DATE:	May 2, 2013
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Accounting and Finance (Smith, Fletcher, Maurey) Division of Economics (Roberts, Hudson) Division of Engineering (Simpson, Watts) Office of the General Counsel (Lawson)
RE:	Docket No. 120285-SU – Application to transfer wastewater facilities and Certificate No. 137-S in Brevard County from Colony Park Utilities, Inc. to Colony Park Development Utilities, LLC.
AGENDA:	05/14/13 – Regular Agenda – Proposed Agency Action for Issue 2 – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Balbis
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\AFD\WP\120285.RCM.DOC

 

 

Case Background

Colony Park Utilities, Inc. (Colony Park or Utility or Seller) is a Class C utility providing wastewater service in Brevard County to approximately 300 customers.  Water service and the Utility’s wastewater billings are provided by the City of Cocoa.  According to Colony Park’s 2011 annual report, total gross revenue was $35,204 and total operating expense was $43,860.

The Utility was granted Certificate No. 137-S by Order No. 6365, issued December 2, 1974.^[1]   The Commission established rate base for the Utility by Order No. PSC-08-0760-PAA-SU, issued November 17, 2008.^[2]  In this application, the Utility states that there have been no additions to plant and contributions in aid of construction since the 2008 order. 

On November 9, 2012, an application was filed for the transfer of the Colony Park wastewater system and Certificate No. 137-S to Colony Park Development Utilities, LLC (Colony Park Development or Buyer).  The closing occurred on September 27, 2012, contingent upon Commission approval, pursuant to Section 367.071(1), Florida Statutes (F.S).  The Commission has jurisdiction pursuant to Section 367.071, F.S.

Discussion of Issues

Issue 1: 

 Should the Commission approve the transfer of Colony Park Utilities, Inc. and wastewater Certificate No. 137-S to Colony Park Development Utilities, LLC?

Recommendation: 

 Yes.  The transfer is in the public interest and should be approved effective the date of the Commission vote.  The territory being transferred is described in Attachment A.  The resultant order should serve as Colony Park Development’s wastewater certificate and should be retained as such.  Pursuant to Rule 25-9.044(1), Florida Administrative Code (F.A.C.),  the Utility’s existing rates and charges should remain in effect until a change is authorized by the Commission in a subsequent proceeding.  The tariffs reflecting the transfer should be effective for services rendered or connections made on or after the stamped approval date on the tariffs, pursuant to Rule 25-30.475(1), F.A.C.  Colony Park Development will be responsible for annual reports and regulatory assessment fees (RAFs) for 2012 and all future years.  (Smith, Simpson, Roberts)

Staff Analysis: 

  On November 9, 2012, an application was filed for approval of the transfer of the Colony Park wastewater system and Certificate No. 137-S to Colony Park Development in Brevard County.  The application is in compliance with the governing statutes, Section 367.071, F.S., and administrative rules concerning applications for transfer of certificates.  The closing occurred on September 27, 2012, contingent upon Commission approval, pursuant to Section 367.071(1), F.S.

Noticing, Territory, and Land Ownership

The application contains proof of compliance with the noticing provisions set forth in Section 367.071, F.S. and Rule 25-30.030, F.A.C.  No objections to the transfer were timely filed with the Commission.  The application contains a description of the Utility’s authorized service territory, which is appended to this recommendation on page 1 of Attachment A.  The application contains a copy of a warranty deed that was executed on September 27, 2012, and recorded with the Brevard County Clerk of Courts on September 28, 2012, as evidence that Colony Park Development owns the land upon which wastewater treatment facilities are located.

Purchase Agreement and Financing

Pursuant to Rule 25-30.037(2)(h), F.A.C., the application contains a copy of the executed purchase agreement, which includes the purchase price, terms of payment, and a list of the assets purchased.  The Utility’s assets were purchased by Colony Park Development for $169,000.    There are no customer deposits, guaranteed revenue contracts, developer agreements, or debt of Colony Park that must be disposed of with regard to the transfer.  As noted, the sale took place on September 27, 2012, subject to Commission approval, pursuant to Section 367.071(1), F.S.

