DATE:	February 27, 2014
TO:	Office of Commission Clerk (Stauffer)
FROM:	Division of Engineering (Lee) Division of Accounting and Finance (Brown) Division of Economics (Roberts) Office of the General Counsel (Brownless)
RE:	Docket No. 130055-WS – Application for approval of transfer of LP Utilities Corporation's water and wastewater systems and Certificate Nos. 620-W and 533-S, to LP Waterworks, Inc., in Highlands County.
AGENDA:	03/13/14 – Regular Agenda – Proposed Agency Action for Issue 2 - Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Administrative
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None

 

 Case Background

L.P. Utilities Corporation (Utility or LPUC) is a Class C water and wastewater utility providing service in Highlands County.  A significant portion of LPUC’s residential customer base is seasonal.  Based on the billing data for the 12 months ending May 31, 2013, the Utility served approximately 370 individually metered residential and several general service water and wastewater customers in Camp Florida Resort, also known as Camp Florida Resort RV Park (Resort or Park).  In addition, the Utility provided water only service to approximately 54 residential customers in the Hickory Hills and Lake Ridge Estates subdivisions and a few general service customers outside the Park.

            On February 26, 2002, the Commission issued Original certificates Nos. 620-W and 533-S to Woodlands of Lake Placid by order, PSC-02-0250-PAA-WS.[1]  Subsequently, on November 22, 2004, the Commission approved a transfer of Certificate Nos. 620-W and 533-S from The Woodlands of Lake Placid to LPUC in Highlands County.^[2]  By this order, the Commission also denied transfer of the wastewater systems from LPUC to Camp Florida Property Owners Associations, Inc. and denied transfer of Majority Organizational Control of LPUC from Anbeth Corporation to Camp Florida Property Owners Association.

 

On February 28, 2013, an application was filed in this docket for the transfer of LPUC water and wastewater systems and Certificate Nos. 620-W and 533-S to LP Waterworks, Inc. (LPWWI).  The closing occurred on December 27, 2012, contingent upon Commission approval pursuant to Section 367.071(1), Florida Statutes (F.S.).  On May 24, 2013, LPWWI filed an application for staff-assisted rate case (SARC) in Docket No. 130153-WS, which is scheduled for Commission Conference on April 10, 2014.

The Commission has jurisdiction pursuant to Section 367.071, F.S.

 

Discussion of Issues

Issue 1: 

 Should the transfer of L.P. Utilities’ water and wastewater systems and Certificate Nos. 620-W and 533-S to LP Waterworks, Inc. be approved?

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 the water and wastewater certificates for LP Waterworks, Inc. (LPWWI) 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.  LPWWI should be responsible for annual reports and regulatory assessment fees (RAFs) for 2013 and all future years.  (Lee, T. Brown)

Staff Analysis: 

 On February 28, 2013, LPWWI filed an application for approval of the transfer of LPUC’s water and wastewater systems and Certificate Nos. 620-W and 533-S to LPWWI in Highlands County.  The application is in compliance with the governing statute, Section 367.071, F.S., and Administrative Rules concerning applications for transfer of certificates.  The closing occurred on December 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 as Attachment A.  The application contains a copy of a deed that was executed on December 27, 2012, and recorded with the Highlands County Clerk of Courts, as evidence that LPWWI owns the land upon which the water and wastewater treatment facilities are located pursuant to Rule 25-30.037(2)(q), F.A.C. 

 

Purchase Agreement and Financing

            Pursuant to Rule 25-30.037(2)(h) and (i), F.A.C., the application contains a copy of the Purchase Agreement, which includes the purchase price, terms of payment, and a list of the assets purchased.  There are no customer deposits, guaranteed revenue contracts, developer agreements, customer advances, leases, or debt of LPUC that must be disposed of with regard to the transfer.  According to the Purchase Agreement, the total purchase price is $165,000 for the portion of the assets attributable to water and wastewater service, with 70 percent of the purchase price paid in cash at the closing.  The remaining 30 percent is to be paid within 30 days of the final official approval date of the transfer established by the Commission.  As noted, the sale took place on December 27, 2012, subject to Commission approval, pursuant to Section 367.071(1), F.S.

Facility Description and Compliance

 

 

LPUC’s water treatment plant (WTP) plant is permitted at 350,000 gallons per day (gpd) and has two wells rated at 380 and 900 gallons per minute (gpm).  The raw water is injected with chlorine, discharged into the hydropneumatic tank and channeled into the distribution system.  The Utility’s wastewater treatment plant (WWTP) is an extended aeration, activated sludge plant with one lift station.  The wastewater plant is permitted at 50,000 gpd based on the monthly average daily flow.  Liquid disinfection is applied prior to the treated wastewater effluent flowing into the percolation pond. 

