Discussion
of Issues
Issue 1:
Should the application for transfer of Certificate
No. 165-W in Pasco County, from Allen LaFortune and Otis Fonder to A Utility
Inc. be approved?
Recommendation:
Yes, the transfer of Certificate No. 165-W in Pasco
County 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 should be responsible for
filing annual reports and paying Regulatory Assessment Fees (RAFs) for 2019 and
all future years. (M. Watts, Doehling, Sibley,
Frank)
Staff Analysis:
On May 16, 2017, A Utility Inc. filed an application
for the transfer of Certificate No. 165-W from ALOF in Pasco County. The
application is in compliance with Section 367.071, F.S., and Commission rules
concerning applications for transfer of certificates. The sale occurred on
January 1, 2017, contingent upon Commission approval, pursuant to Section
367.071(1), F.S.
Noticing, Territory, and Land Ownership
The
application contains a description of the water service territory, which is
appended to this recommendation as Attachment A. The application also contains
a copy of the Warranty Deed to Trustee Under Land Trust
and a Land Trust Agreement as evidence that the Buyer has access to the
land upon which the water treatment facilities are located pursuant to Rule
25-30.037(2)(s), F.A.C. A Utility Inc. provided notice as required by
Rule 25-30.030(5), F.A.C., on April 11, 2019. No
objections to the transfer were filed, and the time for doing so has expired.
Purchase and Financing
Pursuant to
Rule 25-30.037(2)(j), F.A.C., the application contains a statement regarding
financing and documentation of the terms of the transfer, 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 ALOF that must be disposed of with regard to the
transfer. According to the Buyer, there was no closing contract involved.
However, all information regarding the terms of the transfer were provided,
along with supplemental documentation. According to the Warranty Deed, the
total purchase price for the assets is $117,000. The Buyer also provided a
statement acknowledging that the sale is subject to Commission approval.
Facility Description and Compliance
The water
treatment system consists of two wells, a bladder tank rated at 220 gallons,
and a hypochlorination process for disinfection. The Florida Department of
Environmental Protection (DEP) conducted the most recent sanitary survey of the
facility on December 12, 2019. Based on observations made and the information
provided during the inspection, the system was determined to be in compliance
with the DEP’s rules and regulations. In addition, the Utility was found to be
in compliance with all secondary water quality standards in the last test
performed on May 1, 2018. Additionally, the Utility stated that it received no
customer complaints regarding the DEP secondary water quality standards in the
previous five years.
Technical and Financial Ability
Pursuant to
Rule 25-30.037(2), F.A.C., the application contains statements describing the
technical and financial ability of the Buyer to provide service to the proposed
service area. The Buyer stated that its President is the current manager of the
system, and has been managing it for approximately 30 years. To ensure
continued operation of the Utility, the operator and all personnel will be
retained in their current roles.
Pursuant to
Rule 25-30.037(2)(l), F.A.C., the application contains statements describing
the financial ability of the Buyer 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 financial statements of the Buyer. Based on
the above, staff believes the Buyer has demonstrated the technical and
financial ability to provide service to the existing service territory.
Rates
and Charges
The Utility
currently has a flat rate of $14.61 per month. The Utility’s rates and charges
were approved in a staff-assisted rate case in 1989.
The rates were subsequently amended through ten price index and pass through
rate adjustments. The Utility is built out and has no approved service
availability charges. 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
the 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 ALOF is current with respect to annual reports and RAFs through
December 31, 2018. The Buyer should 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 Certificate No.
165-W in Pasco County 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 Buyer should be responsible for filing annual
reports and paying RAFs for 2019 and all future years.
Issue 2:
What is the appropriate net book value for A Utility
Inc.’s water system for transfer purposes and should an acquisition adjustment
be approved?
Recommendation:
The NBV of the water system for transfer purposes is
$9,367 as of January 1, 2017. An acquisition adjustment should not be included
in rate base. Within 90 days of the date of the final order, A Utility Inc. 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 A Utility Inc.’s 2019 Annual Report when filed. (Frank)
Staff Analysis:
Rate base
was last established as of December 31, 1989.
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 January 1, 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 a UPIS balance of $97,700
as of January 1, 2017. Staff reviewed UPIS additions since the last rate case
proceeding, including additional documentation provided after the audit, and
has decreased UPIS by $43,107. Staff notes that subsequent to the staff audit
report, the Buyer provided a breakdown of NBV which included a component of
plant based on customer value. The Buyer assigned a value of approximately $300
to each customer using a calculation that applied a 10 percent rate of return,
as reflected in the Utility’s last rate case, to the flat rate charge as of
January 1, 2017, and creating an amortization schedule over ten years. The
customer value calculation totals $35,100 ($300 x 117 customers). Staff did not
include this valuation in the calculation in NBV because customer value is not
an asset considered in rate base. Therefore, staff recommends that the Utility’s
UPIS balance as of January 1, 2017, is $54,593.
Land
The Utility’s general ledger reflected a land balance of
$19,300. The Commission’s previous order, mentioned above, reflected the
original cost of land at $1,000. There have been no additions to land since the
last rate case. As such, land should be decreased by $18,300. Therefore, staff
recommends a balance for land of $1,000 as of January 1, 2017.
Accumulated
Depreciation
The Utility’s
NBV calculation did not reflect accumulated depreciation. Staff calculated
accumulated depreciation of plant since 1990 to reflect accumulated
depreciation as of January 1, 2017. Staff calculated the appropriate
accumulated depreciation balance to be $46,226. As a result, accumulated
depreciation should be increased by $46,226 to reflect an accumulated
depreciation balance of $46,226 as of January
1, 2017.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As of January
1, 2017, the Utility’s general ledger reflected a fully amortized CIAC balance
of $26,625 for the water plant. Staff reviewed the CIAC balance and has no
adjustments. Therefore, staff recommends a CIAC balance of $26,625 and
accumulated amortization of CIAC balance of $26,625 as of January 1, 2017.
Net
Book Value
The Utility’s
application reflected a NBV of $117,000. Based on the adjustments described
above, staff recommends a NBV of $9,367 as of January 1, 2017. Staff’s
recommended NBV and the National Association of Regulatory Utility
Commissioners, Uniform System of Accounts (NARUC USOA) balances for UPIS and
accumulated depreciation as of January 1, 2017, 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 $117,000. As stated above, staff recommends the appropriate NBV
total to be $9,367. 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 A
Utility Inc. for transfer purposes is $9,367 as of January 1, 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 A Utility Inc.’s 2019 Annual Report
when filed.
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. (DuVal)
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.
