Discussion
of Issues
Issue 1:
Should the transfer of Certificate No. 619-W in Polk
County from McLeod Gardens Water Company to McLeod Gardens Utilities, LLC be
approved?
Recommendation:
Yes. The transfer of the water system and
Certificate No. 619-W is in the public interest and should be approved
effective the date of the Commission vote. The resultant order should serve as
the Buyer’s certificate and should be retained by the Buyer. The existing rates
and charges should remain in effect until a change is authorized by the
Commission in a subsequent proceeding. The
Buyer should be responsible for filing the 2017 Annual Report, and all future annual
reports and Regulatory Assessment Fees (RAFs). (M.
Watts, Bruce, Andrews)
Staff Analysis:
On August 25, 2016, McLeod Gardens Utilities, LLC filed an application for the transfer of
Certificate No. 619-W from McLeod Gardens Water Company in Polk County. The
application is in compliance with Section 367.071, F.S., and Commission rules
concerning applications for transfer of certificates. The sale occurred on September
1, 2016, contingent upon Commission approval, pursuant to Section 367.071(1),
F.S.
Noticing, Territory, and Land
Ownership
McLeod Gardens provided notice of
the application pursuant to Section 367.071, F.S., and Rule 25-30.030, Florida
Administrative Code (F.A.C.). No objections to the transfer were filed, and the
time for doing so has expired. The application contains a description of the
water service territory which is appended to this recommendation as Attachment
A. The application contains a copy of a warranty deed that was executed on September
1, 2016, as evidence that the Applicant owns the land upon which the water
treatment facilities are located pursuant to Rule 25-30.037(2)(s), F.A.C.
Purchase Agreement and Financing
Pursuant to Rules 25-30.037(2)(i) and (j), F.A.C., the
application contains a statement regarding financing and 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 the
Utility that must be disposed of with regard to the transfer. According to the
purchase agreement, the total purchase price for the assets is $20,300 paid at
closing. According to the purchase agreement, the sale closed on September 1,
2016, subject to Commission approval, pursuant to Section 367.071(1), F.S.
Facility
Description and Compliance
The water treatment system consists of two wells, a steel
hydropneumatic storage tank with a storage
capacity of 10,000 gallons, and a liquid hypochlorination system used for
disinfection. The last Polk County Health Department (PCHD) sanitary survey was
conducted on March 20, 2017, on behalf of the Florida Department of
Environmental Protection (DEP). There were three deficiencies noted, which have
been corrected. Therefore, the system appears to be in compliance with the DEP
rules.
Technical and Financial Ability
Pursuant to Rules
25-30.037(2)(l) and (m), F.A.C., the application contains statements describing
the technical and financial ability of the Applicant to provide service to the
proposed service area. As referenced in McLeod Gardens’ February 1, 2017
response to staff’s December 28, 2016 deficiency letter, the owner of McLeod
Gardens was appointed to the Citrus County Water and Wastewater Authority, the
local regulatory body for Citrus County, where he served for seven years. The owner
also served as the "Class C" representative for the Governors Study
Committee for Investor Owned Water and Wastewater Utility Systems in 2013. He
attends yearly training classes through the Florida Rural Water Association and
completed the National Association of Regulatory Utility Commissioners (NARUC)
Utility Rate School in 2001. He owns, is the receiver of, or is the manager of,
a total of seven Class C water and wastewater facilities that are regulated by
the Commission. The owner stated that he will be using current Florida Utility
Services personnel for billing and customer service.
Staff reviewed the
financial statements of the Buyer. According to the application, the Buyer is
able to provide any necessary capital investment to the Utility. Based on the
above, staff believes the Buyer 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 staff-assisted rate case in 2002.[3] In
addition, the Utility had two price indexes that became effective on July 11,
2012, and August 1, 2013, respectively.
The Utility’s miscellaneous service charges were approved in Docket No.
001381-WU.[4] The
Utility’s existing and recommended rates and charges are shown on Schedule No.
1. 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 and Annual Reports
Staff has verified
that the Utility is current on the filing of annual reports and RAFs through
December 31, 2016. The Buyer is responsible for filing the 2017 Annual Report
and all future annual reports and RAFs.
Conclusion
Based on the foregoing, staff
recommends that the transfer of the water system and Certificate No. 619-W is
in the public interest and should be approved effective the date of the
Commission vote. The resultant order should serve as the Buyer’s certificate
and should be retained by the Buyer. The existing rates and charges should remain in effect until a
change is authorized by the Commission in a subsequent proceeding. The Buyer
should be responsible for filing the 2017 Annual Report, and all future annual
reports and RAFs.
Issue 2:
What is the appropriate net book value for the McLeod Gardens water
system for transfer purposes?
Recommendation:
The net book value of the water system for
transfer purposes is $43,566, as of September 1, 2016. Within 90 days of the
date of the final order, McLeod Gardens Utilities, LLC should be required to
notify the Commission in writing, that it has adjusted its books in accordance
with the Commission’s decision. The adjustments should be reflected in McLeod
Gardens Utilities, LLC’s 2017 Annual Report when filed.
