Case Background
On November 16,
2017, West Lakeland Wastewater, LLC (West Lakeland, LLC) filed an application
for a transfer of Certificate No. 515-S from West Lakeland Wastewater, Inc.
(WLWI or Utility) in Polk County. According to the Utility’s 2017 Annual
Report, WLWI is a Class C utility serving approximately 310 wastewater
customers, with an operating loss of $7,104. Customers receive water from the
City of Lakeland.
The Utility, previously known as ABCA, Inc., has been
providing service to customers in Polk County since 1972. On January 9, 1990,
the Polk County Commission granted a franchise to Ameribanc Investors Group for
a system known as Village Lakeland. Polk County came under the Florida Public
Service Commission’s (Commission) jurisdiction on July 11, 1996. In 1998, the
Commission granted the Utility its grandfather Certificate No. 515-S for
wastewater. ABCA’s Certificate was transferred to WLWI
in 2001.
By letter dated
March 26, 2009, WLWI gave notice of abandonment effective June 30, 2009. On May
13, 2009, the Polk County attorney filed a Petition for Appointment of Receiver
for WLWI in the Circuit Court of the Tenth Judicial Circuit which subsequently
appointed Mr. Mike Smallridge as receiver for the wastewater system. On
September 8, 2009, the Commission acknowledged WLWI’s abandonment and the
Court’s appointment of Mr. Smallridge as receiver.[3]
On March 19,
2013, WLWI filed an application for transfer of Certificate No. 515-S from WLWI
to West Lakeland, LLC. A deficiency was noted that the Utility
did not have ownership or rights to long-term use of land upon which a portion
of the wastewater treatment plant was located. On September 11, 2014, WLWI
withdrew its application to transfer to West Lakeland, LLC. As referenced above, a subsequent transfer
application was filed on November 16, 2017.
This
recommendation addresses the transfer of the wastewater system, the net book
value of the wastewater system at the time of the transfer and the need for an
acquisition adjustment. The
Commission has jurisdiction pursuant to Sections 367.071 and 367.091, Florida
Statutes (F.S.)
Discussion
of Issues
Issue 1:
Should the transfer of Certificate No. 515-S in Polk
County from West Lakeland, Inc. to West Lakeland, LLC be approved?
Recommendation:
Yes. The transfer of the wastewater system and
Certificate No. 515-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 and
charges 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 services rendered or connections made on or after the stamped
approval date on the tariffs, pursuant to Rule 25-30.475, Florida
Administrative Code (F.A.C.) West Lakeland, LLC should be responsible for
filing the 2018 Annual Report, all future annual reports, and Regulatory
Assessment Fees (RAFs) subsequent to the date of closing. (Wooten, Andrews,
Sibley)
Staff Analysis:
On November 16, 2017, West Lakeland, LLC filed an application
for a transfer of Certificate No. 515-S from WLWI to West Lakeland in Polk
County. The application is in compliance with Section 367.071, F.S., and
Commission rules concerning applications for transfer of certificates. The
application contains a description of the wastewater service territory which is
appended to this recommendation as Attachment A.
Noticing, Territory, and Land
Ownership
West Lakeland provided notice of the application pursuant
to 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 wastewater service territory which is appended to
this recommendation as Attachment A. The application contains a copy of a long
term lease agreement that was executed on July 1, 2017, as evidence that the
Applicant owns or has rights to long-term use of the land upon which the wastewater
treatment facilities are located pursuant to Rule 25-30.037(2)(s), F.A.C.
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 West Lakeland that must be disposed of with regard to the transfer.
According to the Purchase Agreement, the total purchase price for the assets is
$0. According to the Buyer, the sale took place on December 13, 2011, subject
to Commission approval, pursuant to Section 367.071(1), F.S.
Facility
Description and Compliance
The wastewater treatment plant is a Type III contact
stabilization plant and is permitted by the DEP at 70,000 gallons per day based
on the three-month rolling average daily flow. Chlorine disinfection is applied
prior to wastewater effluent flowing into the percolation ponds and spray
field. The collection system is composed of four and six inch polyvinyl
chloride (PVC) pipes and there are three lift stations in the service area. The
last compliance evaluation inspection of the facility was conducted on March 4,
2016 on by 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 Rule 25-30.037(2)(l), F.A.C., the application contains statements describing
the technical and financial ability of West Lakeland, LLC to provide service to
the proposed service area. The application states that the
owner 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 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.
According
to the application, West Lakeland, LLC has acquired the assets of WLWI. Staff also reviewed the financial statements of West
Lakeland, LLC. Based on the above, staff recommends West
Lakeland, LLC has demonstrated the financial ability to
provide service to the existing service territory.
