DATE:	June 13, 2013
TO:	Office of Commission Clerk (Cole)
FROM:	Division of Accounting and Finance (Golden, Kaproth) Division of Economics (Thompson) Division of Engineering (Simpson) Office of the General Counsel (Brown)
RE:	Docket No. 120162-WS – Application for transfer of facilities, and Certificate Nos. 524-W and 459-S, from Silver Fox Utility Company, LLC, to Hometown Canada Utility, Inc., in Pasco County.
AGENDA:	06/25/13 – Regular Agenda – Proposed Agency Action for Issue 2 – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Brown
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\AFD\WP\120162.RCM.DOC

 

 Case Background

Silver Fox Utility Company, LLC d/b/a Timberwood Utilities (Silver Fox, Utility, or Seller) is a Class C utility serving approximately 160 water and wastewater customers in the Arbor Oaks Mobile Home Park in Pasco County.  The service territory is located in the Southwest Florida Water Management District and is in a critical water use caution area.  The Utility’s 2012 annual report shows total gross revenues of $25,822 for water and $31,149 for wastewater, with net operating income of $1,721 for water, and a net operating loss of $1,569 for wastewater.

 The utility was granted Certificate Nos. 524-W and 459-S in 1989 and 1990, respectively.^[1]  Since it’s certification, the Utility has experienced three transfers and two name changes.^[2]

On May 29, 2012, an application was submitted for the transfer of facilities and Certificate Nos. 524-W and 459-S from Silver Fox to Hometown Canada Utility, Inc. (Hometown Canada or Buyer).  The Commission has jurisdiction to consider this matter pursuant to Section 367.071, Florida Statutes (F.S.), and Rule 25-30.037, Florida Administrative Code (F.A.C.).

 

Discussion of Issues

Issue 1: 

 Should the Commission approve the transfer of Silver Fox Utility Company, LLC’s facilities and Certificate Nos. 524-W and 459-S to Hometown Canada Utility, Inc. in Pasco County?

Recommendation: 

 Yes, the transfer is in the public interest and should be approved effective the date of the Commission’s vote.  The territory being transferred is described in Attachment A.  The resultant order should serve as Hometown Canada’s water and wastewater certificates and should be retained by Hometown Canada.  Pursuant to Rule 25-9.044(1), F.A.C., the rates and charges approved for the Utility should be continued until authorized to change by the Commission in a subsequent proceeding.  The tariff pages reflecting the transfer should be effective for services rendered or connections made on or after the stamped approval date on the tariff pages, pursuant to Rule 25-30.475, F.A.C.  (Golden, Kaproth, Simpson, Thompson)

Staff Analysis:

 

 As stated in the case background, Silver Fox filed an application on May 29, 2012, for approval to transfer facilities and Certificates Nos. 524-W and 459-S from Silver Fox to Hometown Canada.  The application is in compliance with the governing statutes, Section 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 closing occurred on March 31, 2012, contingent upon Commission approval.

Noticing

The application contains proof of compliance with the noticing provisions set forth in Rule 25-30.030, F.A.C.  No objections to the notice of application have been received and the time for filing such has expired.

Facility Description and Compliance

Silver Fox purchases bulk water from Pasco County and resells it to its customers.  The wastewater treatment consists of aeration, clarification, chlorination, and aerobic digestion of solids with a 25,000 gallons per day annual average daily flow system.  The effluent is disposed of in percolation ponds.  The collection system consists of polyvinylchloride (PVC) mains with two lift stations.  Staff has verified that the wastewater system is currently in substantial compliance with applicable standards set by the Florida Department of Environmental Protection (DEP).

Territory and Land Ownership

The application contains a description of the transferred territory, a detailed system map, and an adequate territory map.  A description of the territory being transferred is appended to this recommendation as Attachment A.  As evidence that the Utility has continued use of the land, the applicant provided an executed copy of the assignment of lease from Silver Fox to Hometown Canada.  The lease is a 99-year lease agreement between the Utility’s past owners Mink I and Mink II dated August 26, 2002.  The lease was subsequently assigned from Mink II to Silver Fox when the Utility was transferred in 2005.  Ownership of the land still resides with Mink I.  The lease covers the entire mobile home park including the land upon which the wastewater treatment facilities are located.

