Discussion
of Issues
Issue 1:
Should the application for transfer of Certificate
No. 628-W in Polk County, from Alturas Utilities, L.L.C. to Alturas Water, LLC be
approved?
Recommendation:
Yes. The transfer of the water system and
Certificate No. 628-W 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, 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, Sewards)
Staff Analysis:
On September 14, 2018, the Buyer filed an
application for the transfer of Certificate No. 628-W from Alturas Utilities, L.L.C.
to Alturas 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 Alturas 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, customer advances, 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 Alturas Utilities
is $18,789. 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 one well with a
hydropneumatic tank rated at 3,000 gallons, and utilizes a chlorination process
for disinfection. The distribution system consists of varying sizes of 1- to 4-inch
polyvinyl chloride (PVC), concrete, 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, Alturas 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 to complete
the repairs and improvements. 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 Buyer’s 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 Utility’s rates were last
approved in a staff-assisted rate case.[7] The
Utility’s late payment charge was approved administratively in 2010.[8] The
Utility’s miscellaneous service charges were approved in 1997.[9] The
Utility’s 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 Utility’s 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
subsequent years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the water system and Certificate No. 628-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. 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 for the Alturas
Utilities water system for transfer purposes and should an acquisition
adjustment be approved?
Recommendation:
The net book value (NBV) of the water system for transfer
purposes is $22,035, 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,
Alturas Water, LLC 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 2019 Annual Report. (Sewards, Bennett)
Staff Analysis:
Rate base was last established as of December 31, 2014.
The purpose of establishing NBV for the water system 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. Staff’s recommended NBV, as described below, is shown on Schedule No. 1.
Utility Plant in Service (UPIS)
The Utility’s general ledger reflected a UPIS balance of
$64,927, as of June 15, 2018. Staff reviewed the UPIS balance and has no
adjustments. Therefore, staff recommends a UPIS balance of $64,927.
Land
In Order No. PSC-16-0128-PAA-WU,
the Commission established the value of the land to be $500. The Utility’s
general ledger reflected a land balance of $500. There have been no additions
to land purchased since that order was issued. Therefore, staff recommends a
land balance of $500, as of June 15, 2018.
Accumulated Depreciation
The Utility’s general ledger reflected an accumulated
depreciation balance of $43,329, as of June 15, 2018. Audit staff reviewed
additional depreciation since the last rate case proceeding and calculated an
accumulated depreciation balance of $43,392. As a result, accumulated
depreciation should be increased by $63 to reflect an accumulated depreciation
balance of $43,392, as of June 15, 2018.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As of June 15, 2018, the Utility’s general ledger
reflected a fully amortized CIAC balance of $18,637. Staff reviewed the CIAC
balances and has no adjustments. Therefore, staff recommends a CIAC balance of
$18,637 and accumulated amortization of CIAC balance of $18,637, as of June 15,
2018.
Net Book Value
The Utility’s general ledger reflected NBV of $22,098.
Based on the adjustments described above, staff recommends that the NBV for the
Utility’s system is $22,035, as of June 15, 2018. Staff’s 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.
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 $18,789. As stated above, staff recommends
the appropriate NBV total to be $22,035. 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(3), F.A.C., if the purchase price is greater than 80 percent of NBV,
a negative acquisition adjustment will not be included in rate base. The
purchase price of $18,789 is greater than 80 percent of Alturas Utilities’ net
book value. Thus, staff recommends that no negative acquisition adjustment be
included in accordance with Rule 25-30.0371(3), F.A.C.
Conclusion
Based on the above, staff recommends that the NBV of the
Alturas Utilities system for transfer purposes is $22,035, 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 books in accordance with the
Commission’s decision. The adjustments should be reflected in the Alturas
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 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.
(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 and the Buyer has notified the Commission in writing
that it has adjusted its books in accordance with the Commission’s decision.
