Discussion
of Issues
Issue 1:
Should the transfer of the wastewater system and
Certificate No. 538-S in Okeechobee County from Zachary Taylor Camping &
Lodge, Inc. to Coastal Income Properties - Zachary Taylor LLC be approved?
Recommendation:
Yes. The transfer of the wastewater system and Certificate
No. 538-S 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 should
remain in effect until a change is authorized by the Commission in a subsequent
proceeding. The tariffs reflecting the transfer should be effective for service
rendered on or after the stamped approval date on the tariffs pursuant to Rule
25-30.475, Florida Administrative Code (F.A.C.). Coastal Income will be
responsible for paying 2018 regulatory assessment fees (RAFs) and all future RAFs.
The Buyer should be responsible for filing the 2017 Annual Report and all
future annual reports. (Knoblauch, Frank, Sibley)
Staff Analysis:
On August 8, 2017, Coastal
Income filed an application for the transfer of Certificate No. 538-S pursuant
to Rule 25-30.037, F.A.C. The application is in compliance with Section
367.071, F.S., and Commission rules concerning applications for transfer of
certificates. The sale occurred on March 4, 2016, 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 filed, and the time
for doing so has expired. The application contains a description of the
Utility’s wastewater service territory, which is appended to this
recommendation as Attachment A.
Purchase Agreement and
Financing
Pursuant to Rule 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 Zachary Taylor that must be disposed of with regard to the transfer.
According to the purchase agreement, the total purchase price of the assets
includes an RV park and does not separately identify the purchase price for the
Utility. However, the Buyer has allocated $43,928 as the Utility portion of the
sale. According to the Buyer, the sale took place on March 4, 2016, subject to
Commission approval, pursuant to Section 367.071(1), F.S.
Facility Description and
Compliance
The wastewater system consists of
a 44,880 gallon per day extended air treatment system with disposal to three
percolation ponds. The permitted capacity for the treatment plant is 40,500
gallons per day. The last Florida Department of Environmental Protection (DEP)
compliance inspection report was conducted on February 28, 2018, and the system
was determined to be in-compliance. The system is not currently subject to any
outstanding violations or consent orders; therefore, the system appears to be
in-compliance with DEP requirements.
Technical and Financial
Ability
Pursuant to Rule 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 the transfer application the President of Costal
Income is experienced in the operation of RV and mobile home parks. Additionally,
Coastal Income has represented that it will retain the currently licensed wastewater
facility operator.
Staff also reviewed the personal
financial statements of the Buyer. Based on the above, the Buyer has
demonstrated the technical and financial ability to provide service to the
existing service territory.
Rates and Charges
The Utility’s rates were last
approved during the Utility’s application for a grandfather certificate in
2004.[3] Since
2004, the Utility has only requested two price indexes. Currently the Utility
does not have any miscellaneous service charges. The Utility is built out and
has no approved service availability charges. The Utility’s existing rates 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 the Commission. Therefore, staff recommends that the Utility’s existing
rates remain in effect until a change is authorized by the Commission in a
subsequent proceeding.
Regulatory Assessment
Fees and Annual Reports
Staff has verified that the
Seller is current with respect to annual reports through December 31, 2016. The
Buyer has an extension to file the 2017 Annual Report by May 31, 2018. Staff
has also verified that RAFs have been paid through December 31, 2017. The Buyer
will be responsible for filing annual reports and paying RAFs for 2018 and all
future years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the wastewater system and Certificate No. 538-S 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 should remain in effect until a change is authorized by the
Commission in a subsequent proceeding. The tariffs reflecting the transfer
should be effective for service rendered on or after the stamped approval date
on the tariffs pursuant to Rule 25-30.475, F.A.C. Coastal Income will be
responsible for paying 2018 regulatory assessment fees (RAFs) and all future
RAFs. The Buyer should be responsible for filing the 2017 Annual Report and all
future annual reports.
Issue 2:
What is the appropriate net book value of the wastewater
system for transfer purposes and should an acquisition adjustment be approved?
Recommendation:
The net book value of the wastewater system for
transfer purposes is $13,282 as of March 4, 2016. An acquisition adjustment
should not be included in rate base. Within 90 days of the date of the final
order, Coastal Income should notify the Commission in writing that it has
adjusted its books in accordance with the Commission’s decision. The
adjustments should be reflected in Coastal Income’s 2017 Annual Report when
filed. (Frank)
Staff Analysis:
Rate base
has not previously been established for the Utility. 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 March 4, 2016. Staff’s recommended NBV, as described below, is shown on Schedule No. 1.
Utility
Plant in Service (UPIS)
In the previous transfer docket related to this Utility,
staff auditors requested general ledgers, invoices for capital additions,
depreciation schedules, tax returns, a schedule of assets transferred, and a
revenue schedule for Utility operations since the transfer to the Buyer.
