Discussion
of Issues
Issue 1:
Should the application for transfer of Certificate No.
627-W in Polk County from Sunrise Utilities, LLC to Sunrise Water, LLC be
approved?
Recommendation:
Yes. The transfer of the water system and
Certificate No. 627-W is in the public interest and should be approved
effective the date of the Commissions vote. The resultant order should serve
as the Buyers 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.). The Buyer will be responsible for paying Regulatory
Assessment Fees (RAFs) for 2019 and all subsequent years. The Buyer has filed
the 2018 Annual Report, and will be responsible for filing all future annual
reports. (Lewis, Knoblauch, Bennett)
Staff Analysis:
On September 14, 2018, the Buyer filed an application for
the transfer of Certificate No. 627-W from Sunrise Utilities, LLC to Sunrise
Water, LLC in Polk County. The application is in compliance with Section
367.071, F.S., and Commission rules concerning applications for transfer of
certificates. The sale to Sunrise Water, LLC occurred on June 15, 2018,
contingent upon Commission approval, pursuant to Section 367.071(1), F.S.
Noticing, Territory, and Land Ownership
The Buyer 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 water 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 June 15, 2018, as evidence that the Buyer
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 Buyer stated in the application that he assumes
responsibility for all customer deposits. There are no guaranteed revenue
contracts, developer agreements, leases, or debt of the Utility that must be
disposed of with regard to the transfer. The Purchase Agreement was prepared
for the sale of Alturas Utilities, L.L.C. and Sunrise Utilities, LLC for a
total purchase price of $89,900. Based upon Equivalent Residential Connections,
the allocated portion of the purchase price for Sunrise Utilities is $71,111.
According to the Buyer, the sale took place on June 15, 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 two
hydropneumatic tanks rated at 3,000 and 6,000 gallons, and utilizes a
chlorination process for disinfection. The distribution system consists of varying
sizes of 2- to 6-inch polyvinyl chloride (PVC) and galvanized iron pipes.
The last sanitary survey of the facility was conducted on
July 31, 2018, by the Florida Department of Environmental Protection (DEP),
which identified a variety of deficiencies. Additionally, Sunrise Utilities has
several open consent orders with the Polk County Department of Health (PCDH). Pursuant
to Rule 25-30.037(2)(q), F.A.C., the Buyer provided a description of the required
repairs and improvements, as well as an approximate cost, but stated that the
Utility is still in the process of seeking bids. Additionally, the Buyer has
provided documentation which demonstrates that he is working with the PCDH and
the DEP to address the issues outlined in the open consent orders.
Technical and Financial Ability
Pursuant to Rule 25-30.037(2), F.A.C., the application
contains statements and documentation describing the technical and financial
ability of the Buyer to provide service to the proposed service area. 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 National Association of Regulatory Utility Commissioners Utility
Rate School in 2001. The Buyer is the owner and manager of several 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 the Buyers company, 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 Utilitys rates were last
approved in a staff-assisted rate case.[6] The
Utilitys late payment charge was approved administratively in 2010.[7] The
Utilitys miscellaneous service charges and service availability charges were
approved in 2005.[8] The
Utilitys existing rates and charges are shown on Schedule No. 2. 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 Utilitys existing rates and charges 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 Utility is current with
respect to annual reports and RAFs through December 31, 2018. The Buyer will be
responsible for filing annual reports and paying RAFs for 2019 and all future
years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the water system and Certificate No. 627-W is in the public interest and
should be approved effective the date of the Commission vote. The resultant
order should serve as the Buyers 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 will be responsible for paying all future RAFs and filing all
future annual reports.
Issue 2:
What is the appropriate net book value (NBV) for the Sunrise
Utilities water system for transfer purposes and should an acquisition
adjustment be approved?
Recommendation:
The NBV of the water system for transfer purposes is
$24,258 as of June 15, 2018. An acquisition adjustment should not be included
in rate base. Within 90 days of the date of the final order, Sunrise Water, LLC
should be required to notify the Commission in writing, that it has adjusted
its books in accordance with the Commissions decision. The adjustments should
be reflected in the 2019 Annual Report. (Bennett, Sewards)
Staff Analysis:
Rate base was last established as of December 31, 2014. 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 non-used and useful plant and working capital. The
NBV has been updated to reflect balances as of June 15, 2018. Staffs
recommended NBV, as described below, is shown on Schedule No. 1.
Utility Plant in Service (UPIS)
The Utilitys general ledger reflected UPIS balance of
$109,300 as of December 31, 2014. There were no adjustments to UPIS. Therefore,
staff recommends that the Utilitys UPIS balance be $109,300 as of June 15,
2018.
Land
In Order No. PSC-16-0126-PAA-WU, issued March 28, 2016, in
Docket No. 20140220-WU, the Commission established the value of the land to be
$553. The Utilitys general ledger reflected a land balance of $553. There have
been no additions to land purchased since that order was issued. Therefore,
staff recommends a land balance of $553, as of June 15, 2018.
Accumulated Depreciation
The Utilitys general ledger reflected an accumulated
depreciation balance of $86,449 as of June 15, 2018. Staff calculated the
appropriate accumulated depreciation balance to be $85,597. As a result,
accumulated depreciation should be decreased by $852 to reflect an accumulated
depreciation balance of $85,597 as of June 15, 2018.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As of June 15, 2018, the Utilitys general ledger reflected
a fully amortized CIAC balance of $12,393. Staff reviewed CIAC balances and has
no adjustments; however, staff notes that no CIAC activity was recorded in the
Utilitys annual reports. Therefore, staff recommends a CIAC balance of
$12,393, and an accumulated amortization CIAC balance of $12,393 as of June 15,
2018. Additionally, staff recommends that the balances of CIAC and accumulated
amortization of CIAC, should be reflected in the 2019 Annual Report and all
future years.
Net Book Value
The Utilitys general ledger reflected a NBV of $23,404.
Based on the adjustments described above, staff recommends that NBV for the
Utilitys system be $24,258 as of June 15, 2018. Staffs recommended NBV and
the National Association of Regulatory Utility Commissioners, Uniform System of
Accounts balances for UPIS and accumulated depreciation are shown on Schedule
No. 1, as of June 15, 2018.
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 $71,111. As stated above, staff recommends
the appropriate NBV total to be $24,258. 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 Sunrise
Utilities for transfer purposes is $24,258, as of June 15, 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 book in accordance with the Commissions decision. The
adjustments should be reflected in the Sunrise Water, LLC 2019 Annual Report.
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 staffs 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 Commissions decision.
(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 staffs 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 Commissions decision.
