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Case Background
Par
Utilities, Inc. (Par, Seller, Utility) is a Class C
water utility serving the Inglewood Estates subdivision in Levy County,
which is built-out at 57 residential customers.
The Utility is located in the Southwest Florida Water Management
District, which has water use restrictions. The Utility’s 2010 Annual Report lists annual
revenues of $18,028 with a net operating income of $119.
The Inglewood
water system was initially constructed in 1973.
After Levy
County transferred
jurisdiction to the Commission in 1983, the system was granted Certificate No.
428‑W under the name of Inglewood Water System. In 1986, control of the Utility
transferred to James
D. Ditullio. In 2000, the system was acquired
by Lonnie and Royanna Parnell, who subsequently changed the name on the certificate to Par. On
April 12, 2011,
an application was filed for the transfer of the Inglewood system and Certificate No. 428-W to
Hash Utilities, LLC (Hash or Buyer). Pursuant
to Section 367.071(1), Florida Statutes (F.S.), the transfer occurred on April 25, 2011,
contingent upon Commission approval.
This recommendation addresses the transfer,
net book value, and rates and charges for the Inglewood water system. The Commission has jurisdiction pursuant to
Sections 367.071, 367.091, and 367.101, F.S.
Discussion
of Issues
Issue 1:
Should the transfer of assets
and Certificate No. 428-W from Par Utilities, Inc. to Hash Utilities, LLC.
be approved?
Recommendation:
Yes, the transfer is in the public interest
and should be approved effective the date of Commission vote. The territory being transferred is described
in Attachment A. The resultant order
should serve as Hash’s water certificate and should be retained by Hash. The Utility’s existing rates and charges
should continue to be in effect until authorized to change by the Commission in
a subsequent proceeding. 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 pages, pursuant to Rule 25-30.475(1), F.A.C. Hash should be responsible for
submitting annual reports and remitting regulatory assessment fees (RAFs) for
the Inglewood
system for 2011 and all future years. (Brady, Gardner, Simpson,
Young)
Staff Analysis:
On April 12, 2011, an application was filed for
approval of the transfer of the Inglewood water
system and Certificate No. 428-W in Levy
County from Par to
Hash. The application is in compliance
with the governing statutes, Sections 367.045 and 367.071, F.S., and other pertinent statutes and administrative
rules concerning applications for transfer of certificates. Pursuant to Section 367.071(1), F.S., the transfer occurred on April 25, 2011, contingent
upon Commission approval.
The application contains proof of compliance with the
noticing provisions set forth in Rule 25-30.030, Florida Administrative Code
(F.A.C.). No objections to the notice
have been filed with the Commission and the time for filing objections has
expired. A description of the territory
being transferred is appended to this recommendation as Attachment A. The application contains a copy of a recorded
warranty deed as evidence that Hash owns the land on which the water treatment
facilities are located, pursuant to Rule 25-30.037(2)(q), F.A.C.
Pursuant to Rule 25-30.037(2)(h),
F.A.C., the application contains a copy of the Inglewood Water System Sale
Agreement which includes the purchase price, terms of payment, and a list of
the assets purchased. Inglewood’s water system assets were
purchased for $25,000 in cash. Any past
due customer accounts were returned to the Seller and any prepayments or
deposits transferred to the Buyer.
The Inglewood water system consists of two 4-inch
wells with primary treatment by chlorine.
Treated water is then injected with an AquaMag solution for iron
sequestration and channeled into a hydropneumatic tank for distribution. Staff has verified that the water system is
currently in satisfactory condition and in substantial compliance with all
applicable standards set by the Florida Department of Environmental Protection
(DEP).
The application indicates that
the Buyer is licensed by the DEP and has a decade of construction
experience. The Buyer currently owns and
operates four other water systems in nearby Citrus County
and is available 24 hours a day for service calls. The Buyer is also the owner of a software
development company and, in addition to asset holdings, has access to business
and personal lines of credit. According
to the application, the Buyer enjoys interacting with the customer base and has
agreed to fulfill the commitments, obligations, and representations of the
Seller with regard to Utility matters.
Therefore, it appears the Buyer has demonstrated the financial and
technical ability to continue to operate the Utility, pursuant to Rule 25-30.037(2)(j), F.A.C.
For transfer purposes, an audit was conducted to establish
the net book value of the Inglewood
water system as of December 31, 2010.
