Discussion
of Issues
Issue 1:
Should the transfer of Certificate No. 555-W in Alachua
County from Kincaid Hills Water Company to Gator Waterworks, Inc. be approved?
Recommendation:
Yes. The transfer of the water system and
Certificate No. 555-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 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. Gator
Waterworks should be responsible for filing the 2018 Annual Report, all future
annual reports, and RAFs subsequent to the date of closing. (O. Wooten,
Andrews, Bethea)
Staff Analysis:
On March 12, 2018, Gator Waterworks filed an
application for the transfer of Certificate No. 555-W from Kincaid to Gator
Waterworks 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.
Noticing, Territory, and Land
Ownership
Gator Waterworks 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 waster service territory which is appended to
this recommendation as Attachment A. The application contains a copy of a warranty
deed agreement that was executed on February 20, 2018, as evidence that Gator
Waterworks owns or has rights to long-term use of 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 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. The Seller retained the customer
deposits for appropriate disposition. There are no developer agreements or
customer advances that must be disposed of with regard to the transfer.
According to the purchase agreement, the total purchase price for the assets is
$82,500. An appropriate portion of this purchase price equal to unpaid past due
RAFs, fines, and interest was paid to the Commission at the date of closing. An
appropriate portion of this purchase price equal to the unpaid property taxes
due to Alachua County was paid to Alachua County at the date of closing. Eighty
percent of the remaining purchase price was paid to the Seller at the date of
closing with 20 percent of the remaining purchase price to be paid to the
Seller after Commission approval of the transfer. According to the Buyer, the
sale took place on February 23, 2018, subject to Commission approval, pursuant
to Section 367.071(1), F.S.
Facility
Description and Compliance
The water treatment system consists of two wells, with a
pair of hydropneumatic tanks rated at 3,100 and 5,000 gallons, a contact storage
tank rated at 1,000 gallons and uses hypo-chlorination for disinfection. The
distribution system consists of 17,000 feet of 2 inch Galvanized Iron Pipe
(GIP), 3,800 feet of 3 inch GIP, 3,400 feet of 4 inch GIP and 5,200 feet of 6
inch asbestos-cement pipe. The last sanitary survey of the facility was
conducted on April 29, 2016, by the Department of Environmental Protection (DEP).
There was one deficiency noted, which has been corrected. On December 22, 2016,
the DEP deemed the Utility was in compliance with applicable 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 Gator Waterworks to provide service to
the proposed service area. The application states that the
President, Gary Deremer, has over 29 years of Florida related water and
wastewater industry experience with previous private utility ownership of five
utility systems. Further, the application
indicates that the President has secured the services of U.S. Water Services
Corporation to provide contract operating service, as well as, billing and
collection services. Pursuant to Rule 25-30.037(2)(l), F.A.C., the
application contains statements describing the financial ability of Gator
Waterworks to provide service to the proposed service area. According to the
application, the Buyer has acquired the assets of the Utility. Staff also reviewed the personal financial statements of the primary
shareholder, which is the President.[7] Based on
the above, staff believes the Buyer has demonstrated the financial ability to
provide service to the existing service territory.
Rates and Charges
The Utility’s rates, charges, and customer deposits were approved in
the original grandfather certificate in 1993. The rates were subsequently
amended through three price index increases. The Utility’s existing rates are
shown on Attachment B. 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 RAFs through February 23, 2018. The Seller
is responsible for filing the 2017 Annual Report. However, the filing is
currently delinquent, and the Seller has not responded to two certified letters
regarding the delinquency. The Buyer has indicated that it does not possess the
records required to prepare the 2017 Annual Report.
The purpose of the annual report
filing requirement is to monitor earnings and gather information. The RAFs due
for the year 2017 were based on estimated earnings and were paid in full by the
Buyer. Staff believes that the absence of the 2017 Annual Report will not
impair the Commission from fulfilling its obligation to ensure safe and
reliable utility service, and the 2017 RAFs have already been paid. Therefore,
it is not crucial that the Commission obtain the 2017 Annual Report. The
Commission has previously not enforced this requirement for a utility in a
similar situation.
Accordingly, staff recommends the Commission not seek enforcement of the annual
report requirement for the year 2017. The Buyer will be responsible for filing
Gator Waterworks’ 2018 and subsequent annual reports and paying RAFs from
February 23, 2018, and all future years.
Conclusion
Staff recommends the transfer of the water system and
Certificate No. 555-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 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. Gator
Waterworks 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 Gator Waterworks water system for
transfer purposes and should an acquisition adjustment be approved?
