for 100% of the purchase price amortized by
quarterly payments over 10 years at 6.99% interest. Principal and interest
payments are to be paid quarterly to coincide with the receipt of maintenance
fees from Association members. (EXH 7) LPUC witness Lovelette testified that
the purchase price is equal to the rate base established in Order No. PSC-03-1051-FOF-WS.
(TH TR 27)
Mr. Lovelette
testified that a ten-year period was chosen as the payback period for the loan
because he did not want to drag it out over a longer period of time and the
interest rate of 6.99% was what was currently offered. (TH TR 50) Based on his
understanding that the Association is exempt from Commission regulation, he
testified that the wastewater system would be able to operate more efficiently
without regulation in that the rates would no longer be subject to regulatory
assessment fees or to other expenses of regulation. (TH TR 27-28) In its brief,
the utility identified several other factors that could impact the utility’s
future cash flow for wastewater, including additional revenues resulting from
additional meters being installed, changes in utility management, and that the
debt is expected to be paid off in ten years. (LPUC BR 9-10; TH TR 17-18, 58,
119)
Several of the
customers testified at the service hearing that they were fearful of incurring
debt for a business of which they did not want to be a part. They were
concerned that if the Association were to purchase the wastewater utility with
a loan from Anbeth and were unable to make the quarterly mortgage payments, that
increased assessments for the Association members or foreclosure on the Association
would be likely. (SH TR 12-103, 124-130)
OPC witness DeRonne
testified that the Association would not be able to make the full mortgage
payment and pay on-going wastewater system operating costs under the current
rates. She provided an analysis of the ability of the Association to make the
annualized mortgage payments ($26,780) in addition to the costs of operating
the wastewater system with the wastewater revenues approved in the staff
assisted rate case. The analysis indicates an annual cash shortfall of $1,939
assuming the utility collects its approved rates from all customers. An
additional cash shortfall of $21,591 was estimated based on Highvest not paying
for wastewater service for its rental lots. Her analysis noted that
depreciation, a non-cash expense, was excluded in estimating the cash
shortfall. She also noted that the analysis does not consider possible
additions that may be needed for capital improvements. (TH TR 79-83; EXH 9)
Ms. DeRonne expressed concern that Highvest may not pay for utility service on
its lots, because of its history of not paying for service until November
2003. Since the Highvest lots represent approximately 62% of the platted lots
in Camp Florida, neither the Association nor any other company could forego
such a high portion of its revenue and continue to remain financially viable.
(TH TR 72-74)
Mr. Lovelette
testified that the board of the Association would have a fiduciary duty to the
members that would prevent the members of the board from deciding not to charge
Highvest for its water and wastewater service, even if a majority of the
members voted not to charge Highvest. He further testified that if Highvest
did not pay, its service would be terminated. However, he conceded that when
he was responsible for running the water and wastewater utilities, as Woodlands
or LPUC, he never cut off service to Highvest during the months Highvest was
not making its payments. (TH TR 122-124) Mr. Lovelette also testified that
Highvest has been paying for utility service since November, 2003. (TH TR 36) Mr.
Lovelette also testified that LPUC provides water service to Anthony Cozier for
his personal residence. However, Mr. Cozier does not pay for water service.
(TH TR 45)
Technical and Financial Ability. According to the
application, the Association will retain the experienced and knowledgeable
staff of LPUC to operate the wastewater system assets in accordance with industry
standards. LPUC has the technical ability to render reasonably sufficient,
adequate and efficient service. (EXH 7) Mr. Lovelette testified that the Association
wants to hire someone else to run the day-to-day operations of the utility and
he would assist with the transition to the replacement. (TH TR 17, 52)
A review of the Association’s
financial statement for 2003 shows negative earnings for that year. (EXH 3) In
its brief LPUC states that if there is any shortfall of the wastewater earnings,
there is operating income from the water system to offset any shortfall. (LPUC BR
10)
Fifteen customers
spoke at the customer service hearing and most expressed concerns about Mr.
Cozier’s management and control of the utility and the Association. In
particular, they testified that they had filed a Circuit Court case in which
they sued Mr. Cozier for unethical business practices and breach of fiduciary
duty with respect to the Association property. The customers were adamant that
they did not want to be in the utility business or in any other business with
which Mr. Cozier was associated. One customer, Mr. Cozier, spoke in favor of
the transfer. (SH TR 12-130)
Modifications.