The audit
determined that the Utility’s general ledger was in conformity with the National Association of Regulatory Utility Commissioners’
Uniform System of Accounts (NARUC’s USOA). The audit also obtained a description of the
Buyer’s record-keeping system, which appears to be adequate to keep the Inglewood water system
revenues and expenses separate from the Buyer’s other water systems. The Buyer appears to have an understanding
and willingness to comply with Commission rules and regulations.
The application indicates that
the Seller is responsible for any RAFs prior to the transfer and the Buyer is
responsible for RAFs after the transfer.
As noted, deposits on account were transferred to the Buyer at the
closing on April 25, 2011.
Staff has verified
that the Utility is current on its annual report for 2010 and all prior years,
and that there are no outstanding RAFs, fines, or refunds due. Therefore, Hash should be responsible for
submitting annual reports and remitting RAFs for the Inglewood water system for 2011 and all
future years.
The Utility’s rates and charges were
last approved by the Commission in 1987. However, the Seller has implemented regular
price indexes since 2004 and the Buyer has indicated that it intends to
continue this practice. The Utility’s
existing service rates consist of a monthly base facility charge of $17.88 and
a gallonage charge of $2.93 per 1,000 gallons, as shown on Schedule No. 3. The Utility also has a service availability
charge for new connections, an initial customer deposit, and miscellaneous
service charges also shown on Schedule No. 3.
Rule 25-9.044(1), F.A.C., provides that, in the
case of a change of ownership or control of a utility, the rates,
classifications, and regulations of the former owner must continue unless
authorized to change by this Commission.
Therefore, staff recommends that the Utility’s existing rates and
charges shown on Schedule No. 3 be continued until authorized to change by this Commission in a subsequent
proceeding. In addition, while
not requesting any changes to the Utility’s existing rates and charges, the
Buyer has requested that the Commission approve a bi-monthly billing cycle,
consistent with its other systems, and a new meter installation charge (Issues
3 and 4).
Based on
the above, staff recommends that the transfer of the Inglewood water system and Certificate No.
428-W from Par Utilities, Inc. to Hash Utilities, LLC is in the public interest
and should be approved effective the date of Commission vote. The territory being transferred is described
in Attachment A. The resultant order
should serve as Hash’s water certificate and be retained by Hash. The Utility’s existing rates and charges
should continue until authorized to change by the Commission in a subsequent
proceeding. 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 pages,
pursuant to Rule 25-30.475(1), F.A.C. Hash
should be responsible for submitting annual reports and remitting RAFs for the Inglewood water system
for 2011 and all future years.
Issue 2: What
is the net book value of the Inglewood
water system for transfer purposes and should an acquisition adjustment be
approved?
Recommendation:
The net book value
of the Inglewood
water system is $27,314 as of December 31,
2010. A positive negative acquisition
adjustment should not be approved included in rate base. Within 30 days of the date of the final
order, Hash should be required to provide general ledgers which show its books
have been updated to reflect the Commission-approved balances as of December 31,
2010,
along with a statement that these numbers will also be reflected in the
Utility’s 2011 annual report. (Brady, Gardner, Simpson,
Young)
Staff Analysis:
Net book value for the Inglewood water system was last established
as of June 30, 1998, in the amount of $25,238, pursuant to Order No. PSC-00-0682-FOF-WU (last order). An audit of the Utility’s books and records
was conducted to establish the net book value for transfer purposes as of December 31,
2010. Net book value is used to determine whether an
acquisition adjustment should be approved and does not include normal
rate making adjustments for used and useful plant or working capital.
Utility Plant in Service (UPIS)
The
Utility’s general ledger reflects a water UPIS balance of $63,831 as of December 31,
2010. The water system consists primarily of
structures and improvements, treatment and pumping
equipment, lines, services, and meters.
The Utility has not made the adjustments to UPIS reflected in the last
order. As shown on Schedule No. 1, staff
recommends an adjustment to reduce the Utility’s UPIS balance by $2,587 to
reflect adjustments made in the last order, which results in a UPIS balance as
of December 31, 2010 of
$61,244.
Land
& Land Rights
The Utility’s general ledger reflects land of $4,307. The NARUC’s USOA states that the
cost of land should be recorded at its original cost when first dedicated to
utility service.
