DATE:	December 22, 2015
TO:	Office of Commission Clerk (Stauffer)
FROM:	Division of Engineering (Ellis) Division of Accounting and Finance (Galloway) Division of Economics (Thompson) Office of the General Counsel (Janjic)
RE:	Docket No. 150186-WU – Application for certificate to operate a water utility in Hardee County by Charlie Creek Utilities, LLC.
AGENDA:	01/05/16 – Regular Agenda – Issue 3 Proposed Agency Action – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Edgar
CRITICAL DATES:			01/05/16 (Statutory Deadline for original certificate pursuant to Section 367.031, Florida Statutes, waived by applicant until this date)
SPECIAL INSTRUCTIONS:			None

 

 Case Background

The Village of Charlie Creek potable water system (Water System) is located in Hardee County and based on records obtained from the Florida Department of Environmental Protection (FDEP) was constructed in 1994 to replace a previous water system. The Water System consists of two four-inch wells which have the combined capacity to pump 200 gallons per minute, water treatment and storage facilities, and water distribution lines that have the potential to serve 266 single family mobile home sites.

The Water System was sold by its prior owner, Wauchula State Bank, to Highvest Corporation in 1998, which appears to have operated the facility without the oversight of the Hardee County Commission until 2009.

On October 22, 2009, the Board of County Commissioners of Hardee County adopted Ordinance No. 2010-02, declaring the privately owned water and wastewater facilities in Hardee County to be subject to the provisions of Chapter 367, Florida Statutes (F.S.), effective October 26, 2009. Order No. PSC-09-0820-FOF-WS, issued December 14, 2009, acknowledged Ordinance No. 2010-02. Highvest Corporation continued to operate the Water System without authorization from the Commission through 2014.

On November 11, 2014, a contract for sale of the utility facilities was executed between Highvest Corporation and Florida Utility Services 1, LLC (FUS1), which is solely owned by its registered agent and manager Michael Smallridge. Charlie Creek Utilities, LLC (Charlie Creek) was incorporated on November 24, 2014 based on information from the Division of Corporations of the Florida Department of State. Charlie Creek is owned by FUS1, with both entities solely owned by Mr. Smallridge. On November 28, 2014, the contract for sale closed and Charlie Creek began operations of the water facility.

On August 21, 2015, Charlie Creek filed its application for an original water certificate in Hardee County. Based on its application, the utility is currently providing water service to approximately 160 residential customers and one general service customer. As of December 22, 2015, no Annual Reports have been filed and no Regulatory Assessment Fees have been paid by Charlie Creek.

Pursuant to Section 367.031, F.S., the Commission shall grant or deny an application for a certificate of authorization within 90 days after the official filing date of the completed application. The application was deemed complete on October 5, 2015, which is considered the official filing date. Mr. Smallridge has waived the 90 day deadline through January 5, 2016, or approximately 92 days from the official filing date.

This recommendation addresses the application for an original water certificate, the appropriate rates and charges for the utility, approval of a new convenience charge, and whether the utility should be show caused for failure to timely apply for a certificate. The Commission has jurisdiction pursuant to Sections 367.031 and 367.045, F.S.

 

Discussion of Issues

Issue 1: Should the application of Charlie Creek Utilities, LLC, for a water certificate be approved?

Recommendation: 

 Yes. Charlie Creek Utilities, LLC, should be granted Certificate No. 668-W to serve the territory described in Attachment A, effective the date of the Commission’s vote. The resultant order should serve as Charlie Creek’s water certificate and it should be retained by the utility. (Ellis, Galloway)

Staff Analysis: 

 On August 21, 2015, Mr. Smallridge filed an application for an original water certificate for Charlie Creek in Hardee County. Upon review, staff determined the original filing was deficient and sent a data request to the utility seeking additional information. Charlie Creek corrected the noted deficiencies on October 5, 2015, which is considered the official filing date for the application. The utility’s application is in compliance with the governing statutes, Sections 367.031 and 367.045, F.S.

Notice

On September 15, 2015, Charlie Creek filed proof of compliance with the noticing provisions set forth in Rule 25-30.30, Florida Administrative Code (F.A.C.). On October 8, 2015, two customers responded to the application notice and provided comments, which are discussed further below. On October 30, 2015, staff wrote a letter to the customers and requested clarification on whether they intended to pursue an objection and request a formal hearing, with a response requested by November 13, 2015. As of December 22, 2015, no response has been received. No other person or entity objected to the application and the time for filing such objections has expired.