During the technical hearing, Ms. DeRonne was asked what could be modified
about the transfers to the Association to cause the Association members to want
the transfers to take place. The suggestions discussed included the bylaws
being modified to allow for one vote per owner within Camp Florida, an
independent manager of the utility being hired, and $100,000 of foregone
revenue being infused into cash reserves. (TH TR 108-113) In response, LPUC’s
brief included a statement that LPUC was willing to restructure the transaction
to leave the wastewater assets in LPUC when its stock is sold to the
Association. (LPUC BR 11) While this might not be a solution, staff believes
this might be a good starting point for future discussions.
Conclusion.
Although the utility has filed the information required by Rule 25-30.037, Florida
Administrative Code, the Commission must consider whether the transfer is in
the public interest based on the buyer’s financial and technical ability to
maintain and operate the utility and in consideration of any other public
interest factors that may have a bearing on the proposed transfer, as discussed
in Issue 4. Although there do not appear to be any significant problems with
the operational condition of the utility, there are serious concerns regarding
the Association’s financial and managerial abilities, particularly with respect
to the repayment of the loan to Highvest and the customers’ concerns with
respect to Mr. Cozier’s business practices.
The contract for the
transfer of the wastewater system offered a mortgage to the Association for 100%
financing of the $191,523 purchase price for 10 years at 6.99% interest. This
appears to be an extremely short pay back period regardless of whether the
utility is regulated or exempt. Even if all customers pay the utility’s
authorized rates, it is unclear whether those rates are sufficient to provide
the cash flow needed to make the mortgage payments and fund the wastewater
operating expenses.
As discussed in Issue
2, Woodlands, LPUC, Highvest, Camper Corral, Inc., Anbeth, and the Association
are all related entities. Mr. Lovelette’s testimony that the board of the
Association has a fiduciary duty to require Highvest to pay for its water and
wastewater service is not compelling because those same individuals, as
officers and directors of Woodlands and LPUC, have historically not required
Highvest to pay for water and wastewater service. Mr. Cozier’s and Mr.
Lovelette’s past business practices have shown that they do not always put the
utility and its customers first in making business decisions. Further, based
on Mr. Lovelette’s testimony, the Association plans to replace him at some
point, but no testimony was offered as to who the replacement might be.
Based on the record, assuming the Commission approves staff’s
recommendation in Issue 2 to transfer the utility from Woodlands to LPUC, staff
recommends that the Association has not shown that it has the financial and
managerial ability to operate the utility. The transfer of facilities from
LPUC to the Association is not in the public interest and should not be
approved. If the Commission approves staff’s recommendation in Issue 1 and
finds that the Association is not exempt, then even if the transfer is
approved, the certificate should not be cancelled.
Issue 7: Should the Commission approve the
transfer of majority organizational control of L.P. Utilities Corporation from
AnBeth Corporation to Camp Florida Property Owners Association, Inc.?
Recommendation: No. The transfer of the majority organizational
control of LPUC from Anbeth to the Association is not in the public interest
and should not be approved. (Clapp, Redemann)
Position of the Parties
LPUC: Yes.
OPC: No. The facts of this case are such
that the Commission should not approve this transfer as in the public interest
or determine that the transferee will fulfill all of the obligations of the
utility.
Staff Analysis: The
issues with respect to the proposed transfer of majority organizational control
of LPUC from Anbeth Corporation to the
Association are the same as those associated with the proposed transfer of
wastewater facilities from LPUC to the Association
as discussed in Issue 6. The utility maintains that the transfer is in
the public interest because the customers will have direct control over the
utility. The customers remain concerned about the ability of Highvest to
control the utility through control of the Association, Highvest’s failure to
pay for utility service, and incurring debt for a business of which the
customers will have limited control. (SH TR 12-130; TH TR 73-74)
LPUC applied for a transfer of majority
organizational control of LPUC from Anbeth to the Association on October 20, 2003. The contract is contingent on the closing of the water and wastewater systems. (EXH 7) The application has met the minimum filing
requirements of section 367.071, Florida Statutes, and Rule 25-30.037, Florida
Administrative Code.