Facility Description and Compliance

 

            Colony Park  has  a 70,000-gallon per day annual average daily flow wastewater system,  consisting of aeration, secondary clarification, chlorination and aerobic digestion of solids.  The effluent is disposed of in percolation ponds.  The collection system consists of 4 and 6 inch polyvinylchloride mains with two lift stations.  Staff has verified that the wastewater system is currently in substantial compliance with all applicable standards set by the Florida Department of Environmental Protection.

 

Technical and Financial Ability

 

Pursuant to Rule 25-30.037(2)(j), F.A.C., the application contains a statement indicating that the transfer is in the public interest.  According to the application, the transfer is in the interest of the customers because it allows for efficient operation of the wastewater system.  In addition, the existing licensed operator will continue to operate and maintain the system.  Colony Park Development has acknowledged that the Buyer does not have direct technical experience in operating a wastewater facility.  However, Colony Park Development has attested to the fact that the Utility has access to competent staff who are contracted to perform all aspects required to maintain the Utility. 

 

In support of financial ability, Colony Park Development has provided the closing statement evidencing the escrowed funds for the close of the instant docket.  Further, Colony Park Development has provided a statement agreeing to maintain the books and records in conformance with the National Association of Regulatory Commissioners Uniform System of Accounts (NARUC USOA).  As a result, staff believes that Colony Park Development has demonstrated the financial and technical ability to operate the Utility pursuant to Rule 25-30.037(2)(j), F.A.C.  Therefore, the transfer of utility assets and Certificate No. 137-S to Colony Park Development is in the public interest.

 

Rates and Charges

 

The Utility’s rates and charges were last approved effective November 17, 2008. ^[3]  The Utility’s existing rates and charges are shown on Attachment C.  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 remain in effect until a change is authorized by this Commission in a subsequent proceeding.

 

Regulatory Assessment Fees (RAFs) and Annual Reports

Staff has verified that the Utility is current on its annual report for 2011 including all prior years and there are no outstanding fines.  Currently, there is a RAF refund of $886.19 due to the Utility for 2011 RAFs.  The Utility has requested that the refund amount be applied to the 2012 RAF payment.  According to the purchase agreement, Colony Park Development will be responsible for filing the annual reports and paying RAFs for 2012 and all future years.

 

Conclusion

 

Based on the above, staff recommends that the transfer of the Colony Park wastewater system and Certificate No. 137-S to Colony Park Development 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 resulting order should serve as Colony Park Development’s wastewater certificate and should be retained as such.  The Utility’s existing rates and charges should remain in effect until a change is authorized by the Commission in a subsequent proceeding.  The tariffs reflecting the transfer should be effective for services rendered or connections made on or after the stamped approval date on the tariffs, pursuant to Rule 25-30.475(1), F.A.C.  Colony Park Development will be responsible for annual reports and RAFs for 2012 and all future years.
Issue 2: 

 What is the appropriate net book value for Colony Park Development for transfer purposes, and should an acquisition adjustment be approved?

Recommendation: 

 The net book value of Colony Park Development’s wastewater system for transfer purposes is $58,675, as of December 31, 2011.  An acquisition adjustment should not be included in rate base.  Within 30 days of the final order, Colony Park Development should be required to provide general ledgers that show its books have been updated to reflect the Commission-approved balances as of December 31, 2011, along with a statement that these adjustments will also be reflected in the Utility’s 2012 annual report.  (Smith)

Staff Analysis: 

 Rate base for the Utility’s wastewater system was established as of December 31, 2007, in a staff-assisted rate case by Order No. PSC-08-0760-PAA-SU.^[4]  Included in the Utility’s application was a statement that there had been no adjustments made to the plant since the previously mentioned Order.  Staff reviewed the annual reports for 2008 through 2011 and determined that no adjustments were made to plant.  Further, staff believes it is necessary to establish the appropriate net book value (NBV) for transfer purposes as of December 31, 2011.  The purpose of establishing NBV for transfers is to determine whether an acquisition adjustment should be approved.  The NBV does not include normal ratemaking adjustments for used and useful plant or working capital.  Staff’s recommended NBV, as described below, is shown on Attachment B.