Land Ownership and Service Territory

Charlie Creek submitted a recorded executed warranty deed in the name of the utility as required by Rule 25-30.034(e), F.A.C. Charlie Creek provided adequate service territory system maps and a territory description as required by Rule 25-30.034(h),(i), and (j), F.A.C. The legal description of the service territory is appended to this recommendation as Attachment A.

Financial and Technical Ability

Pursuant to Rule 25-30.034(1)(d), F.A.C., the utility provided statements describing its financial and technical ability to provide water service. Included in the application was the current owner’s personal financial statements, as well as, the financial statements of Florida Utility Services 1, LLC. As referenced in the application and specified in previous dockets, Mr. Smallridge was appointed to the Citrus County Water and Wastewater Authority, the local regulatory body for Citrus County, where he served for seven years. Mr. Smallridge also served as the “Class C’ representative for the Governor’s Study Committee for Investor Owned Water and Wastewater Utility Systems in 2013. Mr. Smallridge maintains a regular yearly schedule of training classes through the Florida Rural Water Association and completed the NARUC Utility Rate School in 2001. Mr. Smallridge personally owns three utilities; Crestridge Utilities, LLC, Holiday Gardens Utilities, LLC, and Pinecrest Utilities, LLC. Mr. Smallridge also serves as the appointed circuit court receiver for three utilities; Four Points Utility Corporation, Bimini Bay Utilities, and West Lakeland Wastewater, Inc. FUS1, which is owned and operated by Mr. Smallridge, also owns East Marion Utilities, LLC. In total, Mr. Smallridge is the manager, owner, or receiver of a total of eight water and wastewater utilities, seven of which are regulated by the Commission.

Staff has reviewed the personal financial statements along with the financial statements of FUS1 and believes the current owner appears to show adequate resources to support the utility’s water operations. Recently, in 2015, the Commission found that Mr. Smallridge had the financial ability and approved the transfers for three sister companies.[1] 

Regarding technical ability, as stated above FUS1 and Mr. Smallridge have experience with operating multiple water and wastewater utilities. FUS1 notes that its staff engages in billing, customer service, meter reading, and some field work, and has contracted with a licensed plant operator for the Charlie Creek system. Charlie Creek has no outstanding compliance issues with FDEP and is up to date with its monitoring requirements.

Based on the above, Mr. Smallridge has demonstrated the technical and financial ability to provide service to the existing service territory. Staff also recommends that the current owner has demonstrated financial ability to operate the utility consistent with Chapter 367, F.S.

Customer Comments

As discussed above, staff received a letter containing a customer complaint regarding the system. The complaint addressed multiple concerns, including high system costs, failure to notify properly regarding a boiled water notice, long duration of outages, concerns of lack of treatment of the Water System, odor concerns, and poor customer service. In addition, the utility states it has received four written complaints concerning failure to receive a bill (electronically or by mail) and odor issues. The Commission’s Consumer Activity Tracking System indicates a customer complaint was filed against the utility for improper disconnection on August 10, 2015.

While the customers did not request a formal hearing, staff reviewed each of the complaints. Staff contacted the utility and requested additional information to investigate the claims made. In addition, staff reviewed data from FDEP regarding the history of the Water System to determine if environmental and health concerns were recurring from previous owners or are unique to Charlie Creek’s operation of the system.

Regarding concerns associated with the utility’s cost of service, Charlie Creek’s rates and charges appear to be reasonable based on the size of the utility and the type of treatment. As discussed in Issue 2, staff is not recommending any rate changes at this time.

Regarding boiled water notices and outages, staff determined that four events were reported to FDEP by Charlie Creek during the operating period. Two events (in December 2014 and  October 2015) were the result of line breaks and two events (in March 2015 and June 2015) were the result of loss of pressure caused by power failures. Two of these events resulted in long duration outages for all customers on the distribution system. The utility states that it provides boiled water notices through a combination of door hangers and an email to customers.

Staff did not find any boiled water notices for the two years prior to Charlie Creek acquiring the Water System. However, based on the last Sanitary Survey conducted by the Florida Department of Environmental Protection (FDEP), on February 2, 2014, the previous owners, Highvest Corporation, violated rules for monitoring and reporting bacterial contamination to FDEP and notifying customers. The previous owners corrected issues associated with the Sanitary Survey to the satisfaction of FDEP as of May 6, 2014.