Purchase Agreement and Financing

The application contains a copy of the purchase agreement which includes the purchase price, terms of payment, and a list of the assets purchased.  Hometown Canada purchased the Arbor Oaks Mobile Home Park, including the utility facilities, for $5,600,000, which was paid by Dr. Gratio Tsang, the sole shareholder, through assumption of an existing mortgage of $3,150,000 and cash payment of $2,450,000.  At the time of the purchase, the parties allocated approximately $360,000 of the total purchase price toward the purchase of the utility assets involved in the purchase.  However, the application also indicates that the Buyer recognizes that it is bound by the Commission’s establishment of the rate base for transfer purposes.  There are no customer deposits, guaranteed revenue contracts, developer agreements, or debt of the Seller that must be disposed of in relation to the transfer.  As noted, the transfer took place on March 31, 2012, subject to Commission approval.

Financial and Technical Ability

The application states that the transfer is in the public interest because the residents of the park rely on the services provided by the Utility to provide potable water and wastewater service to their homes.  Also, these services contribute to the health, safety, and welfare of the residents and community.  Further, the application states that the Buyer stands ready to fulfill all of the contractual and regulatory commitments, obligations and representations of the Seller with regard to utility matters. 

The application indicates that Hometown Canada has the necessary financial and technical ability to provide adequate, safe, and reliable water and wastewater service to the Utility’s customers.  Hometown Canada is an active corporation authorized to conduct business in Florida since February 17, 2012.  As noted above, the sole owner of the corporation is Dr. Gratio Tsang.  In support of its financial ability, Hometown Canada provided the personal financial statement of Dr. Tsang.  Staff has reviewed the personal financial statement and it appears that Dr. Tsang has the financial ability to provide quality water and wastewater service.

Regarding technical ability, the application indicates that the Buyer hired Florida Environmental Solutions, Inc., a utility contractor with several licensed plant operators, to operate the utility facilities.  Also, Hometown Canada retained Silver Fox’s customer services manager and administrator who had experience in billing and managing the Silver Fox systems. Hometown Canada also continues to obtain rate and regulatory services from a licensed professional engineer who is familiar with Silver Fox’s operations. 

In addition, Hometown Canada receives accounting services from personnel located at its offices in California.  Consequently, on April 11, 2013, pursuant to Rule 25-30.110(1)(b), F.A.C., Hometown Canada filed a request that the Commission authorize the Utility to maintain its accounting records at the Utility’s parent offices in San Bruno, California.  Hometown Canada stated that maintaining the accounting records at the parent’s office will permit more efficient and cost-effective service and reduce duplication of expenses.  Customer billing records will be maintained at the Utility location in Florida.  Through a separate administrative recommendation filed on June 4, 2013, staff has recommended that the Utility’s request be approved.

The Utility is current on its regulatory assessment fees (RAFs) and has filed an annual report for 2012 and prior years.  Specifically, the Seller paid all RAFs due through the closing date of March 31, 2012, and the Buyer paid the remainder of the RAFs due since the closing date.  The Buyer also filed the Utility’s 2012 annual report.  Hometown Canada will be responsible for filing annual reports and paying RAFs going forward.

Hometown Canada has been operating the Utility’s water and wastewater systems since April 2012, and is currently in compliance with both Commission and DEP regulations.  Further, in 2011, prior to the purchase of the systems by Hometown Canada, the Utility showed net operating losses of $5,797 and $13,556 for water and wastewater, respectively.  Under Hometown Canada’s management, in 2012, the Utility reported net operating income of $1,721 for water and reduced the net operating loss for wastewater to $1,569, showing an improvement in the financial condition of the Utility.  Based on all the above, staff believes the Buyer has the necessary financial and technical ability to provide adequate, safe, and reliable service.  Therefore, staff believes the transfer of Silver Fox’s facilities and Certificate Nos. 524-W and 459-S to Hometown Canada is in the public interest.