Purchase Price and Financing. A written contract
for the transfer of the stock in LPUC is included with the application. LPUC
witness Lovelette testified that the purchase price for the LPUC stock is equal
to the value of the water rate base of $189,086, less a deduction of $89,086,
which is in consideration of the utility assuming the obligation to pay
refunds. Because LPUC has been making the refunds, the purchase
price of the stock will be increased by the amount of the refunds paid as of
the effective date of the sale of the stock. The purchase price will not
exceed the value of the rate base set by the Commission in the SARC order. According
to the application, at closing, LPUC will be debt free except for the refund
obligation. Mr. Lovelette testified that the purchase is to be funded by the
Association through a special assessment of $261.78 per lot for each of 382
lots. Because LPUC has been making the refunds, the purchase price of the stock
will increase and the special assessment to the property owners will also
increase if the transfer is approved. (TH TR 28-29, 43, 54-55; EXH 7)
Technical
and Financial Ability. As discussed in Issue 6, the utility’s application
indicated that the Association intends to retain the current staff of LPUC
which has demonstrated the technical ability to run the utility. However, Mr.
Lovelette testified that the Association intends to replace him at some point,
but offered no testimony as to who that replacement might be. (TH TR 52) With
respect to financial ability, pursuant to Order No. PSC-03-1051-FOF-WS, LPUC
was ordered to refund $78,268 plus interest to the 150 residential customers who
own lots in the park and the 33 residential customers outside the park. Mr.
Lovelette testified that the $43.88 monthly refunds, most of which are credits
to the customer bills, will be completed in September, 2004. (TH TR 25, 39)
Ms. DeRonne testified that if the transfer were allowed to go through as
proposed, because of significant credit balances on most of the customers’
accounts, a significant period of time would pass prior to these customers
actually paying a utility bill, creating a cash flow problem for the utility.
(TH TR 100) Further, as also discussed in Issue 6, the financial condition of
the utility has been affected by Highvest’s historical failure to pay for water
and wastewater service, although Mr. Lovelette testified that Highvest began
paying for service in November, 2003. (TH TR 36)
Conclusion. As
discussed in Issue 6, although the utility has filed the information required
by Rule 25-30.037, Florida Administrative Code, the Commission must consider
whether the transfer is in the public interest based on the buyer’s financial
and technical ability to maintain and operate the utility and in consideration
of any other public interest factors that may have a bearing on the proposed
transfer. There do not appear to be any significant problems associated with
the operational condition of the utility. However, there are concerns with
respect to the financial and managerial viability of the utility.
The
contract for the transfer of majority organizational control of LPUC is offered
as a cash transaction funded by a special assessment on the Association
property owners. While the assessment was initially established as $261.78 for
each of 382 lots, as LPUC makes the refunds, the purchase price will increase
from $100,000 to $189,086. (TH TR 28, 54-55; EXH 7) The proposed
transfer of stock from Anbeth to the Association would put the homeowners in
the position of potentially having to help fund utility cash flow shortfalls
resulting from the water refund and Highvest’s failure to pay for utility
service.
While
the application indicates that the stock of LPUC is being transferred without
any existing debt, it is unclear as to how that will be accomplished. As
discussed in Issue 2, LPUC’s current mortgage for the utility is $409,959 and
no payments were made on the loan during 2003. (TH TR 47) The proposed
purchase price for the wastewater assets is $191,523 and the most the Association
might pay for the stock in LPUC (for the remaining water assets) is $189,086.
These amounts fall short of the balance of the LPUC mortgage by approximately
$29,000. No testimony was offered as to how that shortfall would be addressed.
The
concerns regarding managerial ability with respect to the transfer of control
of the stock in LPUC to the Association are the same as those discussed in
Issue 6. Woodlands, LPUC, Highvest, Camper Corral, Inc., Anbeth, and the
Association are all related entities (EXH 10) and Mr. Cozier’s and Mr.
Lovelette’s past business practices have shown that they do not always put the
utility and its customers first in making business decisions. Although the
utility’s application indicated that the Association intends to retain the
current staff of LPUC, as discussed in Issue 6, Mr. Lovelette testified that
the Association intends to replace him at some point, but offered no testimony
as to who that replacement might be.
Based on the
record, assuming the Commission approves staff’s recommendation in Issue 2 to
transfer the utility from Woodlands to LPUC, staff recommends that the
Association has not shown that it has the financial and managerial ability to
operate the utility. The transfer of the majority organizational control of
LPUC from Anbeth to the Association is not in the public interest and should
not be approved. Again, staff notes that the proposed contract is contingent upon
the closing of the water and wastewater systems.
Issue
8: Should this docket be closed?