 

Staff has verified that the water and wastewater systems are currently in compliance with all applicable standards set by the Florida Department of Environmental Protection.

 

Technical and Financial Ability

 

Pursuant to Rule 25-30.037(1)(j), F.A.C., the application contains statements describing the technical and financial ability of the applicant to provide service to the proposed service area.  According to the application, LPWWI has considerable Florida-specific expertise in private utility ownership within the State.  The directors of LPWWI have been in the water and wastewater utility management, operations, and maintenance industry for many years, providing service to more than 550 Florida facilities throughout their careers.  Further, the application indicates that the President and Vice President of LPWWI have 28 and 36 years, respectively, of operation or ownership of utilities, including a number of utilities previously regulated by the Commission.  The application indicates that operating, billing, collection, and customer services will be provided by contract through an affiliated entity, U.S. Water Services Corporation, which currently provides such services to utilities serving approximately 80,000 customers in Florida.  Staff reviewed the personal financial statements for the President and Vice President of LPWWI.^[3]  In addition, the President of U.S. Water is also a part owner of other systems regulated by the Commission, including Harbor Waterworks, Inc.,^[4] Lakeside Waterworks, Inc., ^[5]

 

 

 

and several of the systems previously owned by Aqua Utilities Florida (Aqua).^[6]  The transfer applications to U.S. Water of the six remaining former Aqua systems are still pending before the Commission.  Based on the above, it appears that LPWWI has demonstrated the technical and financial ability to provide service to the existing service territory.

 

Rates and Charges

 

The Utility’s rates and charges were last approved in a SARC in 2003.^[7]  The rates were subsequently reduced to reflect the four-year rate reduction required by Section 367.0816, F.S., in 2007.  The Utility’s existing rates and charges are shown on Schedule Nos. 3 and 4.  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.  On May 24, 2013, LPWWI filed an application for a SARC in Docket No. 130153-WS,[8] which is scheduled for the Commission Conference on April 10, 2014.

Regulatory Assessment Fees and Annual Reports

 

Staff has verified that the Utility is current on the filing of annual reports and RAFs through December 31, 2012.  LPWWI will be responsible for filing the Utility’s annual reports and paying RAFs for 2013 and all future years.

Conclusion

 

Based on the above, staff recommends that the transfer of LPUC’s water and wastewater systems and Certificate Nos. 620-W and 533-S to LPWWI 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 LPWWI’s water and wastewater certificates 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.  LPWWI should be responsible for annual reports and RAFs for 2013 and all future years.

Issue 2: 

 What is the appropriate net book value for LPWWI’s water and wastewater systems for transfer purposes and should an acquisition adjustment be approved?

Recommendation: 

 The net book value (NBV) of LPWWI’s water and wastewater systems for transfer purposes should be $79,237 and $98,690, respectively, as of December 27, 2012.  An acquisition adjustment should not be included in rate base.  Within 30 days of the date of the final order, LPWWI should be required to provide general ledgers which show its books have been updated to reflect the Commission-approved balances as of December 27, 2012.  The adjustments should be reflected in the Utility’s 2013 annual report when filed.  (T. Brown)

 

Staff Analysis: 

 Rate base for the Utility was last established as of December 31, 2001, in the amounts of $218,635 for the water system and $191,391 for the wastewater system, pursuant to Order No. PSC-02-1739-PAA-WS.^[9]  Later, as part of a SARC, an audit was conducted to establish rate base as of December 31, 2010, in Docket No. 110208-WS.[10]  The Company’s request was subsequently withdrawn; however, the audit was used as a starting point for the audit conducted in the instant docket.^[11]  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 Schedule Nos. 1 and 2.

 

Utility Plant in Service (UPIS)

 

The Utility’s general ledger reflected water and wastewater UPIS balances of $469,295 and $377,807, respectively, as of December 27, 2012.  The staff auditor discovered that several Commission-ordered adjustments from the Utility’s 2002 rate proceeding had not been properly made.  In addition, audit staff also posted additions and retirements to UPIS and reclassified plant additions to the correct National Association of Regulatory Utility Commissioners (NARUC) Uniform System of Accounts (USOA) account when necessary.  The net effect of these adjustments is an increase to water and wastewater UPIS of $27,922 and $6,191, respectively.  Therefore, staff recommends water and wastewater UPIS balances as of December 27, 2012, of $497,217 and $383,998, respectively, as shown on Schedule Nos. 1 and 2.