The last order established the original cost of the land at $3,307 as of
June 30, 1998. No additional land has been purchased by the
Utility; therefore, staff recommends a
reduction to land of $1,000 consistent with the last order. This results in staff’s recommended land
balance as of December 31,
2010 of $3,307 shown on Schedule No. 1.
Accumulated
Depreciation
The
Utility’s general ledger reflects an accumulated depreciation balance of
$49,126 as of December 31, 2010. The Utility has not made the adjustments to accumulated
depreciation balances reflected in the last order. As shown on Schedule No. 1, staff recommends
a reduction to the Utility’s accumulated depreciation balance of $12,320 to
reflect adjustments made in the last order, which results in an accumulated
depreciation balance as of December 31, 2010 of $36,806.
Contributions-in-Aid-of-Construction (CIAC) and Accumulated
Amortization of CIAC
The
Utility’s general ledger reflects a $570 balance for CIAC and an accumulated
amortization of CIAC balance of $46 as of December 31, 2010. According to the
staff audit, when the Utility’s CIAC became completely amortized in 2002, the
Utility removed the CIAC and accumulated amortization balances from its
books. Therefore, the 2002 CIAC and
accumulated amortization balances of $14,464 should be restored. In addition, the Utility collected its
approved service availability charge of $190 for three connections between 2003
and 2005, which results in an addition to its CIAC balance of $570 as of December 31,
2010. Audit staff then recalculated accumulated
amortization pursuant to the guidelines in Rule 25-30.140, F.A.C., which
results in an additional adjustment to Utility’s accumulated amortization
balance of $93.
As shown on Schedule No. 1, staff recommends adjustments to the
Utility’s CIAC balance of $14,464 and
accumulated amortization of CIAC balance of $14,557, which result in CIAC and
accumulated amortization of CIAC balances of $15,034 and $14,603, respectively,
as of December 31, 2010.
Net Book Value
The
Utility’s general ledger reflects total net book value for the Inglewood water system of $18,488 as of December 31,
2010. Based on the adjustments described above and
shown on Schedule No. 1, staff recommends that net book value for the Inglewood water system is
$27,314 as of December 31,
2010. Schedule No. 2 contains the NARUC account balances for UPIS and
accumulated depreciation as of December 31, 2010.
Acquisition Adjustment
An acquisition adjustment results when the purchase price
differs from the net book value of the assets at the time of the
acquisition. The Inglewood water system was purchased for
$25,000. Based on a net book value of
$27,314 as of December 31, 2010, the transfer would result in a positive negative
acquisition adjustment of $2,314. Pursuant to Rule 25-30.0371(2), F.A.C., a positive
acquisition adjustment shall not be included in rate base unless there is proof
of extraordinary circumstances. The
buyer did not request a positive acquisition adjustment and there is no
evidence of extraordinary circumstances.
Therefore, staff recommends that a positive acquisition adjustment
should not be approved. Pursuant
to Rule 25-30.0371(3), F.A.C., if the purchase price is greater than 80 percent
of net book value, a negative acquisition adjustment will not be included in
rate base. Eighty percent of the net book
value of this system would be $21,851.
Since the purchase price of $25,000 is greater than 80 percent of the
net book value, staff recommends that a negative
acquisition adjustment should not be included in rate base.
Conclusion
Based on the above, staff
recommends that the net book
value of the Inglewood
water system is $27,314 as of December 31,
2010. A positive negative acquisition
adjustment should not be approved included in rate base. Within 30 days of the date of the final
order, Hash should be required to provide general ledgers which show its books
have been updated to reflect the Commission-approved balances as of December 31,
2010,
along with a statement that these numbers will also be reflected in the
Utility’s 2011 annual report.
Issue 3:
Should the Buyer’s request for a bi-monthly billing
cycle be approved?
Recommendation:
Yes, the request for a bi-monthly billing cycle
should be approved. Hash should be
required to bill on a bi-monthly basis until authorized to change the billing
cycle by this Commission in a subsequent proceeding. Hash should be
required to file a proposed customer notice to reflect the bi-monthly billing
cycle for the water system. The approved
bi-monthly billing cycle should be effective for services rendered on or after
the stamped approval date of the tariff sheet, pursuant to Rule 25-30.475(1),
F.A.C. In addition, the approved
bi-monthly service cycle should not be implemented until staff has approved the
proposed customer notice. Hash should
provide proof of the date notice was given within ten days after the date of
the notice. (Brady,
Simpson)
Staff Analysis:
The Buyer has requested a
change in the Utility’s billing cycle from monthly to bi-monthly. This will result in a two-month base facility
charge of $35.76 with usage continuing to be billed at $2.93, per 1,000
gallons, as shown on Schedule No. 3. As
justification, the application indicates that the Buyer has a bi-monthly
billing cycle for its other water systems and believes that it reduces the cost
of meter reading, mailing, and payment processing. The Buyer indicates that a majority of its
customers appreciate bi-monthly bills.