(Andrews)
Staff Analysis:
Rate base
was last established for the Utility as of December 31, 2003.[5]
The purpose of establishing net book value (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. The Utility’s NBV has been updated to
reflect balances as of September
1, 2016. Staff’s recommended NBV, as described below, is shown on
Schedule No. 1.
Utility
Plant in Service (UPIS)
The Utility’s general ledger reflected a UPIS balance of
$135,446, as of September 1, 2016. Staff reviewed UPIS additions since the last
rate case proceeding, and as a result, has increased UPIS by $103,194.
Therefore, staff recommends that the Utility’s UPIS balance as of September 1,
2016, should be $238,640.
Land
The Utility’s general ledger
reflected a land balance of $0 as of September 1, 2016. In Order No.
PSC-02-1733-PAA-WU, issued December 9, 2002, the Commission established the
value of the land to be $7,000. As a result, land should be increased by $7,000. Therefore, staff
recommends a land balance of $7,000, as of September 1, 2016.
Accumulated Depreciation
The Utility’s general ledger reflected accumulated
depreciation balance of $113,256, as of September 1,
2016. Staff calculated the appropriate accumulated depreciation balance
to be $138,698. As a result, accumulated depreciation should be increased by
$25,442 to reflect an accumulated depreciation balance of $138,698, as of September 1, 2016.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As of September 1, 2016, the Utility’s general ledger
reflected a CIAC balance of $23,965, and an accumulated amortization of CIAC
balance of $11,648. Staff increased CIAC by
$99,031 and accumulated amortization of CIAC by $47,972, to reflect appropriate
Commission-ordered adjustments. Therefore, staff
recommends a CIAC balance of $122,996 and
accumulated amortization of CIAC balance of $59,620, as of September 1, 2016.
Net Book Value
The Utility’s general ledger reflected a NBV of $9,873.
Based on the adjustments described above, staff recommends a NBV of $43,566, as
of September 1, 2016. Staff’s recommended NBV and the National Association of
Regulatory Utility Commissioners, Uniform System of Accounts (NARUC USOA)
balances for UPIS and accumulated depreciation are shown on Schedule No. 2, as
of September 1, 2016.
Conclusion
Based on the above, staff recommends that the NBV of
McLeod Gardens Utilities, LLC for transfer purposes is $43,566, as of September
1, 2016. Within 90 days of the date of the final order, the Buyer should be
required to notify the Commission, in writing, that it has adjusted its books
in accordance with the Commission’s decision. The adjustments should be
reflected in McLeod Gardens Utilities, LLC’s 2017 Annual Report when filed.
Issue 3:
Should an acquisition adjustment be recognized for
ratemaking purposes?
Recommendation:
Yes. Pursuant to
Rule 25-30.0371(3), F.A.C., a negative acquisition adjustment of $14,553 should
be recognized for ratemaking purposes.
Beginning with the date of the issuance of the order approving the
transfer, 50 percent of the negative acquisition, which is $7,277 should be
amortized over a 7-year period and the remaining 50 percent should be amortized
over the remaining 13-year life of the assets in accordance with Rule
25-30.0371(4)(b)2., F.A.C. (Andrews)
Staff Analysis:
An acquisition adjustment results when the purchase
price differs from the original cost of the assets (net book value) adjusted to
the time of the acquisition. Pursuant to Rule 25-30.0371(3), F.A.C., if the
purchase price is equal to or less than 80 percent of net book value, a
negative acquisition adjustment shall be included in rate base and will be
equal to 80 percent of net book value less the purchase price. Pursuant to Rule
25-30.0371(4)(b)2., F.A.C., if the purchase price is equal to or less than 50
percent of the net book value, then 50 percent of the negative acquisition
adjustment is amortized over a 7-year period and 50 percent amortized over the
remaining life of the assets, beginning with the date of the issuance of the
order approving the transfer of assets. Staff calculated the remaining life of
the applicable assets to be 13 years.
The calculation
of McLeod Garden’s acquisition adjustment is shown below in Table 3-1.
|
Table
3-1
Calculation
of Negative Acquisition Adjustment
|
Net book value as of
September 1, 2016
|
$43,566
|
|
80 percent of net book value
|
$34,853
|
|
Purchase price
|
$20,300
|
|
Negative acquisition
adjustment
|
$14,553
|
|
Therefore, staff recommends that,
pursuant to Rule 25-30.0371(3), F.A.C., a negative acquisition adjustment of
$14,553 shall be recognized for ratemaking purposes, as of September 1, 2016.
Beginning with the date of the issuance of the order approving the transfer, 50
percent of the negative acquisition adjustment, which is $7,277, shall be
amortized over a 7-year period and the remaining 50 percent shall be amortized
over the 13-year remaining life of the assets in accordance with Rule
25-30.0371(4)(b)2., F.A.C.
Issue 4:
Should McLeod Gardens be authorized to collect
Non-Sufficient Funds Charges (NSF)?