 

Land and Land Rights

 

            The value of land and land rights was last established by Order No. PSC-02-1739-PAA-WS.  At that time, the Commission approved land values of $20,598 for water and $36,000 for wastewater.  No adjustments have been identified by staff.  Therefore, staff recommends approval of land and land rights of $20,598 for water and $36,000 for wastewater.

 

Accumulated Depreciation

 

            The Utility’s general ledger reflected accumulated depreciation balances of $272,636 and $297,869, for water and wastewater respectively, as of December 27, 2012.  As noted above, audit staff determined that the Utility did not make certain plant adjustments required in its last rate proceeding.  In addition, the adjustments to UPIS balances described above and the use of appropriate depreciation rates prescribed in Rule 25-30-140, F.A.C. resulted in additional adjustments to accumulated depreciation.  As a result, accumulated depreciation should be increased by $33,590 for water and decreased by $24,694 for wastewater.  Therefore, staff recommends water and wastewater accumulated depreciation balances as of December 27, 2012, of $306,226 and $273,175, respectively, as shown on Schedule Nos. 1 and 2.

 

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

 

            As of December 27, 2012, the Utility’s general ledger reflected water and wastewater CIAC balances of $204,307 and $65,600, respectively; and, accumulated amortization of CIAC balances of $103,313 and $39,129, respectively.  Audit staff adjusted water CIAC by $61,339 for prior Commission-ordered adjustments that were not made and for CIAC additions that the Utility did not record.  A $26,800 adjustment was also made to wastewater CIAC for CIAC additions that the Utility did not record.  The water and wastewater accumulated amortization of CIAC balances were adjusted by $29,981 and $5,138, respectively, for prior Commission-ordered adjustments that were not made.  As a result, staff recommends that the Utility’s CIAC balances as of December 27, 2012, should be $265,646 and $92,400, respectively; and accumulated amortization of CIAC balances should be $133,294 and $44,267, respectively, as shown on Schedule Nos. 1 and 2.

 

Net Book Value

 

            The Utility’s general ledger reflected NBVs of $116,263 and $89,467, respectively, for water and wastewater as of December 27, 2012.  Based on the adjustments described above and as shown on Schedule Nos. 1 and 2, staff recommends that the NBVs for the Utility’s water and wastewater systems as of December 27, 2012, should be $79,237 and $98,690, respectively, for a total NBV of $177,927.  Schedule Nos. 1 and 2 also contain the NARUC USOA balances for UPIS and accumulated depreciation as of December 27, 2012.

Acquisition Adjustment

 

            An acquisition adjustment results when the purchase price differs from the NBV of the assets at the time of the acquisition.  The Utility and its assets were purchased for $165,000.  As stated above, staff has determined the appropriate combined NBV for water and wastewater to be $177,927.  Pursuant to Rule 25-30.0371, 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 a total net book value of $177,927, as of December 27, 2012, the purchase price would result in a potential negative acquisition adjustment of $12,927.  Pursuant to Rule 25-30.0371(3), F.A.C., if the purchase price is greater than 80 percent of NBV, a negative acquisition adjustment will not be included in rate base.  Eighty percent of the net book value of this system would be $142,342.  Since the purchase price of $165,000 is greater than 80 percent of the net book value, staff recommends that no negative acquisition adjustment be made in this case.

 

Conclusion

 

            Based on the above, staff recommends that the NBV for transfer purposes should be $79,237 for the water system and $98,690 for the wastewater system, as of December 27, 2012.  No acquisition adjustment should be included in rate base.  Within 30 days of the date of the final order, LPWWI should be required to provide general ledgers which show its books have been updated to reflect the Commission-approved balances as of December 27, 2012.  The adjustments should be reflected in the Utility’s 2013 annual report when filed.

 

Issue 3: 

 Should this docket be closed?

Recommendation: 

 Yes.  If no protest to the proposed agency action is filed by a substantially affected person within 21 days of the date of the order, the docket should be closed administratively after LPWWI has provided proof that its general ledgers have been updated to reflect Commission-approved balances as of December 27, 2012, along with a written statement that these adjustments will be reflected in the Utility’s 2013 annual report.  (Brownless)

Staff Analysis: 

 If no protest to the proposed agency action is filed by a substantially affected person within 21 days of the date of the order, the docket should be closed administratively after LPWWI has provided proof that its general ledgers have been updated to reflect Commission-approved balances as of December 27, 2012, along with a written statement that these adjustments will be reflected in the Utility’s 2013 annual report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATTACHMENT A PAGE 1 OF 4

 

LP WATERWORKS, INC.

 

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 PAGE 2 OF 4

 

FLORIDA PUBLIC SERVICE COMMISSION

 

Authorizes

 

LP Waterworks, Inc.