However, for the few customers who prefer monthly bills, the Buyer
allows an estimated payment in the non-billed month. Since the Utility’s overall service rates are
relatively low and the Inglewood
water system relatively small, staff recommends that the Buyer’s request to
bill on a bi-monthly cycle be approved.
The Buyer should be required to provide notice to its customers of the
bi-monthly billing cycle.
Staff, therefore, recommends that Hash Utilities, LLC’s
request for a bi-monthly billing cycle be approved. Hash should be required to bill on a bi-monthly
basis until authorized to change the billing cycle by this Commission in a
subsequent proceeding. Hash should be required to file a proposed customer notice to reflect
the bi-monthly billing cycle for the water system. The approved charges should be effective for
services rendered on or after the stamped approval date of the tariff sheet,
pursuant to Rule 25-30.475(1), F.A.C. In
addition, the approved charges should not be implemented until staff has
approved the proposed customer notice.
Hash should provide proof of the date notice was given within ten days
after the date of the notice.
Issue 4:
Should the Buyer’s request for a meter installation
charge be approved?
Recommendation:
Yes. Hash
Utilities, LLC’s request for a meter installation charge should be
approved. Hash should be required to
charge the approved meter installation charge until authorized to change the
charge by this Commission in a subsequent proceeding. The charge should be effective for new
connections made on or after the stamped approval date on the tariff sheet,
pursuant to Rule 25-30.475(1), F.A.C. (Brady, Simpson)
Staff Analysis:
Pursuant to Section 367.101, F.S.,
the Commission shall set just and reasonable charges and conditions for service
availability. Even though the Inglewood water system is
at build-out, staff recommends that the Utility’s tariff contain service
availability charges. As noted, the
Utility’s existing tariff has the provision for a service connection charge of
$190. The Buyer is requesting that the
Commission approve a meter installation charge of $175 for 5/8” x 3/4” and 1”
meters. Staff has reviewed the Buyer’s
cost justification and believes the meter installation charge is reasonable. Existing customers are not required to pay
service availability charges.
As shown on Schedule No. 3, staff
recommends that Hash Utilities, LLC’s request for a meter installation charge
be approved. Hash should be required to
charge the approved meter installation charge until authorized to change the
charge by this Commission in a subsequent proceeding. The approved meter installation charge should
be effective for new connections made on or after the stamped approval date on
the tariff sheet, pursuant to Rule 25-30.475(1), F.A.C.
Issue 5:
Should this docket be closed?
Recommendation:
Yes. If no
protest to the proposed agency action issue is filed by a substantially affected
person within 21 days of the date of the order, the docket should be closed
upon the issuance of a consummating order.
(Young)
Staff Analysis:
If no protest to the proposed agency action issue is
filed by a substantially affected person within 21 days of the date of the
order, the docket should be closed upon the issuance of a consummating order.
Hash Utilities, LLC
Water
Service Territory
Inglewood
Water System
Levy
County
Township 16 South, Range 16 East
Section 34
That portion of the North 950 feet of the South
3,100 feet of the East 1/2 of said Section 34, lying South of State Road 40-A.
FLORIDA PUBLIC SERVICE COMMISSION
authorizes
Hash
Utilities, LLC
pursuant to
Certificate
Number 428-W
to provide water service in Levy
County in accordance with the provisions of Chapter 367, Florida Statutes, and
the Rules, Regulations, and Orders of this Commission in the territory
described by the Orders of this Commission.
This authorization shall remain in force and effect until superseded,
suspended, cancelled or revoked by Order of this Commission.
Order Number
Date Issued Docket Number Filing Type
13961
01/03/85 840031-WU Grandfather Certificate
16863
11/19/86 860866-WU Transfer of Majority Control
PSC-00-0682-FOF-WU
04/12/00 990253-WU
Transfer
of Certificate
PSC-00-2093-FOF-WU
11/03/00 001557-WU
Name
Change
*
*
110019-WU Transfer of Certificate
*Order Numbers and dates to be provided at time of issuance.
