Discussion
of Issues
Issue 1:
Should the application for transfer of Certificate
Nos. 577-W and 498-S in Manatee County, from Heather Hills Estate Utilities,
LLC to Heather Hills Utilities, LLC be approved?
Recommendation:
Yes. The transfer of the water and wastewater systems
and Certificate Nos. 577-W and 498-S is in the public interest and should be
approved effective the date of the Commission’s 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. The Seller paid all Regulatory Assessment Fees (RAFs) through December
31, 2017. The Buyer should be responsible for paying RAFs after December 31,
2017, and all future years. The Buyer has filed the 2017 Annual Report, and
should be responsible for filing all future annual reports. (M. Watts, Sibley, Sewards)
Staff Analysis:
On July 5, 2017, Heather
Hills filed an application for the transfer of Certificate Nos. 577-W and 498-S
from HHEU to Heather Hills in Manatee County. The application is in compliance
with Section 367.071, F.S., and Commission rules concerning applications for
transfer of certificates. The sale to Heather Hills occurred on April 7, 2017, contingent upon Commission approval,
pursuant to Section 367.071(1), F.S.
Noticing, Territory, and Land
Ownership
The application contains the
description of the water and wastewater service territory which was approved
when the Commission originally granted Certificate Nos. 577-W and 498-S to Keith
& Clara Starkey d/b/a Heather Hills Estates in 1996. As discussed in Issue
4, the territory description originally approved inadvertently included water
service territory served by Manatee County, and the corrected service territory
description is appended to this recommendation as Attachment A. The systems are
consecutive, meaning bulk water service and bulk wastewater treatment is purchased,
in this instance, from Manatee County. Thus, no proof that the Utility owns or
has access to the land on which the treatment facilities are located is
required.
Heather Hills provided notice of
the application pursuant to Section 367.071, F.S., and Rule 25-30.030, F.A.C. In
its notice published on November 19, 2017, and in its notice mailed to
customers and other required entities, on November 21, 2017, the Utility
incorrectly stated the issuance date. Therefore, the Utility was required to
reissue the notices with the issuance date corrected. The second notice was
issued on December 5, 2017, and published in a local newspaper on December 6,
2017. Thus, the protest period expired January 5, 2018. No requests for an
administrative hearing were made; however, several objections were filed, as
discussed below.
One customer, having read the
draft notice filed with the application, contacted OPC via email with
objections to the transfer on October 24, 2017. OPC forwarded the email to
staff on October 25, 2017. Subsequently, two additional customers filed
objections to the transfer in October, 2017, prior to the issuance of the first
notice. Between the issuance of the first notice and the expiration date of the
protest period of the second notice, three more customers filed objections.
The first three customers objected primarily on the basis
of the inclusion of a copy of a 1967 document entitled, “Heather Hills Rules
& Regulations, Restrictions, Reservations, Easements, Rules And Regulations
Of Heather Hills Estates, As Per Plat Thereof, Recorded Among The Public
Records Of Manatee County, Florida,” (the 1967 Restrictions) in the application.
The other three objected based on “new customer deposit” charges that were
included in the notice. Staff explained that the requested administrative
charges, which were actually initial customer deposits, would only apply to
customers who applied for new service, not for existing customers, thus
addressing their concerns.
The primary basis for objection was the aforementioned
1967 Restrictions. According to information provided by two of the customers, the
HHE residents had long had issues with the deed restrictions and other aspects
of the 1967 Restrictions in disputes with the previous utility owners, each of whom
also had an interest in the property. The customers stated that, although the
terms of the 1967 Restrictions expired in 2000, the previous owners still tried
to assess charges and file liens against properties. The customers also stated
that they pursued litigation that resulted in the judge in the case finding in
their favor in 2014, declaring the document null and void.
The Buyer included the 1967 Restrictions in its
application for transfer in an effort to comply with Rule 25-30.037(2)(s),
F.A.C., which requires the utility to provide proof of access to the land under
which the treatment facilities are located. The language in the 1967
Restrictions regarding utility easements was highlighted in the application. Because
the systems are consecutive, with no treatment facilities involved in the
transaction, this was unnecessary. The Buyer, unlike the previous owners, does
not have an interest in the HHE property itself, and is not attempting to
resurrect the terms of the 1967 Restrictions.
On December 4, 2017, OPC filed a letter in the instant
docket file outlining its concerns arising from its communications with the
customers.
OPC’s concerns were:
1.
failure to include a copy of an “Exhibit A” referenced
in the “Contract for Sale” in the application for transfer;
2.
the impact of the litigation regarding the 1967
Restrictions and the Utility’s right to access the land where its facilities
are located; and
3.
the possibility that customers may be made responsible
for fees and/or assessments relating to the Utility’s right to access and
continued use of the land that may be the subject of any future proceeding.