Rates and Charges

The Utility's rates and charges were last approved in a 2005 staff-assisted rate case (SARC) for water and a 2008 staff-assisted alternative rate setting for wastewater.[3]  The Utility has also consistently filed index rate adjustments from 2006 through 2012.  The Utility's existing rates and charges are shown on Schedule No. 2.  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.

Conclusion

Based on the above analysis, staff recommends that the transfer is in the public interest and should be approved effective the date of the Commission’s vote.  The territory being transferred is described in Attachment A.  The resultant order should serve as Hometown Canada’s water and wastewater certificates and should be retained by Hometown Canada.  Pursuant to Rule 25-9.044(1), F.A.C., the rates and charges approved for the Utility should be continued until authorized to change by the Commission in a subsequent proceeding.  The tariff pages reflecting the transfer should be effective for services rendered or connections made on or after the stamped approval date on the tariff pages, pursuant to Rule 25-30.475, F.A.C.

Issue 2: 

 What are the net book values of Silver Fox Utility Company, LLC’s water and wastewater systems for transfer purposes, and should an acquisition adjustment be approved?

Recommendation: 

 The net book values of Silver Fox Utility Company, LLC’s water and wastewater systems for transfer purposes are $9,436 and $15,558, respectively, as of February 29, 2012.  A positive acquisition adjustment should not be included in rate base.  Within 30 days of the date of the final order, Hometown Canada Utility, Inc. should be required to provide general ledgers that show its books have been updated to reflect the Commission-approved balances as of February 29, 2012, along with a statement that these adjustments will also be reflected in the Utility’s 2013 annual report.  (Golden)

Staff Analysis:

 

 Rate base for Silver Fox’s water and wastewater systems was last established as of December 31, 2004, in the amounts of $12,704 for the water system and $45,215 for the wastewater system, pursuant to Order No. PSC-05-1218-PAA-WS (PAA Order).^[4]  An audit of the Utility’s books and records was conducted to establish the net book value for transfer purposes as of February 29, 2012.  The Utility’s books and records are in substantial compliance with the National Association of Regulatory Utility Commissioners’ (NARUC) Uniform System of Accounts (USOA).  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.  Staff’s recommended water and wastewater net book value balances, as described below, are also shown on Schedule Nos. 1 and 2, respectively.

Utility Plant in Service (UPIS)

The Utility recorded a water UPIS balance of $68,319 and a wastewater UPIS balance of $195,972, as of February 29, 2012.  The PAA Order established the beginning balances for UPIS as of December 31, 2004.  Audit staff  reconciled the beginning balances, including Commission adjustments, with the Utility’s books and records, and traced the plant additions and retirements from January 1, 2005, to February 29, 2012, to supporting documentation.  No exceptions were noted. Therefore, staff recommends that the Utility’s water and wastewater UPIS balances as of February 29, 2012, should be $68,319 and $195,972, respectively, as shown on Schedule Nos. 1 and 2.

Land

As discussed in Issue 1, the Utility purchases bulk water from Pasco County for resale, and therefore, does not own or lease any land associated with the provision of water service.  The Utility recorded a wastewater land balance of $10,152, as of February 29, 2012, which was the value of the land when the Utility received its wastewater certificate in 1990.  As discussed in Issue 1, subsequent transfers of the wastewater system resulted in this land being leased by the new owners from the prior owners.  Consequently, pursuant to the PAA Order, the land was removed from rate base and the Utility was given an allowance for land rental.  Audit staff noted that the Utility did not remove the land value from its general ledger.  Land should be reduced by $10,152 to remove the cost of land from the Utility’s general ledger.  Therefore, staff recommends that the Utility’s wastewater land balance as of February 29, 2012, should be $0, as shown on Schedule No. 2.