Hash
Utilities, LLC
Inglewood Water System
Net
Book Value as of December 31, 2010
Utility
Proposed and Staff Recommended
Schedule of Net Book Value
as of December 31, 2010
|
Description
|
Utility
Proposed
|
Adjustment
|
|
Staff
Recommended
|
|
|
|
|
|
|
|
Utility Plant in Service
|
$ 63,831
|
$ (2,587)
|
A
|
$ 61,244
|
|
Land
|
4,307
|
(1,000)
|
B
|
3,307
|
|
Accumulated Depreciation
|
(49,126)
|
12,320
|
C
|
(36,806)
|
|
Contributions in Aid of Construction (CIAC)
|
(570)
|
(14,464)
|
D
|
(15,034)
|
|
Accumulated Amortization of CIAC
|
46
|
14,557
|
E
|
14,603
|
|
|
|
|
|
|
|
Water Net Book Value
|
$ 18,488
|
$ 8,826
|
|
$ 27,314
|
Explanation of Staff’s Recommended
Adjustments to Net Book
Value
|
Explanation
|
Amount
|
|
A. Utility Plant In Service (UPIS)
|
|
|
1.
To reflect adjustments in Order No. PSC-00-0682-FOF-WU
|
(2,587)
|
|
B. Land
|
|
|
1.
To remove undocumented land
|
(1,000)
|
|
C. Accumulated Depreciation
|
|
|
1.
To reflect adjustment in Order No. PSC-00-0682-FOF-WU
|
12,320
|
|
D. CIAC
|
|
|
1.
To add back balance removed in 2002
|
(14,464)
|
|
E. Accumulated Amortization of CIAC
|
|
|
1.
To add back balance removed in 2002
|
14,464
|
|
2.
To recalculate balance for years 1998 to 2010
|
93
|
|
Total
Adjustments to Net Book Value as of December 31, 2010
|
8,826
|
Hash
Utilities, LLC
Inglewood
Water System
Schedule of Staff
Recommended Account Balances as of December 31, 2010
|
Acct.
No.
|
Description
|
UPIS
|
Accumulated
Depreciation
|
|
304
|
Structures & Improvements
|
$10,415
|
$ 9,400
|
|
307
|
Wells & Springs
|
2,111
|
2,111
|
|
309
|
Supply Mains
|
1,504
|
(570)
|
|
310
|
Power Generation Equipment
|
722
|
233
|
|
311
|
Pumping Equipment
|
5,054
|
1,491
|
|
320
|
Water Treatment Equipment
|
11,047
|
9,786
|
|
330
|
Distribution Reservoirs & Standpipes
|
2,437
|
825
|
|
331
|
Transmission & Distribution Mains
|
13,708
|
13,693
|
|
333
|
Services
|
3,676
|
2,729
|
|
334
|
Meter & Meter Installations
|
9,421
|
(2,144)
|
|
340
|
Office Furniture & Equipment
|
543
|
(620)
|
|
343
|
Tools, Shop, & Garage Equipment
|
606
|
(128)
|
|
Total
|
|
$61,244
|
$36,806
|
Hash
Utilities, LLC
Inglewood
Water System
Schedules of
Rates and Charges
Service Rates
Residential
and General Service
|
|
Existing
Monthly Rates
|
Proposed
Bi-Monthly Rates
|
|
Base Facility Charge (5/8”
x 3/4" meter)
|
$17.88
|
$35.76
|
|
Gallonage Charge (per
1,000 gallons)
|
$ 2.93
|
$ 2.93
|
Service Availability Charges
Residential and General Service
|
|
Existing
|
Proposed
|
|
Customer Connection
(Tap-in) Charge
|
$190.00
|
$190.00
|
|
Meter Installation Charges
|
|
|
|
5/8” x 3/4" Meters
|
None
|
$175.00
|
|
1” Meters
|
None
|
$175.00
|
Initial Customer Deposits
Residential and General Service
Miscellaneous Service Charges
|
|
Regular Hours
|
After Hours
|
|
Initial Connection Fee
|
$10.00
|
$15.00
|
|
Normal Reconnection Fee
|
$15.00
|
$20.00
|
|
Violation Reconnection Fee
|
$20.00
|
$25.00
|
|
Premises Visit Fee
(in lieu of disconnection)
|
$10.00
|
None
|
