Discussion
of Issues
Issue 1:
Should the transfer of Barrington Estates HOA
wastewater system, an exempt entity in Lake County, to Utilities, Inc. of
Florida and amendment of Certificate No. 465-S be approved?
Recommendation:
Yes. The transfer of the Barrington Estates HOA
wastewater system and amendment of Certificate No. 465-S, to include the
territory as described in Attachment A, 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 amended certificate and should be retained by the
Buyer. The application contains proof of compliance with the noticing
provisions set forth in Rule 25-30.030, F.A.C., as modified by the Commission
pursuant to Order No. PSC-2017-0387-PAA-SU. UIF should be responsible for
filing all future annual reports and Regulatory Assessment Fees (RAFs)
subsequent to the date of closing. (Wooten, Bruce, Frank)
Staff Analysis:
On August 9, 2017, UIF filed an application for
transfer of assets to UIF of a currently exempt utility and amendment of
Certificate No. 465-S in Lake County. The application is in compliance with
Section 367.071, F.S., Section 367.045, F.S., Rule 25-30.036, F.A.C.,
Application for Amendment to Certificate of Authorization to Extend or Delete
Service Area and Rule 25-30.037, F.A.C., Application for Authority to Transfer.
The application contains proof of compliance with the noticing provisions set
forth in Rule 25-30.030(5)(b), F.A.C., Notice of Application and of Customer
Meeting and Noticing. Adequate service territory maps and territory
descriptions have also been provided. The application contains a description of
the wastewater service territory of the currently exempt utility which is
appended to this recommendation as Attachment A.
Noticing, Territory, and Land Ownership
UIF provided notice of the application pursuant to Section
367.071, F.S. and Rule 25-30.030(5)(b), F.A.C., however Rule 25-30.030(5)(b), F.A.C.
was partially waived by the Commission regarding the requirement that the
notice be provided to all customers and property owners within its existing
service area. In lieu
of noticing all of its customers by mail, UIF was ordered to place a
staff-approved notice of its application on its website for 30 days, which UIF
has satisfied. This notice also provided
30 days for customers to file an objection to the transfer. Clermont
objected to the transfer on October 11, 2017, which was resolved by a
Settlement Agreement
between Clermont and UIF. No other objections were received and the time for
filing objections 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 Utility and Water Treatment Facilities
easement that was executed on October 16, 2012, 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 Barrington
Estates HOA that must be disposed of with regard to the transfer. According to
the Purchase Agreement, the total purchase price for the assets is $270,000. According
to the Buyer, the closing date of the sale will take place 30 days after the
date of the consummating order for this docket. The consummating order is
scheduled to be filed on March 22, 2019. Therefore, the closing date will be April
21, 2019, subject to Commission approval, pursuant to Section 367.071(1), F.S.
Facility
Description and Compliance
The wastewater treatment plant (WWTP) is an extended
aeration sewage treatment plant with reuse of two rapid infiltration basins
permitted by the Florida Department of Environmental Protection (DEP) at 49,000
gallons per day based on the annual average daily flow. Chlorine disinfection
is applied in a chlorine contact chamber. The collection system is composed of 4-
and 8-inch polyvinyl chloride (PVC) pipes and there is a single lift station
with two submersible pumps in the service area. The last compliance evaluation
inspection of the facility was conducted on March 23, 2016 by DEP. There was
one deficiency that was corrected; therefore, the system appears to be in
compliance with 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 UIF to provide service to the proposed service area. The application states
that UIF is a Class A water and wastewater utility currently serving
approximately 34,000 water and/or wastewater customers throughout 27 systems in
Charlotte, Highlands, Lake, Lee, Marion, Orange, Pasco, Pinellas, Polk, and
Seminole Counties. UIF has been operating as a Commission regulated utility in
Florida since 1975 and is the largest investor-owned water and wastewater
utility in Florida.
The Buyer is a Class A utility that owns and operates
multiple water and wastewater systems. Staff reviewed the financial statements
of UIF for this docket. Based on the above, the Buyer has demonstrated the
technical and financial ability to provide service to the existing service
territory.
Regulatory Assessment Fees and Annual Reports
Because the Buyer is acquiring a non-regulated utility,
there are no annual reports or RAFs on file for this system. The Buyer will be
responsible for filing annual reports and paying RAFs for 2019 and all future
years.