Rates and Charges
The Utility’s rates were last
approved in a limited proceeding rate case in 2014. The rates were subsequently amended by several price
indexes and a four-year rate reduction, as required by Section 367.0816, F.S.,
in 2017. The Utility’s service availability charges were established in 2000. In 2014, the Commission approved the Utility’s
request for a convenience charge.[8] The Utility’s existing 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, 2017. West Lakeland, LLC will be responsible for filing
all future annual reports and RAFs.
Conclusion
Staff recommends the transfer of the wastewater system and
Certificate No. 515-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
and charges 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 services rendered or connections made on or after the
stamped approval date on the tariffs, pursuant to Rule 25-30.475, F.A.C. West
Lakeland, LLC should be responsible for filing the 2018 Annual Report, all
future annual reports, and RAFs subsequent to the date of closing.
Issue 2:
What is the appropriate net book value for the West Lakeland
Wastewater, LLC‘s wastewater system for transfer purposes?
Recommendation:
The net book value of the wastewater
system for transfer purposes is negative $68,857, as established by Order No.
PSC-13-0327-PAA-SU. An acquisition adjustment should not be included in rate
base. (Andrews)
Staff Analysis:
In transfer cases, staff normally
establishes the net book value (NBV) of a utility as of the date of the sale.
In this case that would have been as of December 13, 2011. However, rate base
was established for West Lakeland, LLC as of the test year ending September 30,
2012, which was subsequent to the transfer date of December 13, 2011.
Therefore, the components of rate base, as of the transfer date, were reflected
in rate base approved by Order No. PSC-13-0327-PAA-SU.
Staff would note that the use of an established rate base in a staff assisted
rate case (SARC) for transfer purposes has been done previously for this
certificate. In a prior 2001 transfer of this certificate, the rate base
established in a SARC completed in 2000 was used for transfer purposes.
As such, staff recommends adopting the rate base set during the 2013 SARC for
transfer purposes.
Net Book Value
In the 2013 SARC, the rate base
approved by the Commission was negative $68,857. The purpose of establishing
NBV for transfers is to determine whether an acquisition adjustment should be
approved. As such, staff recommends using the rate base established by the 2013
SARC Order for purposes of evaluating an acquisition adjustment.
Acquisition Adjustment
An acquisition adjustment results
when the purchase price differs from the NBV of the assets at the time of the
acquisition. However, the Utility and its assets were purchased for $0. Additionally,
staff recommends that rate base for evaluating the acquisition adjustment is
negative $68,857. Therefore, no acquisition adjustment should be approved.
Conclusion
Staff recommends that the NBV of the wastewater system for
transfer purposes is negative $68,857, as established by Order No. PSC-13-0327-PAA-SU.
An acquisition adjustment should not be included in rate base.
Issue 3:
Should the Utility’s
service availability charges be discontinued?
Recommendation:
Yes. WLWI’s service availability charges should be
discontinued. West Lakeland, LLC should provide notice to customers who have
requested service within 12 calendar months prior to the month the application
was filed to the present pursuant to Rule 25-30.4345, F.A.C. In the event there
is new development in the Utility’s service
territory, the Utility should file an
application for new service availability charges. (Sibley)
Staff Analysis:
The Utility’s current
service availability charges consist of a main extension charge of $450 and a
plant capacity charge of $430. As discussed in Issue 2, the Utility has a
negative rate base; therefore, the service availability charges should be
discontinued. Staff’s recommended charges are shown below in Table 3-A. WLWI
was determined to be completely built out by Order No. PSC-13-0327-PAA-SU;
in order to serve new customers, the Utility would
need to install additional facilities.
|
Table
3-A
Service
Availability Charges
|
|
|
Current Rates
|
Staff
Recommended Rates
|
|
Main Extension Charge
|
$450.00
|
N/A
|
|
Plant Capacity Charge
|
$430.00
|
N/A
|
Source: Utility’s tariff
Based on the above, staff recommends the Utility’s service availability charges should be
discontinued. In the event there is new development in the service territory,
the Utility should file an application for new
service availability charges.
Conclusion
Staff recommends that WLWI’s service availability charges
should be discontinued. West Lakeland, LLC should provide notice to customers
who have requested service within 12 calendar months prior to the month the
application was filed to the present pursuant to Rule 25-30.4345, F.A.C. In the
event there is new development in the Utility’s
service territory, the Utility should file an
application for new service availability charges.
Issue 4:
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, the Buyer has notified the Commission in writing
that it has adjusted its books in accordance with the Commission’s decision,
and proof that appropriate noticing has been done pursuant to Rule 25-30.4345,
F.A.C. (Crawford)
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, the Buyer has notified the Commission in writing
that it has adjusted its books in accordance with the Commission’s decision and
proof that appropriate noticing has been done pursuant to Rule 25-30.4345,
F.A.C.