However, the Buyer explained he was unable to locate the requested records. As
a result, audit staff referred to the Utility’s 2012 Annual Report to establish
the Utility’s NBV. As of the filing of this current docket, the Buyer is still
unable to locate the necessary records. Staff notes that there have been no
additions to plant since 2012. Therefore, staff has referred to the Utility’s
2016 Annual Report for the purpose of establishing the Utility’s NBV. The Utility’s
2016 Annual Report reflected a UPIS balance of $49,538. Therefore, staff
recommends that the Utility’s UPIS balance as of March 4, 2016, should be $49,538.
Land
The Utility’s 2016 Annual Report reflected a land balance
of $34,375. In the previous transfer for this Utility, audit staff toured the
wastewater plant facility and reviewed Okeechobee County Property Appraiser
documents to determine how much of the 10.562 acres is used by the wastewater
utility system. Based on audit staff’s review, approximately 14,520 square
feet, or 1/3 of an acre, of land is estimated to be occupied by the wastewater
plant site. This equates to a land value of $4,450 ($13,350 x 1/3 of an acre). Therefore,
staff recommends a balance for land of $4,450, as of March 4, 2016.
Accumulated
Depreciation
The Utility’s
2016 Annual Report reflected an accumulated depreciation balance of $41,394 as
of December 31, 2015. Staff recalculated
accumulated depreciation of plant since 2012 to reflect accumulated
depreciation as of March 4, 2016. Staff calculated the appropriate accumulated
depreciation balance to be $40,706. As a result, accumulated depreciation
should be decreased by $688 to reflect an accumulated depreciation balance of $40,706, as of March 4, 2016.
Net
Book Value
The Utility’s
2016 Annual Report reflected a NBV of $42,519. Based on the adjustments
described above, staff recommends a NBV of $13,282, as of March 4, 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 as of March 4, 2016, are shown on Schedule No. 2.
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 $43,928. As stated above, staff has determined the appropriate
NBV total to be $13,282. 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. However, pursuant to Rule 25-30.0371(2),
F.A.C., a positive acquisition adjustment shall not be included in rate base
unless there is proof of extraordinary circumstances. The Buyer did not request
a positive acquisition adjustment. As such, staff recommends that no positive
acquisition adjustment be approved.
Conclusion
Based on the above, staff recommends that the NBV of the
Utility for transfer purposes is $13,282 as of March 4, 2016. No acquisition
adjustment should be included in rate base. Within 90 days of the date of the
final order, the Buyer should notify the Commission, in writing, that it has
adjusted its books in accordance with the Commission’s decision. The
adjustments should be reflected in Coastal Income’s 2017 Annual Report when
filed.
Issue 3:
Should this docket be closed?
Recommendation:
If no protest to the proposed agency action is filed
by a substantially affected person within 21 days of the date of the issuance
of the order, a consummating order should be issued and the docket should be
closed administratively upon Commission staff’s verification that the revised
tariff sheets have been filed and the Buyer has notified the Commission in
writing that it has adjusted its books in accordance with the Commission’s
decision. (DuVal)
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 issuance
of the order, a consummating order should be issued and the docket should be
closed administratively upon Commission staff’s verification that the revised
tariff sheets have been filed and the Buyer has notified the Commission in
writing that it has adjusted its books in accordance with the Commission’s
decision.
Coastal Income Properties - Zachary Taylor
LLC
Okeechobee County
Description of Wastewater Territory
Parcel 1 -
Zachary Taylor Camping and Lodge
Township 37 South, Range 35 East
Section 35
Begin at the Northeast corner of Section 35, Township
37 South, Range 35 East. Thence West
along the North line of said Section a distance of 520 feet to the Point of
Beginning (POB). Thence continue West
along the North line a distance of 420 feet to the East edge of Taylor Creek. Thence along the waters edge of Taylor Creek
the following 5 courses to a Bridge used to cross State Road 15 (Conners Highway).
1. South 28°
West a distance of 80 feet.
2. South 8° 30’
West a distance of 270 feet.
3. South 2°
West a distance of 280 feet
4. South 5°
East a distance of 240 feet.
5. South 18°
East a distance of 730 feet.
Thence North 75° East a distance of 200 feet along the
North Right of Way line of State Road 15 (Conners Highway). Thence North 9°
West a distance of 300 feet. Thence North 78° East a distance of 101 feet. Thence
North 8° West a distance of 60 feet. Thence North 90° West a distance of 1,120
feet to the POB.
Parcel 2 -
The Taylor Creek Condominium Association
Township 37 South, Range 35 East
Section 35
Begin at the Northeast corner of Section 35, Township
37 South, Range 35 East. Thence South
along the East line of said section a distance of 1,770 feet to the Point of
Beginning (POB). Thence South 89° West a
distance of 150 feet. Thence North 0° West a distance of 100 feet. Thence South
82° West a distance of 280 feet along the South Right of Way line of State Road
15. Thence South 0° West a distance of
20 feet.
Thence South 81° West a
distance of 165 feet. Thence South 15° East a distance of 700 feet. Thence
North 75° East a distance of 420 feet. Thence North along the East line
of said section a distance of 550 feet to the POB