Recommendation: The
net book value of the water system for transfer purposes is $63,321 as of
February 23, 2018. An acquisition adjustment should not be included in rate
base. Within 90 days of the date of the final order, Gator Waterworks 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 Gator Waterworks’ 2018 Annual Report when filed. (D. Andrews)
Staff
Analysis: Rate
base has never been established for this Utility. Audit staff was able to
obtain the Seller’s 1993 1120S Federal Tax Return. Thus, staff used the
December 31, 1992, amounts for utility plant in service and accumulated
depreciation beginning balances. 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 February 23, 2018. Staff’s
recommended NBV, as described below, is shown on Schedule No. 1.
Utility
Plant in Service (UPIS)
The
Buyer’s plant value in its application for transfer reflected a water UPIS
balance of $454,492. Staff reviewed UPIS additions since the 1993 tax return
and has decreased UPIS by $73,593 to reflect unsupported plant additions.
Therefore, staff recommends that the Utility’s UPIS balance as of February 23,
2018, should be $380,899.
Land
The Buyer’s application for transfer reflected a land balance of
$14,000. In a warranty deed between Sheldon A. Brook, grantor, and Kincaid
Hills Water Company, grantee, dated October 5, 1982, the documentary stamps
supported $8,000 for utility land. There have been no additions to land purchased
since that deed was granted. Therefore,
staff has decreased land by $6,000. Staff recommends a land balance of $8,000,
as of February 23, 2018.
Accumulated
Depreciation
The Buyer’s application for
transfer reflected an accumulated depreciation balance of $342,780. Based on the UPIS adjustment discussed earlier, staff
calculated the appropriate accumulated depreciation balance to be $288,095. As
a result, accumulated depreciation should be decreased by $54,685 to reflect an
accumulated depreciation balance of $288,095 as
of February 23, 2018.
Contributions-in-Aid-of-Construction (CIAC)
and Accumulated Amortization of CIAC
As of February 23, 2018, the
Buyer’s application for transfer reflected a CIAC balance of $0 and an
accumulated amortization of CIAC balance of $0. The CIAC balance should be
increased by $156,085, and the accumulated amortization of CIAC balance should
be increased by $125,376, per Rule 25-30.570, F.A.C. This rule states that if
the amount of CIAC has not been recorded on the utility’s books and the utility
does not submit competent substantial evidence as to the amount of CIAC, the
amount of CIAC shall be imputed to be the proportion of the cost of the
facilities and plant attributable to the water transmission and distribution
system.
Additionally, the CIAC balance
should be increased by $9,600. Order No. PSC-1993-1027-FOF-WU approved service
availability charges of $75 for tap-in fees, $75 for meter installations, and
$450 for plant capacity charges for a total of $600. Audit staff scheduled
customer activity as shown in the annual reports from 1992 through 2016, and
noted that the customer count grew by 16 customers from December 31, 1992 to
December 31, 2007. After 2007, the customer count diminished over time. Audit
staff determined a balance of $9,600 ($600 x 16) for CIAC, and calculated a
balance of $2,826 for accumulated amortization of CIAC using a composite rate
of 2.5 percent as of February 23, 2018. Rule 25-30.570, F.A.C. relates to the
imputation of CIAC based on the premise that the developer donated the
transmission and distribution system when it was transferred. Cash CIAC
collected from service availability charges is unrelated to the cost of the
transmission and distribution system. Thus, cash CIAC should also be recognized
for the tap-in fees, meter installations, and plant capacity charges. As such,
staff increased CIAC by $165,685 ($156,085 + $9,600) and accumulated
amortization of CIAC by $128,202 ($125,376 + $2,826) to reflect the appropriate
balances. Therefore, staff recommends a CIAC balance of $165,685 and an
accumulated amortization of CIAC balance of $128,202 as of February 23, 2018.
Net Book Value
The Buyer’s application for
transfer reflected a NBV of $125,712. Based on the adjustments described above,
staff recommends that the NBV is $63,321. Staff’s recommended NBV and the
National Association of Regulatory Utility Commissioners, Uniform System of
Accounts (NARUC USOA) balance for UPIS and accumulated depreciation as of
February 23, 2018, are shown on Schedule No. 1.
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 to be purchased for $82,500.
However, the contract for sale stated that the “final purchase price will be
determined by any change in Rate Base as determined by the FPSC during the
approval of transfer application. The final purchase price will be adjusted for
any reductions to the approved Rate Base as determined by the FPSC.” As stated
above, staff has determined the appropriate NBV total to be $63,321. Therefore,
the Utility and its assets were purchased for $63,321. 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 Kincaid Hills
water system for transfer purposes is $63,321 as of February 23, 2018. 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 Gator Waterworks’ 2018 Annual
Report when filed.