The Utility engaged in discussions with OPC, and filed a
response on February 9, 2018, that explained the matter of the “missing”
Exhibit A to its Contract for Sale (it was unnecessary because it referred to
real property, of which there was none because there are no water or wastewater
treatment facilities), and provided a copy of the deed restrictions and recorded
plat maps for Heather Hills Estates. On February 14, 2018, OPC filed a letter
with the Commission stating that the Utility’s February 9, 2018 filing
alleviated its primary concerns regarding the Utility’s “Right to Access.”
However, it also stated that because this issue is one of continued dispute and
the subject of litigation, it maintains its objection to any attempt to make
the customers responsible for costs, legal fees, and/or assessments that relate
to the Utility’s right to access in future proceedings before the Commission. It
appears that the disputes and litigation regarding the 1967 Restrictions are
governed by Chapter 712, F.S., Marketable Record Titles To Real Property, over which the
Commission does not have jurisdiction and can provide no relief. Thus, approval
of the transfer of Certificate Nos. 577-W and 498-S has no effect on the status
of the 1967 Restrictions.
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. Customer advances were credited to the customers’ accounts.
There are no customer deposits, guaranteed revenue contracts, developer
agreements, leases, or debt of Heather Hills that must be disposed of with
regard to the transfer. According to the Purchase Agreement, the total purchase
price for the assets is $141,900. According to the Buyer, the sale took place
on April 7, 2017, subject to Commission approval, pursuant to Section
367.071(1), F.S.
Facility
Description and Compliance
Heather Hills is a consecutive system that purchases bulk
water and wastewater service from Manatee County Utilities for resale to its
customers. The Utility does not own or operate any treatment facilities. Heather
Hills maintains and operates the water distribution and wastewater collection
systems and files monthly operating reports with the Florida Department of
Environmental Protection (DEP). DEP conducts periodic inspections of the water
distribution system. The most recent inspection report from DEP, dated July 24,
2018, indicated that the Utility was
substantially compliant with its regulations and requirements with the
exception of on-site operation and maintenance procedures, manuals, and logs.
The Utility provided a response to DEP’s inspection report on September 17,
2018, and is working with DEP on a resolution.
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 the Buyer
to provide service to the proposed service area. As referenced in the transfer
application, the Buyer was appointed to the Citrus County Water and Wastewater
Authority, the local regulatory body for Citrus County, where he served for
seven years. The Buyer also served as the "Class C" representative
for the Legislative 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 NARUC Utility Rate School in 2001.
The Buyer is the owner and manager of a total of 10 Class C water and
wastewater facilities that are regulated by the Commission.
Staff reviewed the personal
financial statements of the Buyer, as well as the financial statements of Florida
Utility Services 1, LLC.
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 and charges were approved in a
staff assisted rate case in 2011.[9]
The rates were subsequently amended through six price index and pass through
rate adjustments. The Utility’s late payment charge was approved in 2009[10]
and miscellaneous service charges were approved in 2010.[11] The
Utility is built out and has no approved service availability charges. The
Utility’s existing rates and charges are shown on Schedule No. 3. 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 with respect to annual reports and RAFs 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 water and wastewater systems and Certificate Nos. 577-W and 498-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. The Buyer should be
responsible for paying RAFs after December 31, 2017, and all future years. The
Buyer should also be responsible for filing all future annual reports.
Issue 2:
What is the appropriate net book value for the Heather
Hills Utilities, LLC water and wastewater systems for transfer purposes and
should an acquisition adjustment be approved?
Recommendation:
For transfer purposes, the net book value (NBV) of
the water system for is $40,553, and for the wastewater system is $389, as of April
7, 2017. An acquisition adjustment should not be included in rate base. Within
90 days of the date of the final order, Heather Hills 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 the 2018
Annual Report when filed. (Sewards)
Staff Analysis:
Rate base was last established as of September 29,
2011. The
purpose of establishing net book value for both the water and wastewater
systems for transfers is to determine whether an acquisition adjustment should
be approved. The NBV does not include normal ratemaking adjustments for
non-used and useful plant and working capital. The NBV has been updated to
reflect balances as of April 7, 2017. Staff’s recommended NBV, as described
below, is shown on Schedule No. 1.