Utility Plant in Service (UPIS)

            In its 2011 Annual Report, Colony Park reflected a plant balance of $167,125.^[5]  In its application, the Utility stated that there have been no additions to the plant since the 2008 SARC Order.  After a review of the SARC Order and subsequent annual report filings, staff determined that the Commission-ordered adjustments from the Utility’s last rate proceeding had not been properly made.  To account for these adjustments, UPIS should be decreased by $349.  As such, the appropriate UPIS balance is $166,776.  The appropriate UPIS amount for the Utility’s system is outlined on page 1 of Attachment B.

Land and Land Rights

            In its 2011 Annual Report, the Utility reflected a land balance of $30,479.  Again, Colony Park has stated that there had been no adjustments made to the land balances since the 2008 SARC Order.  Therefore, staff believes the appropriate land balance is $30,479.

Accumulated Depreciation

            As noted above, staff determined that the Utility did not make the plant adjustments required in its last rate proceeding.  In its 2011 Annual Report, the Utility reflected an accumulated deprecation balance of $147,197.  Using the Commission-ordered UPIS balances and depreciation rates as per Rule 25-30.140, F.A.C., accumulated depreciation should be $138,580 as of December 31, 2011.  This results in a recommended decrease of $8,617.  Staff’s recommended accumulated depreciation balance is shown on page 2 of Attachment B.

Contribution in Aid of Construction (CIAC) and Accumulated Amortization

In the Utility’s last rate proceeding, the Commission-ordered CIAC and amortization of CIAC balances were $23,500.  Colony Park Development maintains that there have been no adjustments to either CIAC or amortization of CIAC.  As such, staff recommends the balances for CIAC and amortization of CIAC remain the same.

Net Book Value

            Based on the adjustments described above and shown on Attachment B, staff recommends that the NBV of the Utility’s wastewater system is $58,675, as of December 31, 2011.  Page 2 of Attachment B contains the resulting NARUC USOA balances for UPIS and accumulated depreciation as of December 31, 2011.

Acquisition Adjustment

An acquisition adjustment results when the purchase price of a utility differs from the original cost of the assets adjusted to the NBV.  The Utility and its assets were purchased for $169,000.  As stated above, staff has determined the appropriate NBV to be $58,675.  Pursuant to Rule 25-30.0371(2), F.A.C., a positive acquisition adjustment may be appropriate when the purchase price is greater than the NBV, and a negative acquisition adjustment may be appropriate when the purchase price is less than NBV.  Based on this methodology, a positive acquisition adjustment could be included in rate base.  However, Rule 25-30.0371(2), also states that,

 

Any entity that believes that a full or partial positive acquisition adjustment should be made has the burden to prove the existence of extraordinary circumstances.  In determining whether extraordinary circumstances have been demonstrated, the Commission shall consider evidence provided to the Commission such as anticipated improvements in quality of service, anticipated improvements in compliance with regulatory mandates, anticipated rate reductions or rate stability over a long-term period, anticipated cost efficiencies, and whether the purchase price was made as part of an arms-length transaction.

 

In this case, the Buyer stated in the application that Colony Park Development was not seeking an acquisition adjustment.  Given that the Buyer did not request a positive acquisition adjustment and there is no evidence of extraordinary circumstances, staff recommends an acquisition adjustment not be made in this case.

 

 

 

Conclusion

Based on the above, staff recommends that the NBV for the Utility’s wastewater system is $58,675, as of December 31, 2011.  No acquisition adjustment should be included in rate base.  Within 30 days of the date of the final order, Colony Park Development should be required to provide general ledger balances, which show its books have been updated to reflect the Commission-approved balances as of December 31, 2011, along with a statement that these numbers will also be reflected in the Utility’s 2012 annual report.

Issue 3: 

 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.  (Lawson, Smith)

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.

            ATTACHMENT A

PAGE 1 OF 2

 

Colony Park Development Utilities, LLC

Brevard County

Description of Wastewater Territory

 

PER ORDER NO. PSC-07-0420-FOF-SU

In Township 23 South, Range 36 East, Brevard County, Florida

 

Section 15

 

Commence at the Southeast corner of said Section 15 for a Point of Beginning.  Thence run North 0˚39'04" West along the East line of said Section 15, 1236.97 feet; thence North 89˚35'04" West, 477.46 feet; thence South 00˚38'31" West, 25.00 feet; thence South 68˚21'32" West, 84.30 feet; thence South 76˚38'12" West, 83.63 feet; thence South 89˚20'56" West, 234.00 feet; thence South 00˚39'04" East, 150.00 feet; thence North 89˚20'56" East, 5.00 feet; thence South 00˚39'04" West, 489.79 feet; thence South 87˚45'45" West, 358.30 feet; thence South 2˚14'15" East, 150 feet to a point on the South boundary of St. Charles Avenue; thence Westerly 30 feet, more or less; thence South 2˚14'15" East, 400 feet, more or less, to a point on the South boundary of said Section 15, thence North 87˚45'45" East along the South boundary of said Section 15, 1250 feet, more or less, to the Point of Beginning.