Regarding treatment and odor concerns, the utility states that it has maintained the water source and water treatment equipment from the former owner. In addition to chlorine treatment, the utility also uses a sequestrant for hydrogen sulfide. Monthly operating reports filed with FDEP confirm the usage of chlorine for water treatment. Charlie Creek is also up to date on meeting its monitoring requirements with FDEP, and based on testing conducted in July 2015, the utility has met or was below the maximum contaminant levels for primary and secondary drinking water standards.

Lastly, regarding the improper disconnection, the utility responded that it was unaware of the outage and restored service after it was notified. The utility states the outage was caused by vandalism of the utility’s property.

Conclusion

Based on the information above, Charlie Creek Utilities, LLC, should be granted Certificate No. 668-W to serve the territory described in Attachment A, effective the date of the Commission’s vote. The resultant order should serve as Charlie Creek’s water certificate and it should be retained by the utility.

 

 

 

 

 Issue 2: 

 What rates and charges should be set for Charlie Creek Utilities, LLC?

Recommendation: 

 The utility’s existing rates and charges should remain in effect until a change is authorized by the Commission in a subsequent proceeding. These rates are shown on Schedule No. 1. The tariff pages should be effective on or after the stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C. (Galloway, Thompson)

Staff Analysis: 

 The rates and charges Charlie Creek had in effect prior to the current owner acquiring the Water System should be approved as the appropriate rates and charges for the utility. The utility=s rates have never been reviewed or approved by any regulatory authority. Staff requested and received copies of customer bills to verify the rates. The utility's rates and charges are shown on Schedule No. 1. Because these rates were in effect at the time of application, staff recommends that they should be approved.

As mentioned in Issue 1, Charlie Creek’s rates and charges appear to be reasonable based on the size of the utility and the type of treatment. In addition, the utility’s miscellaneous service charges, customer deposits, and service availability charges appear to be reasonable. Further, the Commission has in place procedures for determining whether a utility is in a potential overearnings position each year during the annual report review process. The 2015 Annual Report for this utility is due to be filed with the Commission on March 31, 2016.

The utility’s existing rates and charges should remain in effect until a change is authorized by the Commission in a subsequent proceeding. These rates are shown on Schedule No. 1. The tariff pages should be effective on or after the stamped approval date on the tariff sheets pursuant to Rule 25-30.475(1), F.A.C.

 

Issue 3: 

 Should the Commission approve Charlie Creek’s request to implement a convenience charge for customers who opt to pay their water bill by debit or credit card?

Recommendation: 

 Yes. Charlie Creek’s request to implement a convenience charge of $3.00 for customers who opt to pay their water bill by debit or credit card should be approved. The charge should be effective for services rendered on or after the stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the approved charge should not be implemented until staff has approved the proposed customer notice and the notice has been received by the customers. The utility should provide proof of the date notice was given within 10 days of the date of the notice. (Thompson)

Staff Analysis: 

 Section 367.091, F.S., authorizes the Commission to establish increase, or change a rate or charge if the utility provides cost-justification. The utility is requesting a $3.00 convenience charge to recover the cost of supplies, administrative labor, and equipment. As required by Section 367.091, F.S., the utility’s cost analysis breakdown for its requested charge is shown below.

Table 3-1

Convenience Charge Cost Justification

Source: Utility Correspondence

The Commission recently approved a charge of $2.60 for customers who opt to pay their bill with debit or credit cards for Brevard Waterworks, Inc., LP Waterworks, Inc., and Lakeside Waterworks, Inc., among others.^[2] In those cases, the charges were designed to recover the cost of supplies, administrative labor, and equipment. The Commission has also approved charges in other industries for customers who opt to pay their bill by debit or credit card. An electronic bill payment charge of $3.50 was approved for Florida Public Utilities Company’s (FPUC) gas customers in 2004.^[3] In that case, the Commission found the charge was necessary to recover the additional costs incurred by FPUC to facilitate payments by credit card, debit card, or electronic check. The Commission also approved a charge of $3.50 for residential customers and 3.5 percent of the total bill amount for all other FPUC electric customers in 2005.^[4] The charge was designed to recover the costs incurred for customer contact, supervision, and bank and credit card processing.