Utility Plant in Service (UPIS)
The Utility’s general ledger reflected water and
wastewater UPIS balances of $94,196 and $72,152, respectively, as of April 7,
2017. Staff reviewed UPIS additions since the last rate case proceeding and as
a result, has decreased UPIS for water by $4,332. Staff notes, in response to
the staff audit report, Heather Hills stated that $1,106 was recorded
incorrectly in Account 331 – Hydrants, and should be reclassified to Account
335 – Transmission and Distribution Mains. Staff agrees with this
reclassification. There were no adjustments to wastewater UPIS. Therefore,
staff recommends that the Utility’s water and wastewater UPIS balances as of April
7, 2017, should be $89,864 and $72,512, respectively.
Land
In Order No. PSC-11-0436-PAA-WS, the Commission
established the value of the land to be $389 for water and $389 for wastewater.
The Utility’s general ledger reflected a land balance of $389 for water and
$389 for wastewater. There have been no additions to land purchased since that
order was issued. Therefore, staff recommends a land balance of $389 for water
and $389 for wastewater, as of April 7, 2017.
Accumulated Depreciation
The Utility’s general ledger reflected water and
wastewater accumulated depreciation balances of $48,443 and $72,262,
respectively, as of April 7, 2017. Staff auditors reviewed UPIS additions since
the last rate case proceeding and calculated an accumulated depreciation
balance of $51,895 for water and $72,512 for wastewater. In response to the
staff audit report, Heather Hills stated that accumulated depreciation
incorrectly reflected a full year of depreciation expense for 2017. After
recalculating accumulated depreciation for 2017, staff agrees with the Utility.
However, staff believes Heather Hills did not correctly calculate accumulated
depreciation for 2017. As such, accumulated depreciation should be adjusted
based on the reclassification in UPIS discussed earlier, as well as to reflect
the correct accumulated depreciation for 2017. The Utility agreed with the staff
auditor’s adjustment to increase wastewater accumulated depreciation by $250.
Staff calculated the appropriate accumulated depreciation balance to be $49,700
for water and $72,512 for wastewater. As a result, accumulated depreciation
should be increased by $1,257 for water and $250 for wastewater to reflect
accumulated depreciation balances of $49,700 for water and $72,512 for
wastewater, as of April 7, 2017.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As of April 7, 2017, the Utility’s general ledger reflected
a fully amortized CIAC balance of $26,625 for the water plant. No CIAC was
recorded for the wastewater plant. Staff reviewed the CIAC balances and has no
adjustments. Therefore, staff recommends a CIAC balance of $26,625 for water
and $0 for wastewater and accumulated amortization of CIAC balance of $26,625
for water and $0 for wastewater, as of April 7, 2017.
Net Book Value
The Utility’s general ledger reflected NBV of $46,142 for
water and $639 for wastewater. Based on the adjustments described above, staff
recommends that the NBV as of April 7, 2017, for the Utility’s water system is
$40,553, and for the wastewater system is $389, for a total NBV of $40,942.
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 Nos. 1 and 2, as of April 7,
2017.
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 $141,900. As stated above, staff has
determined the appropriate NBV total to be $40,942. 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 for
transfer purposes is $40,553 for the water system and for the wastewater system
is $389, as of April 7, 2017. No acquisition adjustment should be included in
rate base. 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 the Utility’s 2018 Annual Report when filed.
Issue 3:
Should the requested initial customer deposits for
Heather Hills Utilities, LLC be approved?
Recommendation:
Yes. The appropriate initial customer deposits for
the residential 5/8 inch x 3/4 inch meter size meter size are approximately $78
for water and $124 for wastewater. The initial customer deposit for all other
residential meter sizes and all general
service meter sizes should be two times the average estimated quarterly bill
for water and wastewater. The approved initial customer deposits should
be effective for connections made on or after the stamped approval date on the
tariff sheets pursuant to Rule 25-30.475, F.A.C. The Utility should be required
to collect the approved initial customer deposits until authorized to change
them by the Commission in a subsequent proceeding. (Sibley)
Staff Analysis:
Rule 25-30.311, F.A.C.,
contains criteria for collecting, administering, and refunding customer
deposits. Rule 25-30.311(1), F.A.C., requires that each company’s tariff shall
contain its specific criteria for determining the amount of initial deposits.
Currently, Heather Hills is not authorized to collect initial customer
deposits. Customer deposits are designed to minimize the exposure of bad debt
expense for the Utility and, ultimately, the general body of rate payers. In
addition, collection of customer deposits is consistent with one of the
fundamental principles of rate making—ensuring that the cost of providing
service is recovered from the cost causer.
Rule 25-30.311(7), F.A.C.,
authorizes utilities to collect new or additional deposits from existing
customers not to exceed an amount equal to the average actual charge for water
and/or wastewater service for two billing periods for the 12-month period
immediately prior to the date of notice. The two billing periods reflect the
lag time between the customer’s usage and the Utility’s collection of the
revenues associated with that usage. Commission practice has been to set
initial customer deposits equal to two billing periods based on the average
consumption for a 12-month period for each class of customers. The
Utility’s average monthly residential usage is 1,166 gallons per customer.