 

Section 14

 

Commence at the Southwest corner of said Section 14; thence run North 0˚39'04" West along the West boundary of Section 14, 320 feet, more or less, to the Point of Beginning which is also the Southwest corner of the aforesaid parcel; thence North 0˚39'04" West along the West line of said parcel, a distance of 947.98 feet; thence North 87˚05'16" East, a distance of 710.58 feet; thence North 0˚48'54" West, a distance of 10 feet to the North line of said parcel; thence North 89˚11'06" East along the North line of said parcel, a distance of 569.57 feet; thence South 2˚00'25" East, a distance of 985.11 feet to a point on the South line of said parcel; thence South 89˚13'32" West along the South line of said parcel, a distance of 1302.88 feet to the Point of Beginning.

 

ATTACHMENT A

PAGE 2 OF 2

 

 

FLORIDA PUBLIC SERVICE COMMISSION

 

Authorizes

 

Colony Park Development Utilities, LLC

 

Pursuant to

 

Certificate Number 137-S

 

to provide water service in Brevard 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

 

6365                                        12/02/1974      73391-S                      Original Certificate

 

7296                                        06/28/1976      750664-S                    Transfer

 

PSC-03-0320-FOF-SU          03/06/2003      020930-SU                  Transfer of Majority

                                                                                                                Organizational Control

 

PSC-07-0420-FOF-SU          05/14/2007      060636-SU                  Transfer of Majority

                                                                                                                Organizational Control

 

*                                              *                      120285-SU                  Transfer

 

 

*Order Number and date to be provided at time of issuance.

 

ATTACHMENT B

PAGE 1 OF 2

 

Colony Park Development Utilities, LLC

 

Colony Park Development Utilities, LLC Wastewater System

 

Net Book Value as of December 31, 2011

 

 

Utility Proposed and Staff Recommended

Schedule of Net Book Value as of December 31, 2011

 

 

 

 

 

 

 

Explanation of Staff’s Recommended

Adjustments to Net Book Value as of December 31, 2011

Water

 

Explanation	Amount
A.  Utility Plant In Service (UPIS)
To reflect adjustments from Order No. PSC-08-0760-PAA-SU.	($349)
B.  Accumulated Depreciation
To reflect the appropriate amount of Accumulated Depreciation.	$8,617
Total Adjustments to Net Book Value as of December 31, 2011	$8,268

 

ATTACHMENT B

PAGE 2 OF 2

 

Colony Park Development Utilities, LLC
Colony Park Development Utilities, LLC Wastewater System
Schedule of Staff Recommended Account Balances as of December 31, 2011
Acct. No.	Description			UPIS		Accumulated      Depreciation
	Composite Account			$57,354		$57,354
354	Structures & Improvements			30,157		16,971
360	Collection Sewers Force			28,128		19,895
363	Service to Customers			500		311
364	Flow Measuring Device			3,500		3,500
370	Receiving Wells			13,066		10,051
371	Pumping Equipment			3,536		780
380	Treatment Disposal			27,546		27,546
389	Other Plant & Misc. Equipment			1,789		971
393	Tools Shop & Garage Equipment			1,200		1,200
	Total			$166,776		$138,580

ATTACHMENT C

 

Colony Park Development Utilities, LLC

 

Brevard County

 

Wastewater

 

 

Miscellaneous Service Charges                                                                Wastewater
Schedule of Miscellaneous Service Charges		Charges
Initial Connection Fee		$ 15.00
Normal Reconnection Fee		$ 15.00
Violation Reconnection Fee		Actual Cost
Premises Visit Fee (in lieu of disconnection)		$10.00