Staff believes that the utility’s requested charge of a $3.00 convenience charge is reasonable for customers who opt to pay their water bill by debit or credit card. The utility’s requested charge benefits the customers by allowing them to expand their payment options. Furthermore, this charge will ensure the utility’s remaining customers do not subsidize those customers who choose to pay using this option. 

Based on the above, staff recommends that Charlie Creek’s request to implement a convenience charge of $3.00 for customers who opt to pay their water bill by debit or credit card should be approved. The charge should be effective for services rendered on or after the stamped approval date on the tariff pursuant to Rule 25-30.475, F.A.C. In addition, the approved charge should not be implemented until staff has approved the proposed customer notice and the notice has been received by the customers. The utility should provide proof of the date notice was given within 10 days of the date of the notice.

 

Issue 4: 

 Should the Commission order Charlie Creek Utilities, LLC, to show cause, in writing within 21 days, why is should not be fined for operating water utility without a certificate of authorization in apparent violation of Chapter 367.031, F.S., for failure to file annual reports in violation of Rule 25-30.110(3), F.A.C., and for failure to remit its regulatory assessment fees (RAFs) in violation of Section 367.145, F.S. and Rule 25-30-120, F.A.C.?

Recommendation: 

 No, Charlie Creek Utilities, LLC should not be ordered to show cause for operating a water utility without a certificate of authorization, for failing to file annual reports and for failure to pay RAFs. (Janjic)  

Staff Analysis: 

 Section 367.031, F.S., notes that “each utility subject to the jurisdiction of the commission must obtain from the commission a certificate of authorization to provide water or wastewater service.” In addition, Section 367.161(1), F.S., authorizes the Commission to assess a penalty of not more than $5,000 for each offense, if a utility is found to have knowingly refused to comply with, or to have willfully violated any provision of Chapter 367, F.S. Utilities are charged with the knowledge of the Commission’s Rules and Statutes. Additionally, “it is a common maxim, familiar to all minds that ‘ignorance of the law’ will not excuse any person, either civilly or criminally.” Barlow v. United States, 32 U.S. 404, 411 (1833). Thus, any intentional act, such as Charlie Creek Utilities providing water service to public for compensation, without first obtaining a certificate of authorization from the Commission, would meet the standard for a willful violation of Section 367.161(1), F.S. In Commission Order No. 24306, issued April 1, 1991, in Docket No. 890216-TL, titled, In Re: Investigation Into the Proper Application of Rule 25-14.003, Florida Administrative Code, Relating to Tax Savings Refund for 1988 and 1989 for GTE Florida, Inc., the Commission, having found that the company had not intended to violate the rule, nevertheless found it appropriate to order the utility to show cause why it should not be fined, stating that “[i]n our view, ‘willful’ implies an intent to do an act, and this is distinct from an intent to violate a statue or rule.”

Although Charlie Creek’s failure to obtain certificates of authorization from the Commission prior to charging the public for service is an apparent violation of Section 367.031, F.S., there are mitigating circumstances. The Utility purchased the Water System on November 28, 2014, and the new owner sent its first bills to customers in January 2015. Charlie Creek was under the assumption that the system was regulated by Hardee County and after learning that that was not the case, and the system was indeed regulated by the Public Service Commission, it filed an application for an Original Certificate. The last application deficiency was corrected on October 5, 2015. In light of these circumstances, and the fact that Charlie Creek has been cooperative in moving forward with Commission certification, staff does not believe that the apparent violation of Section 367.031, F.S., rises to the level of warranting a show cause.

Rule 25-30.110(3), F.A.C., provides that:

Each utility shall file with the Commission annual reports on forms prescribed by the Commission. The obligation to file an annual report for any year shall apply to any utility which is subject to this Commission’s jurisdiction as of December 31 of that year, whether or not the utility has actually applied for or been issued a certificate.

As previously stated, the purchase agreement between the seller and buyer was executed on November 11, 2014, and finalized on November 28, 2014. While the Water System has been subject to the Commission’s jurisdiction since October 26, 2009 when Hardee County passed and adopted an ordinance declaring privately-owned water and wastewater facilities in Hardee County to be subject to the provisions of Chapter 367, F.S, staff does not believe the current owner should be responsible for the annual reports prior to 2015. The purchase agreement was finalized with only one month remaining in year 2014. The current owner also filed this application a few months after taking over ownership of the utility, an indication that the current owner is trying to comply with Commission rules and regulations.