Heather Hills bills on a quarterly basis; therefore, the average residential
bill for two billing periods is approximately $78 for water and $124 for
wastewater.
Based on the above, the appropriate initial customer
deposits for the residential 5/8 inch x 3/4 inch meter size are approximately $78
for water and $124 for wastewater. The initial customer deposit for all other
residential meter sizes and all general service meter sizes should be two times
the average estimated quarterly bill for water and wastewater. The approved
initial customer deposits should be effective for connections made on or after
the stamped approval date on the tariff sheets pursuant to Rule 25-30.475,
F.A.C. The Utility should be required to collect the approved initial customer
deposits until authorized to change them by the Commission in a subsequent
proceeding.
Issue 4:
Should the corrected legal description of the
original Heather Hills water and wastewater service territory shown in
Attachment A be approved?
Recommendation:
Yes. The corrected legal description of the original
Heather Hills water and wastewater service territory shown in Attachment A,
which removes the golf course clubhouse/restaurant, should be approved. The
resulting order should serve as Certificate Nos. 577-W and 498-S and should be
retained by Heather Hills Utilities, LLC. (M. Watts, Trierweiler)
Staff Analysis:
The Commission approved the legal description of the
Heather Hills water and wastewater service territory in Docket No. 951533-WS
(the grandfather docket) in 1996 after Manatee County turned jurisdiction over
to the Commission in 1995. While
investigating an issue raised by a customer of Heather Hills in the instant
docket, staff learned that a portion of the territory description provided by
the applicant in the grandfather docket was in error. The original territory
description includes the following:
Section 12, Township 35S, Range 17E
From the NW corner of the SW 1/4 of
the SW 1/4 of the NW 1/4 run due East 170.0 feet to the Point of Beginning;
thence due North 50.0 feet; thence due East 100.0
feet; thence due South 100.0 feet; thence due West 100.0 feet; thence due North
50.0 feet to the Point of Beginning.
This is a 100-square-foot parcel across the street from
the Heather Hills subdivision on which a golf course clubhouse/restaurant is
located. The clubhouse is cited in the grandfather docket as one of the
applicant’s water customers, but is currently served by Manatee County.
Staff contacted Manatee County regarding the matter, and
received the following response clarifying the situation from the Manatee
County Water Division Manager:
Per the 'grandfather certificate' document from the
PSC (Docket No. 951533-WS, Order No. PSC-96-0434-FOF-WS, Issued March 28, 1996)
you provided, a copy of which is attached, the questions seem to originate from
the description of the 'Heather Hills Utility' as included in the BACKGROUND
section of the document. That description (top of second page) states:
"Keith and Clara Starkey d/b/s Heather Hills
Estates (Heather Hills or utility) was established in 1967 to serve water and
wastewater customers within the Heather Hills Estates in Manatee County,
Florida. Heather Hills, a Class C utility serves 353 single family residential
customers, a club house, and a golf course clubhouse/restaurant for an
approximate total of 355 water customers and 354 wastewater customers. The golf
course furnishes its own wastewater service."
It appears that this description of
the original 1967 configuration of the Heather Hills Utility was erroneously used
in the 1996 application to the PSC for a Grandfather Certificate for Heather
Hills. In 1967, the Manatee County Utilities System was just being formed and
water service was likely not yet available to Heather Hills. There were various
privately owned utilities that provided water to area residents at that time.
These primarily consisted of groundwater wells, storage systems and
chlorination systems. In 1967 Heather Hills Utilities may have received bulk
water from one of these or may have had a well system of its own to serve the
residences, the clubhouse and the golf course clubhouse restaurant. However, by
the time of 1995 application to the PSC the golf course clubhouse/restaurant
had been served directly by Manatee County Utilities for over 10 years. The
single family residences and the clubhouse were being, and still are, provided
bulk water from Manatee County through a separate master meter.
Since neither
the Utility nor its predecessors has been serving the affected customer since the
water certificate for the system was first issued by the Commission in 1996,
and since Manatee County has in fact been serving this customer throughout this
time period, staff believes that the original territory description submitted
in the grandfather docket erroneously included the golf course
clubhouse/restaurant.
Based on the above, staff recommends that the corrected
legal description of the original Heather Hills water and wastewater service
territory shown in Attachment A, which removes the golf course clubhouse/restaurant,
should be approved. The resulting order should serve as Certificate Nos. 577-W
and 498-S and should be retained by Heather Hills Utilities, LLC.
Issue 5:
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. (Trierweiler)
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.