Conclusion
Staff recommends the transfer of the Barrington Estates
HOA wastewater system and amendment of Certificate No. 465-S, to include the
territory as described in Attachment A, 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 amended certificate and should be retained by the
Buyer. The application contains proof of compliance with the noticing
provisions set forth in Rule 25-30.030, F.A.C., as modified by the Commission
pursuant to Order No. PSC-2017-0387-PAA-SU. UIF should be responsible for
filing all future annual reports and RAFs subsequent to the date of closing.
Issue 2:
What is the appropriate net book value for the
Barrington Estates HOA wastewater system for transfer purposes?
Recommendation:
The net book value of the wastewater system for
transfer purposes is $277,549 as of April 21, 2019. An acquisition adjustment
should not be included in rate base. Within 90 days of the date of the final
order, UIF 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 UIF’s 2019 Annual Report when filed. (Frank,
Wooten)
Staff Analysis:
Rate base
has not previously been established for the Utility. The purpose of
establishing 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 April 21, 2019. Staff’s recommended NBV, as described
below, is shown on Schedule No. 1.
Utility
Plant in Service (UPIS)
The Utility’s application reflected a UPIS balance of
$543,142. Barrington Estates HOA is a non-regulated company and thus did not
maintain its books and records according to the National Association of Regulatory
Utility Commissioners uniform system of accounts (NARUC USOA). Further,
Barrington Estates HOA purchased the utility system from Centennial Bank after
a foreclosure proceeding, therefore original cost records are not available. On
July 12, 2018, UIF filed documentation supporting the original cost of the
Barrington Estates HOA wastewater collection system. This original cost
documentation included original invoices for the components involved in the
wastewater system which totaled $425,041, excluding the WWTP and Lift Station.
The Utility did not possess the original cost documentation for the WWTP and
Lift Station for the July filing, but contacted the manufacturer to obtain the
documentation. On September 18, 2018, UIF provided the original cost invoices
for the WWTP and Lift Station, which totaled an additional $230,200.
Staff reviewed all original cost documents and verified the NARUC USOA account
numbers.
According to the original cost analysis, the Utility had a
UPIS balance of $655,241, as of December 31, 2008. Staff recalculated UPIS
since 2008 to reflect all additions and retirements as of April 21, 2019. Staff
calculated the appropriate UPIS balance to be $660,805. As a result, UPIS
should be increased by $117,663 ($660,805 - $543,142) to reflect a UPIS balance
of $660,805, as of April 21, 2019.
Land
The Utility’s application reflected a land balance of $0,
as of April 21, 2019. Therefore, staff recommends a balance for land of $0, as
of April 21, 2019.
Accumulated
Depreciation
The
Utility’s application reflected an accumulated depreciation balance of
$181,617. Based on the original cost analysis and depreciation Rule 25-30.140,
F.A.C., staff calculated an accumulated depreciation balance of $279,577, as of
December 31, 2008. Staff recalculated
accumulated depreciation of plant since 2008, including plant additions and
retirements, to reflect accumulated depreciation as of April 21, 2019. Staff calculated
the appropriate accumulated depreciation balance to be $277,592. As a result,
accumulated depreciation should be increased by $95,975 to reflect an
accumulated depreciation balance of $277,592
($181,617 + $95,975), as of April 21, 2019.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As
mentioned above, Barrington Estates HOA is a non-regulated company and thus did
not maintain its books and records according to the NARUC USOA. As a result, no
CIAC was recorded. Barrington Estates HOA purchased the utility system from
Centennial Bank after a foreclosure proceeding. Because Barrington Estates HOA
is comprised of all of the Utility’s customers, staff believes the system
should be considered 100 percent contributed. Based on its original cost
analysis, staff calculated a CIAC balance of $655,241 and an accumulated
amortization of CIAC balance of $279,577.
In an
effort to be consistent with the Commission’s decision in the 2000 transfer of
Utilities, Inc. of Eagle Ridge, UIF has requested that its investment in the
system be used to offset the CIAC balance. In
most transfers, the sales transaction is outside the control of the customers
of the utility and generally only benefits the utility and its shareholders.
However, this transfer, like the transfer in Eagle Ridge, is unique in that the
customers of the Utility are also the owners of the Utility. Therefore, due to
the specific and unique facts in this case, and consistent with the
Commission’s decision in Eagle Ridge, staff recommends that the purchase price
of $270,000 be used to offset the imputed CIAC of $655,241 to reflect the fact
that the customers have been reimbursed a portion of their investment in the Utility.
This results in a net CIAC balance of $385,241 ($270,000 - $655,241).
Therefore, staff recommends a CIAC balance of $385,241, and an accumulated
amortization of CIAC balance of $279,577, as of April 21, 2019.
