Discussion
of Issues
Issue 1:
Should the transfer of Certificate No. 578-W in
Manatee County from Sunny Shores Water Co., to Sunny Shores Utilities, LLC be approved?
Recommendation:
Yes. The transfer of the water system and Certificate No. 578-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,
Florida Administrative Code (F.A.C.). The Buyer is current with respect
to annual reports and Regulatory Assessment Fees (RAFs) through December 31,
2019, and will be responsible for all future years. (K. Johnson, M. Watts,
Thurmond, Sibley)
Staff
Analysis: On
September 18, 2019, the Buyer filed an application for the transfer
of Certificate No. 578-W
from SSWC. The application is in compliance with Section 367.071, F.S., and
Commission rules concerning applications for transfer of certificates. The sale
to the Buyer occurred on June 19, 2019, contingent upon Commission approval,
pursuant to Section 367.071(1), F.S.
Noticing, Territory, and Land
Ownership
The system
is consecutive, meaning bulk water service is purchased, in this instance, from
Manatee County. Thus, no proof that the Utility owns or has access to the land
on which the treatment facilities are located is required. However, the Buyer
included the Assignment of Easements documents in its application for transfer
in an effort to comply with Rule 25-30.037(2)(s), F.A.C., which requires the
utility to provide proof of access to the land under which the treatment
facilities are located. The Buyer provided notice of the application pursuant
to Section 367.071, F.S., and Rule 25-30.030, F.A.C. The notice was mailed to
customers and other required entities on January 13, 2020, and published on
January 17, 2020. Thus, the protest period expired February 16, 2020. No
objections 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.
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 developer agreements, customer deposits, 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 $44,500. According to the Buyer, the
sale took place on June 19, 2019, subject to Commission approval, pursuant to
Section 367.071(1), F.S.
Facility
Description and Compliance
Sunny Shores
is a consecutive system that purchases bulk water service from Manatee County
Utilities for resale to its customers. The Utility does not own or operate any
treatment facilities. Sunny Shores maintains and operates the water
distribution system. The Florida Department of Environmental Protection (DEP)
conducts periodic inspections of the water distribution system. The most recent
inspection report from the DEP, dated May 22, 2018, indicated that the Utility was compliant with its regulations and
requirements.
Technical
and Financial Ability
Pursuant to
Rule 25-30.037(2)(l) and (m), F.A.C., the application contains statements
describing the technical and financial ability of the Buyer to provide service
to the proposed service area. As referenced in the transfer application, the
Buyer was appointed to the Citrus County Water and Wastewater Authority, the
local regulatory body for Citrus County, where the Buyer 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. The Buyer attends yearly training classes through the Florida
Rural Water Association and completed the NARUC Utility Rate School in 2001.
The Buyer is the owner and manager of 15 Class C water and wastewater
facilities that are regulated by the Commission. Based on the above, the Buyer
has demonstrated the technical ability to provide service to the existing
service territory.
Pursuant to
Rule 25-30.037(2)(1), F.A.C., the application includes financial statements supporting
the financial ability of the Buyer to provide service to the proposed service
area. Staff has reviewed the financial statements and believes
the Buyer has demonstrated the financial ability to provide service to the
existing service territory.
Rates
and Charges
The Utility’s rates and charges
were approved in a grandfather certificate docket in 1996.
The rates were subsequently amended through 21 price index and pass through
rate adjustments. Most recently, the Seller
was approved for a price index, which was effective April 2019.[6]
However, when a staff audit was conducted for the transfer in September 2019,
inadvertently, the prior tariff was used to verify the Utility’s billing.
Furthermore, the Utility was also incorrectly billing its customers the rates
in effect prior to the price index rate adjustment. As a result, there was no
audit finding of incorrect billing and the Utility agreed. Subsequent to the
audit, in May 2020, it was discovered that the Utility was not billing its
approved rates. The Utility plans to back bill for 12 months of incorrect
billing over that same time period pursuant to Rule 25-30.350, F.A.C. In
addition, the Utility’s late payment charge was approved in 2016[7] and
miscellaneous service charges were approved in 1996.[8]
The Utility’s
existing rates and charges are shown on Schedule No. 1, appended to this
recommendation. 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 the Buyer is current with respect to annual reports and RAFs
through December 31, 2019. The Buyer filed the 2019 Annual Report and paid RAFs
for 2019. The Buyer will be responsible for filing the 2020 Annual Report and
RAFs, along with all future years.
Conclusion
Based on
the foregoing, staff recommends that the transfer of the water system and
Certificate No. 578-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 filing annual reports and paying RAFs for 2019
and all future years.
Issue 2:
What is the appropriate net book value for the Sunny
Shores system for transfer purposes and should an acquisition adjustment be
approved?
Recommendation:
For transfer purposes, the net book value (NBV) of
the water system is $20,188 as of June 19, 2019. An acquisition adjustment
should not 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 Buyer’s 2020 Annual Report when filed. (Thurmond)
Staff
Analysis:
The Utility was
granted a grandfather certificate by Order No. PSC-96-0599-FOF-WS,
therefore rate base has never been established. 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 19, 2019. Staff’s recommended NBV, as described below, is
shown on Schedule No. 2, appended to this recommendation.
Utility
Plant in Service (UPIS)
The
Utility reflected a UPIS balance of $34,672. The Utility was not able to
provide Commission audit staff with support for any plant additions prior to
2011, including costs of original plant. Based on the support documentation
provided for plant additions since 2011, the UPIS balance is $26,774. In
response to staff’s first data request, the Utility stated that the UPIS
balance reconciles with its calculation of UPIS, as of the transfer date. As
such, staff recommends that the Utility’s UPIS balance as of June 19, 2019,
should be $26,774.
Land
There
is no land associated with the Utility, as bulk water is purchased from Manatee
County. Therefore, staff recommends a land balance of $0.
Accumulated
Depreciation
The
Utility reflected an accumulated depreciation balance of $28,517. In its
response to staff’s first data request, the Buyer also provided a recalculation
of the accumulated depreciation balance based on the revised UPIS balance.
Staff reviewed and verified the recalculated accumulated depreciation balance
of $6,586. As such, staff recommends that the Utility’s accumulated
depreciation balance should be $6,586 as of June 19, 2019.
Contributions-in-Aid-of-Construction
(CIAC) and Accumulated Amortization of CIAC
The
Utility did not reflect a balance for CIAC or accumulated amortization of CIAC.
Audit staff verified that there is no CIAC balance and therefore no accumulated
amortization of CIAC. Therefore, staff recommends a balance of $0 for CIAC and
accumulated amortization of CIAC, as of June 19, 2019.
Net
Book Value
The
Utility reflected a NBV of $6,155 ($34,672 - $28,517). Based on the adjustments
above, staff recommends a NBV of $20,188 ($26,774 - $6,586).
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 $44,500. As stated above, staff recommends the appropriate NBV is
$20,188. 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 Sunny
Shores, for transfer purposes, is $20,188, as of June 19, 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 the Buyer’s 2020 Annual Report.
Issue 3:
Should this docket be closed?
Recommendation:
Yes. If no protest to the proposed agency action issue is
filed by a substantially affected person within 21 days of the date of the
order, a consummating order should be issued and the docket closed. (Lherisson)
Staff Analysis: If no protest to the
proposed agency action issue is filed by a substantially affected person within
21 days of the date of the order, a consummating order should be issued and the
docket closed.