The Utility’s 2014 Annual Report is 280 days late. Consistent with Rule 25-30.110, F.A.C., the penalty of $3 per day for 280 days results in a total penalty of $840.00. The associated interest is immaterial. But under these circumstances, staff believe that due to mitigating circumstances, the current owner should not be required to show cause for the utility’s failure to file its 2014 Annual Report and the associated late fees should be waived.

Pursuant to Sections 350.113(3)(e) and 367.145, F.S., and Rule 25-30.120(1), F.A.C., each water and wastewater utility shall remit annually RAFs in the amount of 0.045 of its gross operating revenue. Pursuant to Rule 25-30.120(2), F.A.C., “[t]he obligation to remit the [RAFs] for any year shall apply to any utility which is subject to [the] Commission’s jurisdiction on or before December 31 of that year or for any part of that year, whether or not the utility has actually applied for or has been issued a certificate.” The primary purpose of paying RAFs is to defray costs incurred by the Commission in regulating jurisdictional utilities. Staff notes that the Commission has not expended any resources or dollars regulating Charlie Creek until 2015, the year the utility filed for its original certificate. In addition, while the purchase agreement was finalized in late November 2014, according to the utility, the current owner did not take over customer billing until January 2015. Staff believes the utility should not be required to show cause for the utility’s failure to file its RAFs prior to 2015. The current owner is responsible for filing the 2015 Annual Report and all future annual reports, and 2015 RAFs.

Issue 5: 

 Should this docket be closed?

Recommendation: 

 If no timely protest to the proposed agency action portion of this recommendation with respect to rates and charges is filed with the Commission by a substantially affected person within 21 days of the date of the order, a Consummating Order should be issued. Following the expiration of the protest period with no timely protest, the issuance of a Consummating Order, and once staff verifies that the notice of the convenience charge has been given to customers; the docket should be closed administratively. (Janjic)

Staff Analysis: 

 If no timely protest to the proposed agency action portion of this recommendation with respect to rates and charges is filed with the Commission by a substantially affected person within 21 days of the date of the order, a Consummating Order should be issued. Following the expiration of the protest period with no timely protest, the issuance of a Consummating Order, and once staff verifies that the notice of the convenience charge has been given to customers the docket should be closed administratively.

Charlie Creek Utilities, LLC

Description of Water Service Territory

 

Hardee County

 

A Parcel Of Land Lying In Section 31, Township 33 South, Range 27 East, Hardee County, Florida, Being More Particularly Described As Follows:

 

Beginning at the Northeast Corner of the Southeast 1/4 of the Northeast 1/4 of said Section 31; thence S00°37'50"W, along the East Line of said Southeast 1/4 of the Northeast 1/4, 1,320.77 feet, to the Southeast Corner of said Southeast 1/4 of the Northeast 1/4; thence continue S00°37'50"W, along the East Line of the Northeast 1/4 of the Southeast 1/4 of Said Section 31, 1,131.53 Feet, to its intersection with the Northwesterly Right-Of-Way Line of State Road No. 64 (100 Feet Wide ); thence S75°42'39"W , along said Northwesterly Right-Of-Way Line, 770. 11 Feet, to its intersection with the South Line of the Northeast 1/4 of the Southeast 1/4 of said Section 31; thence S89°56'02"W , along said South Line, 583.16 Feet, to the Southwest Corner of the Northeast 1/4 of the Southeast 1/4 of said Section 31; thence N00°37'21"E, Along the West Line of said Northeast 1/4 of the Southeast 1/4, 1321.68 Feet, to the Northwest Corner of said Northeast 1/4 of the Southeast 1/4; thence continue N00°37'21"E, along the West Line of the South East 1/4 of the Northeast 1/4 of said Section 31, 1321.08 Feet, to the Northwest Corner of said Southeast 1/4 of the Northeast 1/4; thence N89°59'14"E, along the North Line of said Southeast 1/4 of the Northeast 1/4, 1327.72 Feet, to the Point of Beginning.

 

FLORIDA PUBLIC SERVICE COMMISSION

 

authorizes

 

Charlie Creek Utilities, LLC

pursuant to

Certificate Number 668-W

 

to provide water service in Hardee 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

 

*                                              *                      150186-WU                Original Certificate

 

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

 

Charlie Creek Utilities, LLC

                                                            Monthly Water Rates