Net
Book Value
The Utility’s
application reflected a NBV of $361,525. Based on the adjustments described
above, staff recommends a NBV of $277,549, as of April 21, 2019. Staff’s recommended
NBV and the NARUC USOA balances for UPIS and accumulated depreciation as of April
21, 2019, 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. 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. With respect to negative acquisition
adjustments, Rule 25-30.0371, F.A.C., states that no negative acquisition
adjustment shall be included in rate base if the purchase price is greater than
80 percent of the NBV. The Utility and its assets were purchased for $270,000.
As mentioned above, staff recommends that the appropriate NBV is $277,549.
Because the purchase price of $270,000 is greater than 80 percent of NBV ($222,039),
no acquisition adjustment is required. As such, staff recommends that no negative
acquisition adjustment be approved.
Conclusion
Based on the above, staff recommends that the NBV of the
wastewater system for transfer purposes is $277,549 as of April 21, 2019. 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 UIF’s 2019 Annual Report when
filed.
Issue 3:
Should the Commission approve UIF’s
request to implement its consolidated monthly wastewater rates and charges for Barrington
Estates?
Staff
Recommendation: Yes.
The Commission should, consistent with the Purchase Agreement, approve UIF’s
request to implement its consolidated monthly wastewater rates and
miscellaneous service charges as shown on Schedule No. 2 for the Utility. The
approved rates and charges should be effective for the Utility for service
rendered after the order becomes final, the sale of Barrington Estates’
wastewater system is final, and the Barrington Estates HOA homeowners have been
noticed of the approved rates and charges. The notice should be approved by
staff prior to publication and the Utility should provide proof of the date
notice was given within 10 days of the date of the notice. (Bruce)
Staff
Analysis:
Currently, the Barrington Estates
HOA owns its wastewater system, which is operated by UIF. The water service is
provided by UIF. The Barrington Estates homeowners pay quarterly HOA fees of
$246.50, which includes $89.86 for wastewater service ($29.95 monthly).
Barrington Estates HOA has no general service customers. In its application,
UIF is requesting that its consolidated monthly wastewater rates and
miscellaneous service charges be implemented for the Barrington Estates
homeowners as reflected in the contract for the purchase of Barrington Estates
wastewater system. The wastewater rates consist of a base facility charge of
$25.93 and gallonage charge of $4.15 per 1,000 gallons with an 8,000 gallon
cap. In the past, the Commission has approved several amendments wherein the
acquiring utility implemented its rates for an acquired utility.[11] In
support of its request to implement its consolidated rates, UIF states: (1) the
HOA agreed to pay the consolidated wastewater rates approved by the Commission;
(2) revenues are revenue neutral; therefore, the customers will not be
subsidizing nor be subsidized by the other UIF customers because the
consolidated rates are consistent with the purchase price; and (3) the revenues
produced by applying the consolidated rate structure will also result in UIF’s
currently authorized rate of return.
According to UIF, under the Barrington Estates
HOA fees, the revenues generated for wastewater service were approximately
$53,200 per year. Based on average consumption of the homeowners,
approximately $81,145 of revenues will be generated annually with the implementation
of the consolidated monthly wastewater rates. The Utility
indicated that the revenues under its consolidated rates will cover the
additional operating costs (operation and maintenance, depreciation, and taxes)
and allow UIF to earn its authorized rate of return on the acquired system. Staff
will monitor UIF’s revenues for any potential overearnings as a result of the
additional revenues. If there is a determination of potential overearnings,
staff can recommend initiation of an investigation for the Commission.
The Barrington Estates HOA
development is essentially built out except for a parcel of property for which
there are no current plans for development.[13]
There are no approved service availability charges for this system and UIF has
no plans to interconnect the Barrington Estates wastewater system to its
closest wastewater treatment plant. Therefore, if there is additional
development in the service area in the future, the Utility will need Commission
approval to implement service availability charges.
Conclusion
Based on the above, staff
recommends that the Commission should, consistent with the Purchase Agreement,
approve UIF’s request to implement its consolidated monthly wastewater rates
and miscellaneous service charges as shown on Schedule No. 2 for the Utility.
The approved rates and charges should be effective for the Utility for service
rendered after the order becomes final, the sale of Barrington Estates’
wastewater system is final, and the Barrington Estates HOA homeowners have been
noticed of the approved rates and charges. The notice should be approved by
staff prior to publication and the Utility should provide proof of the date
notice was given within 10 days of the date of the notice.
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 completed pursuant to Rule
25-30.4345, F.A.C. (Schrader)
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 completed pursuant to Rule 25-30.4345,
F.A.C.