 

Pursuant to

 

Certificate Number 620-W

 

to provide water service in Highlands 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

PSC-02-0250-PAA-WS         02/26/2002      990374-WS                 Original In Existence

 

PSC-04-1162-FOF-WS         11/22/2004      030102-WS                 Transfer

 

*                                              *                      130055-WS                 Transfer

 

 

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

ATTACHMENT A PAGE 3 OF 4

 

LP WATERWORKS, INC.

 

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.

ATTACHMENT A PAGE 4 OF 4

FLORIDA PUBLIC SERVICE COMMISSION

 

Authorizes

 

LP Waterworks, Inc.

 

Pursuant to

 

Certificate Number 533-S

 

to provide wastewater service in Highlands 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

PSC-02-0250-PAA-WS         02/26/2002      990374-WS                 Original In Existence

 

PSC-04-1162-FOF-WS         11/22/2004      030102-WS                 Transfer

 

*                                              *                      130055-WS                 Transfer

 

 

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

 

Schedule 1

Page 1 of 3

 

 

 

Schedule 1

Page 2 of 3

 

Explanation of Staff's Recommended
Adjustments to Net Book Value as of December 27, 2012
Water
Explanation	Amount
A.  Utility Plant In Service (UPIS)
1) To reflect adjustments from Order No. PSC-02-1739-PAA-WS.	$29,157
2) To reflect plant additions.	2,180
3) To remove non-utility items.	(2,335)
4) To reflect retirements.	(1,080)
Total UPIS	$27,922
B.  Accumulated Depreciation
To reflect appropriate amount of accumulated depreciation.	($33,590)
C.  Contributions in Aid of Construction (CIAC)
To reflect adjustments from Order No. PSC-02-1739-PAA-WS and    CIAC additions that the Utility did not record.	($61,339)
D.  Amortization of CIAC
To reflect appropriate amount of amortization of CIAC.	$29,981
Total Adjustments to Net Book Value as of December 27, 2012.	($37,026)

 

Schedule 1

Page 3 of 3

 

 

Schedule 2

Page 1 of 3

 

 

Schedule 2

Page 2 of 3

 

 

Schedule 2

Page 3 of 3

 

 

 

 Schedule 3

 

LP Waterworks, Inc.

Water

	Residential Service	General Service
Base Facility Charge
5/8" x 3/4" (0.8 ERC RV’s Homes)	$4.82
5/8" x 3/4" (1 ERC Single Family)	$6.02
Meter Sizes
5/8" x 3/4" (RV/Lot Rentals)		$4.82
3/4" (Park Commercial)		$6.02
1"		$9.04
1 1/2"		$15.06
2"		$30.13
3"		$48.20
4"		$96.40
6"		$150.62
8"		$301.25
Gallonage Charges
Per 1,000 gallons	$2.14	$2.14

     Miscellaneous Service Charges

 

 

Initial Connection Charge		$15.00
Normal Reconnection Charge		$15.00
Violation Reconnection Charge		$15.00
Premises Visit Charge (in lieu of disconnection)		$10.00
Late payment Charge		$5.00

Initial Customer Deposits

5/8" x 3/4"	$35.00	$100.00
1"	$35.00	$100.00
1 1/2"	$35.00	$100.00
Over 2"	$35.00	$100.00

 

Service Availability Charges

Customer Connection (Tap-in) Charge
5/8" x 3/4" metered service		$200.00
Meter Installation Fee
5/8" x 3/4"		$189.00
Over 5/8" x 3/4"		Actual Cost

 

Schedule 4

 

LP Waterworks, Inc.

  Wastewater

 

	Residential Service			General Service
Base Facility Charge
All Meter Size	$6.44
Meter Sizes
5/8" x 3/4"				$6.44
3/4"				$9.67
1"				$16.11
1 1/2"				$32.23
2"				$51.57
3"				$103.14
4"				$161.15
6"				$322.30
Gallonage Charges per 1,000 gallons
Residential Service (6,000 gallon cap)	$1.76
General Service				$2.10
Miscellaneous Service Charges
Initial Connection Charge			$15.00
Normal Reconnection Charge			$15.00
Violation Reconnection Charge			Actual Cost
Premises Visit Charge (in lieu of disconnection)			$10.00
Late Payment Charge			$5.00

Initial Customer Deposits

5/8" x 3/4"	$35.00	$100.00
1"	$35.00	$100.00
1 1/2"	$35.00	$100.00
Over 2"	$35.00	$100.00

 

Service Availability Charges

Customer Connection (Tap-in) Charge
5/8" x 3/4" metered service		$400.00