As additional information, on June 6, 2013, the Florida Office of Public Counsel filed a letter in this docket expressing concern over an annual escalation clause included in the Utility’s 99-year lease.  Rule 25-30.037(2)(q), F.A.C., requires in part that the application for transfer include “evidence that the utility owns the land upon which the utility treatment facilities are located, or a copy of an agreement which provides for the continued use of the land, such as a 99-year lease.”  As discussed in Issue 1, the Utility provided the assignment of lease as evidence that the Buyer will have continued use of the land upon which the wastewater treatment facilities are located.  Staff’s review of the assignment of lease and the 99-year lease in this docket is limited to making a determination of whether the Buyer has satisfied the requirement of Rule 25-30.037(2)(q), F.A.C., and does not include any consideration of specific costs for ratemaking purposes.  In addition, the Buyer has not requested any rate changes in this docket and staff is recommending that the Utility’s Commission-approved rates be continued.  Accordingly, the value or any increase in the land rental amount approved in the PAA Order would need to be addressed in a future rate proceeding.  

Accumulated Depreciation

The PAA Order established accumulated depreciation balances for water and wastewater as of December 31, 2004.  The Utility recorded accumulated depreciation balances of $52,546 and $154,282 for the water and wastewater systems, respectively, as of February 29, 2012.  The Utility did not use the Commission-approved depreciation rates as per Rule 25-30.140, F.A.C.  Audit staff calculated accumulated depreciation balances of $42,619 and $159,809 for water and wastewater, respectively, as of February 29, 2012.  Accumulated depreciation should be decreased by $9,927 for water and increased by $5,527 for wastewater.  Therefore, staff recommends the Utility’s accumulated depreciation balances as of February 29, 2012, should be $42,619 for water and $159,809 for wastewater, as shown on Schedule Nos. 1 and 2.

Contributions-in-Aid-of-Construction (CIAC) and Accumulated Amortization of CIAC

The Utility recorded water and wastewater CIAC balances of $34,857 and $70,799, respectively.  The PAA Order established balances for CIAC of $53,583 and $95,165 for water and wastewater, respectively, as of December 31, 2004.  Audit staff verified that there were no additions to CIAC since the last time rate base was established, and also determined that the Utility did not adjust the balances in its general ledger for CIAC per the Commission order.  Accordingly, CIAC should be increased by $18,726 and $24,366 for water and wastewater, respectively, to reflect the balances approved in the PAA Order.  Therefore, staff recommends that the Utility’s CIAC balances as of February 29, 2012, are $53,583 and $95,165 for water and wastewater, respectively, as shown on Schedule Nos. 1 and 2.

Also, the Utility did not record accumulated amortization of CIAC in its ledger.  The PAA Order established balances for accumulated amortization of CIAC of $25,908 and $53,205 for water and wastewater, respectively, as of December 31, 2004.  Audit staff calculated accumulated amortization of CIAC balances of $37,319 and $74,560 for water and wastewater, respectively, as of February 29, 2012.  Accumulated amortization of CIAC should be increased by $37,319 and $74,560 for water and wastewater, respectively.  Therefore, staff recommends that the Utility’s accumulated amortization of CIAC balances as of February 29, 2012, are $37,319 and $74,560 for water and wastewater, respectively, as shown on Schedule Nos. 1 and 2.

Net Book Value

            The Utility’s records reflect net book values of ($19,084) and ($18,957) for water and wastewater, respectively, as of February 29, 2012.  Based on the adjustments described above and shown on Schedule Nos. 1 and 2, staff recommends that the net book value for the Utility’s water and wastewater systems as of February 29, 2012, are $9,436 and $15,558, respectively, for a total net book value of $24,994.  Schedule Nos. 1 and 2 also contain the NARUC account balances for UPIS and accumulated depreciation as of February 29, 2012.