Issue 3:
Should the show cause proceeding against Kincaid Hills
Water Company be dismissed, and Docket No. 20170200-WU, be closed?
Recommendation:
Yes. If the Commission approves Gator Waterworks,
Inc.’s transfer application, then the show cause proceeding against Kincaid Hills
Water Company should be dismissed and Docket No. 20170200-WU should be closed. (Dziechciarz, DuVal)
Staff Analysis:
By Order No. PSC-2017-0470-PCO-WU, issued December
15, 2017, the Commission ordered Docket No. 20170200-WU to remain open until
certificate revocation proceedings were initiated. Gator Waterworks’
acquisition of Kincaid negates the need for a certificate revocation
proceeding. Therefore, if the Commission approves staff’s recommendation in
Issues 1 and 2, then the show cause proceeding against Kincaid Hills Water
Company should be dismissed and Docket No. 20170200-WU should be closed.
Conclusion
If the Commission approves Gator Waterworks, Inc.’s
transfer application, then the show cause proceeding against Kincaid Hills
Water Company should be dismissed and Docket No. 20170200-WU should be closed.
Issue 4:
Should these dockets 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 these dockets 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. (J. 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 these dockets 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.
Gator Waterworks,
Inc.
Water Territory Description
Alachua County
Alachua County, Florida, Kincaid
Hills
The following described lands
located in portions of Sections 11 and 12, Township 10-South,
Range 20-East, Alachua County,
Florida:
Kincaid Road Subdivision - A subdivision lying within the southwest
one-quarter of Section 11, Township 10 South, Range 20 East; encompassed within
the boundary commencing 2,280 feet north of the southwest corner of Section 11
, Township 10 South, Range 20 East and on the eastern side of Florida Highway
S-329A; thence running 1,880 feet east (to Southeast 33rd St.); thence running
600 feet south (to Southeast 18th Ave.); thence running 570 feet east (to
Southeast 35th Street); thence running 600 feet south (to Southeast 21st Ave.);
thence running 2450 feet west to Florida Highway S-329A; thence running 600
feet north (to Southeast 18th Ave.).
Devonshire Hills Subdivision - A subdivision lying within the
northeast one-quarter of Section 11, Township 10 South, Range 20 East;
encompassed within the boundary commencing at the point that is 600 feet
northwest of the point on the western boundary of Section 12, Township 10 South,
Range 20 East where it intersects Florida Highway 20; thence running 1,310 feet
south (to Southeast 18th Ave.); thence running 1,100 feet east; thence running
300 feet north (to Southeast 17th Ave.); thence running 550 feet west (to
Southeast 37th St.); thence running 540 feet north (to Southeast 15th Ave.);
thence running 200 feet west (to Southeast 36th St.); thence running 560 feet
north to Florida Highway 20; thence running 200 feet northwest along, and south
of, Florida Highway 20.
Kreftwood Estates Subdivision - A subdivision lying within the
southwest one-quarter of Section 12, Township 10 South, Range 20 East;
encompassed within the boundary commencing at the southwest corner of Section
12, Township 10 South, Range 20 East; thence running 1,800 feet north to
Florida Highway 20; thence running 750 feet southeast along the southern side
of Florida Highway 20 to the northwest corner of the Shady Lawn subdivision
(described below); thence running 1,350 feet south to Section 13, Township 10
south, Range 20 East; thence running 575 feet west to the southwest corner of
Section 12, Township 10 South, Range 20 East.
Shady Lawn Estates - A subdivision lying within the southwest
one-quarter of Section 12, Township 10 South, Range 20 East; encompassed within
the boundary commencing at the northeast corner of the Kreftwood Estates
subdivision (described above); thence running 750 feet southeast along the
southern side of Florida Highway 20; thence running 1,200 feet south toSection
13, Township 10 South, Range 20 East; thence running 575 feet west to the
southeastcorner of the Kreftwood Estate subdivision (described above).
FLORIDA PUBLIC SERVICE COMMISSION
Authorizes
Gator Waterworks, Inc.
Pursuant to
Certificate Number 555-W
To provide water service in Alachua
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
PSC-93-1027-FOF-WU 07/13/1993 921195 -WU Grandfather Certificate
* * 20180066-WU Transfer of Certificate
* Order Numbers and dates to be provided at
time of issuance