Recommendation:
Yes. McLeod Gardens should be authorized to collect
NSF charges. McLeod Gardens should file revised tariff sheets and a proposed
customer notice to reflect the Commission-approved NSF charges. The approved
charges should be effective for service rendered on or after the stamped
approval date on the tariff sheets provided customers have received notice
pursuant to Rule 25-30.475, F.A.C. McLeod Gardens should provide proof of
noticing within 10 days of rendering its approved notice. (Bruce)
Staff Analysis:
Section 367.091, F.S., authorizes
the Commission to approve NSF charges. Staff recommends that McLeod Gardens should
be authorized to collect NSF charges consistent with Section 68.065, F.S.,
which allows for the assessment of charges for the collection of worthless
checks, drafts, or orders of payment. As currently set forth in Section
68.065(2), F.S., the following NSF charges may be assessed:
(1)
$25, if the face value does not exceed $50,
(2)
$30, if the face value exceeds $50 but does
not exceed $300,
(3)
$40, if the face value exceeds $300,
(4)
or five percent of the face amount of the
check, whichever is greater.
Approval of NSF charges is consistent with prior Commission
decisions.[6]
Furthermore, NSF charges place the cost on the cost-causer, rather than
requiring that the costs associated with the return of the NSF checks be spread
across the general body of the ratepayers. As such, McLeod Gardens should be
authorized to collect NSF charges. The Applicant should file revised tariff
sheets and a proposed customer notice to reflect the Commission-approved NSF
charges. The approved charges should be effective for service rendered on or
after the stamped approval date on the tariff sheets provided customers have
received notice pursuant to Rule 25-30.475, F.A.C. The Applicant should provide
proof of noticing within 10 days of rendering its approved notice.
Issue 5:
Should McLeod Gardens’ requested meter tampering
charge be approved?
Recommendation:
Yes. McLeod Gardens’ request to implement a $50
meter tampering charge should be approved. McLeod Gardens should file revised
tariff sheets and a proposed customer notice to reflect the Commission-approved
meter tampering charges. The approved charge should be effective for service
rendered on or after the stamped approval date on the tariff sheets provided
customers have received notice pursuant to Rule 25-30.475, F.A.C. McLeod
Gardens should provide proof of noticing within 10 days of rendering its approved
notice. (Bruce)
Staff Analysis:
Currently, the Applicant does not
have a meter tampering charge. In addition, it has not experienced any issues
with meter tampering. However, consistent with sister utilities,[7]
McLeod Gardens would like to implement a meter tampering charge. McLeod Gardens
requested a $50 meter tampering charge to cover the cost of a service
representative making a special premises visit to determine if there has been
tampering of the meter. Rule 25-30.320(2)(i), F.A.C., provides that a
customer’s service may be discontinued without notice in the event of tampering
with the meter or other facilities furnished or owned by the utility. Rule
25-30.320(2)(j), F.A.C., provides that a customer’s service may be discontinued
in the event of an unauthorized or fraudulent use before restoring service. The
rule also allows the utility to require the customer to reimburse the utility
for all changes in piping or equipment necessary to eliminate the illegal use
and to pay an amount reasonably estimated as the deficiency in revenue
resulting from the customer’s fraudulent use before restoring service.
Pursuant to Rule 25-30.345, F.A.C.,
a utility may charge a reasonable charge to defray the cost of restoring
service that was discontinued for proper cause as specified in Rule 25-30.320,
F.A.C. The Commission has previously approved a meter tampering charge of $50
for sister utilities of McLeod Gardens.[8] The
Applicant’s request to implement a meter tampering charge of $50 was
accompanied with the appropriate cost justification pursuant to Section
367.091, F.S. Staff recommends this charge should be approved because it is
reasonable and consistent with prior Commission decisions. However,
the charge is appropriate only where an investigation reveals evidence of meter
tampering.
Based on the above, staff recommends that McLeod Gardens’ request
to implement a $50 meter tampering charge should be approved. The Applicant
should file revised tariff sheets and a proposed customer notice to reflect the
Commission-approved meter tampering charges. The approved charge should be
effective for service rendered on or after the stamped approval date on the
tariff sheets provided customers have received notice pursuant to Rule
25-30.475, F.A.C. The Applicant should provide proof of noticing within 10 days
of rendering its approved notice.
Issue 6:
Should this docket be closed?
Recommendation:
The docket should
remain open pending staff’s verification that the revised tariff sheets and
customer notice have been filed by McLeod Gardens Utilities, LLC, and approved
by staff. If no timely protest is filed to the proposed agency action, a
consummating order should be issued and, once staff verifies that the notice of
the charge has been given to customers, the docket should be administratively
closed. (Taylor)
Staff Analysis:
The docket should
remain open pending staff’s verification that the revised tariff sheets and
customer notice have been filed by McLeod Gardens Utilities, LLC, and approved
by staff. If no timely protest is filed to the proposed agency action, a
consummating order should be issued and, once staff verifies that the notice of
the charge has been given to customers, the docket should be administratively
closed.