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.  According to the application, the parties allocated approximately $360,000 of the total mobile home park purchase price toward the purchase of the utility assets involved in the purchase.  Based on a total net book value of $24,994 as of February 29, 2012, the purchase price would result in a positive acquisition adjustment of $335,006.  Pursuant to Rule 25-30.0371(2), F.A.C., a positive acquisition adjustment shall not be included in rate base absent proof of extraordinary circumstances.  Hometown Canada did not request an acquisition adjustment in its application.  Further, the application indicates that Hometown Canada recognizes that it is bound by the Commission’s establishment of rate base for transfer purposes.  Therefore, staff recommends that a positive acquisition adjustment should not be included in rate base.

Conclusion

The recommended net book values of Silver Fox’s water and wastewater systems for transfer purposes are $9,436 and $15,558, respectively, as of February 29, 2012.  A positive acquisition adjustment should not be included in rate base.  Within 30 days of the date of the final order, Hometown Canada should be required to provide general ledgers that show its books have been updated to reflect the Commission-approved balances as of February 29, 2012, along with a statement that these adjustments will also be reflected in the Utility’s 2013 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, a consummating order should be issued and the docket closed administratively.  (Brown)

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, a consummating order should be issued and the docket closed administratively.

 

Hometown Canada Utility, Inc.

Description of Water and Wastewater Territory

Pasco County

 

 

The following described lands located in a portion of Section 9, Township 26 South, Range 21 East, Pasco County, Florida:

In Section 9

The SW 1/4 of the NE 1/4 of the NW 1/4 and the S 1/2 of the SE 1/4 of the NE 1/4 of the NW 1/4 and the N 1/2 of the N 1/2 of the SE 1/4 of the NW 1/4.

 

 

FLORIDA PUBLIC SERVICE COMMISSION

authorizes

Hometown Canada Utility, Inc.

pursuant to

Certificate Number 524-W

 

to provide water service in Pasco County in accordance with the provisions of Chapter 367, F.S., 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

 

22302                                      12/12/89          891010-WU                Original Certificate

 

24638                                      06/07/91          910097-WS                 Transfer of Certificate

 

25211                                      10/14/91          910968-WS                 Name Change

 

PSC-01-1167-PAA-WS          05/22/01          001513-WS                 Transfer of Certificate

 

PSC-02-1413-FOF-WS          10/15/02          020552-WS                 Name Change

 

PSC-05-0682-FOF-WS          06/20/05          050062-WS                 Transfer of Certificate

 

*                                              *                      120162-WS                 Transfer of Certificate

 

 

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

FLORIDA PUBLIC SERVICE COMMISSION

authorizes

Hometown Canada Utility, Inc.

pursuant to

Certificate Number 429-S

 

to provide wastewater service in Pasco County in accordance with the provisions of Chapter 367, F.S., 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

 

22392                                      01/09/90          881003-SU                  Original Certificate

 

24638                                      06/07/91          910097-WS                 Transfer of Certificate

 

25211                                      10/14/91          910968-WS                 Name Change

 

PSC-01-1167-PAA-WS          05/22/01          001513-WS                 Transfer of Certificate

 

PSC-02-1413-FOF-WS          10/15/02          020552-WS                 Name Change

 

PSC-05-0682-FOF-WS          06/20/05          050062-WS                 Transfer of Certificate

 

*                                              *                      120162-WS                 Transfer of Certificate

 

 

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

 

Hometown Canada Utility, Inc.

 

                                                     Water

 

Residential and General Service
Base Facility Charge by Meter Size:
5/8” x 3/4"		$	9.11
3/4"		$	13.68
1”		$	22.78
1 1/2"		$	45.55
2”		$	72.88
3”		$	136.66
4”		$	227.86
6”		$	455.54
Gallonage Charge per 1,000 gallons		$	6.89

 

 

                                             Wastewater

 

Residential Service
Base Facility Charge All Meter Sizes:		$	14.42
Gallonage Charge per 1,000 gallons (6,000 gallon cap)		$	6.44
General Service
Base Facility Charge by Meter Size:
5/8” x 3/4"		$	14.42
3/4"		$	21.60
1”		$	36.02
1 1/2"		$	72.05
2”		$	115.28
3”		$	216.17
4”		$	360.25
6”		$	720.51
Gallonage Charge per 1,000 gallons		$	7.68