Recommendation:
Upon the expiration of the appeal period, if no party timely appeals the order,
and upon the filing and staff’s approval of the revised tariff sheets, this
docket should be closed. (Fleming, Brown)
Staff Analysis: Upon the expiration of the
appeal period, if no party timely appeals the order, and upon the filing and
staff’s approval of the revised tariff sheets, this docket should be closed.
ATTACHMENT A
L. P. UTILITES
CORPORATION
HIGHLANDS COUNTY
WATER SERVICE AREA
Commence at the Northwest corner
of Section 17, Township 37 South, Range 30 East, Highlands County, Florida;
thence East along the North line of said Section 17, 824 feet, more or less, to
the intersection of the North line of said Section 17 and the East right-of-way
line of U.S. Highway 27 extended, being the Point of Beginning; thence continue
East along the said North line of Section 17, 3700 feet, more or less, to the
shoreline of Lake Grassy; thence South and Southwesterly along the shoreline of
said Lake Grassy, 5600 feet, more or less, to the South line of said Section 17
and the said East right-of-way line of U.S. Highway 27; thence Northwest along
said East right-of-way line, 5950 feet, more or less, to the Point of
Beginning.
ATTACHMENT A
L. P. UTILITES
CORPORATION
HIGHLANDS COUNTY
WASTEWATER SERVICE AREA
Begin at a point on the North
line of Section 17, Township 37 South, Range 30 East, Highlands County,
Florida, 660 feet Easterly of the East right-of-way line of US Highway 27, as
measured at right angles; thence run Easterly along the North line of Section
17 a distance of 2,975 feet more or less to the Shore line of Lake Grassy,
thence run Southerly and Southwesterly along the shore line of Lake Grassy (a
straight line to this point is a distance of 2,250 feet more or less) to a
point that is 413.15 feet North of the South line of the Northeast 1/4 and the
Northwest 1/4 of Section 17; thence run Westerly along a line 413.15 feet North
of the South line of said Northeast 1/4 and 413.15 feet North of the South line
of said Northwest 1/4 to a point that is 600 feet Easterly of the East
right-of-way line of US Highway 27, as measured at right angles; thence run
Northwesterly, 660 feet East of and parallel to the Easterly right-of-way line
of US Highway 27 to the Point of Beginning. And, The North 300 feet of the
South 750 feet of the West 410 feet of the East 1/2 of the East 1/2 of the
Southwest 1/4 of Section 8, Township 37 South, Range 30 East, Highlands County,
Florida. And, The West 210 feet of the South 450 feet of the East 1/2 of the
East 1/2 of the SW 1/4 of Section 8, Township 37 South, Range 30 East,
Highlands County, Florida.
Township 37 South, Range 30 East,
Section 17- That portion of Lake Placid Camp Florida Resort, as recorded in
Plat Book 15, Page 93, Highlands County, Florida, previously being part of the
territory described in Highlands Utilities Corporation service area, being more
particularly described as follows: Commence on the North line of Section 17,
Township 37 South, Range 30 East, 660 feet Easterly of, as measured at right
angles to the East right of way line of U.S. 27; thence Southeasterly along a
line that is 660 feet East of and parallel with the said East right of way
line, 300 feet more or less to the North line of said Lake Placid Camp Florida
Resort and the Point of Beginning; thence continuing South easterly
along the line 660 feet East of and parallel with said right of way line,
778.39 feet more or less to the South line of said Lake Placid Camp Florida
Resort; the following 15 calls are along the boundary of said Lake Placid Camp
Florida Resort, (1) thence N81°58"06"W,
29.61 feet; (2) thence N35°18'13"W,
256.10 feet; (3) thence S88°19'15"
W, 135.89 feet; (4) N69°05'48"W,
8.86 feet; (5) thence S65°07'11"W,
291.84 feet; (6) thence N24°52'49"W,
174.00 feet; (7) thence S65°07'11"W,
165.76 feet to said right of way line; (8) thence N24°49'46"W, 157.95 feet; (9) thence N65°08'22"E, 25.57 feet; (10) thence N24°51'38"W, 219.42 feet; (11) thence N80°20'00"E, 107.91 feet; (12) thence N87°00'00"E, 218.15 feet; (13) thence N 50°00'00"E, 166.49 feet; (14) thence N75°29'10"E, 115.12 feet; (15) thence along
the arc of a curve to the right with a central angle of 08°24'16", whose radius is 377.51 feet,
with a chord bearing of N79°41'18"E,
and a chord distance of 55.33 feet, an arc distance of 55.38 feet to the Point
of Beginning.