 

 

 

 

Miscellaneous Service Charges

                                                                                            

Water		Wastewater
Initial Connection	$17.46	$17.05
Normal Connection	$17.46	$17.05
Violation Reconnection	$17.46	Actual Cost
Premises Visit Fee (in lieu of disconnection)	$11.65	$11.35
Late Payment	$  5.81	$  5.68

 

 

Service Availability Charges

 

	Water	Wastewater
Meter Installation Fee	$100.00	N/A
Plant Capacity Charge	N/A	$500.00

 

 

 

Hometown Canada Utility, Inc.

Water Net Book Value as of February 29, 2012

 

 

Description	Balance  per Utility	Adjustments		Staff Recommended
Utility Plant in Service	$68,319	0		$68,319
Accumulated Depreciation	(52,546)	$    9,927	A	(42,619)
Contributions in Aid of Construction (CIAC)	(34,857)	(18,726)	B	(53,583)
Accumulated Amortization of CIAC	0	37,319	C	37,319
Water Net Book Value	($19,084)	$ 28,520		$  9,436

 

Explanation of Staff Recommended Adjustments to Water Net Book Value

 

Explanation	Amount
A.  Accumulated Depreciation
1.  To reflect the appropriate accumulated depreciation balance.	$  9,927
B.  CIAC
1.  To reflect adjustments from Order No. PSC-05-1218-PAA-WS.	(18,726)
C.  Accumulated Amortization of CIAC
1.  To reflect the appropriate accumulated amortization of CIAC balance.	37,319
Total Adjustments to Net Book Value as of February 29, 2012	$ 28,520

 

Staff Recommended Water Account Balances as of February 29, 2012

 

Acct. No.	Description	UPIS	Accumulated                                     Depreciation
301	Organization	$  5,007	($ 3,833)
304	Structures and Improvements	263	(236)
331	Transmission and Distribution Mains	53,583	(33,371)
334	Meters and Meter Installations	5,925	(1,638)
335	Hydrants	0	0
340	Office Furniture and Equipment	3,541	(3,541)
	Total	$68,319	($42,619)

Hometown Canada Utility, Inc.

Wastewater Net Book Value as February 29, 2012

 

 

 

Description	Balance  per Utility	Adjustments		Staff Recommended
Utility Plant in Service	$195,972	$          0		$195,972
Land	10,152	(10,152)	A	0
Accumulated Depreciation	(154,282)	(5,527)	B	(159,809)
Contributions in Aid of Construction (CIAC)	(70,799)	(24,366)	C	(95,165)
Accumulated Amortization of CIAC	0	74,560	D	74,560
Wastewater Net Book Value	($  18,957)	$   34,515		$    15,558

 

Explanation of Staff Recommended Adjustments to Wastewater Net Book Value

 

Explanation	Amount
A.  Land
1.  To reflect adjustments from Order No. PSC-05-1218-PAA-WS.	($10,152)
B.  Accumulated Depreciation
1.  To reflect the appropriate accumulated depreciation balance.	(5,527)
C.  CIAC
1.  To reflect adjustments from Order No. PSC-05-1218-PAA-WS.	(24,366)
D.  Accumulated Amortization of CIAC
1.  To reflect the appropriate accumulated amortization of CIAC balance.	74,560
Total Adjustments to Net Book Value as of February 29, 2012	$ 34,515

 

 

Staff Recommended Wastewater Account Balances as of February 29, 2012

 

Acct. No.	Description	UPIS	Accumulated  Depreciation
354	Structures and Improvements	$ 81,228	($74,686)
361	Collection Sewers – Gravity	89,967	(62,146)
363	Services	5,466	(4,209)
380	Treatment and Disposal Equipment	12,866	(12,865)
381	Plant Sewers	2,904	(2,362)
390	Office Furniture and Equipment	3,541	(3,541)
	Total	$195,972	($159,809)