Discussion
of Issues
Issue 1:
Should the Commission approve the transfer of the
water and wastewater facilities from the City of Wildwood, an exempt entity in
Sumter County, to South Sumter Utility Company, LLC, and the amendment of South
Sumter Utility Company, LLC’s Certificate Nos. 571-S and 669-W?
Recommendation:
Yes. The transfer of the water and wastewater
service facilities from the City and the amendment of Certificate Nos. 571-S
and 669-W, to include the territory as described in Attachment A, are in the
public interest and should be approved, effective the date of the Commission’s
vote. The resultant order should serve as SSU’s amended certificate and should
be retained by the Buyer. SSU should be responsible for filing all future
annual reports and Regulatory Assessment Fees (RAFs) subsequent to the date of
closing. (M. Watts, K. Johnson, Sewards, Bethea)
Staff
Analysis: On September 25, 2019, SSU filed an
application for transfer of water and wastewater facilities and territory
served by the City to SSU, and amendment of Certificate Nos. 571-S and 669-W in
Sumter County. The application is in compliance with Sections 367.071, and
367.045, F.S., and Rules 25-30.036, and 25-30.037, Florida Administrative Code
(F.A.C.). The application contains proof of compliance with the noticing
provisions set forth in Rule 25-30.030(5)(b), F.A.C. Adequate service territory
maps and territory descriptions have been provided. The application contains a
description of the water and wastewater service territory of the currently
exempt Utility which is appended to this recommendation as Attachment A.
Noticing, Territory, and Land Ownership
SSU provided
notice of the application pursuant to Section 367.071, F.S., and Rule
25-30.030(5)(b), F.A.C. The notice provided
30 days for customers to file an objection to the transfer. No
objections were received and the time for filing objections has expired.
The application contains a description of the water and wastewater
service territory, which is appended to this recommendation as Attachment A.
The application contains a copy of a warranty deed that was executed on
September 18, 2019, as evidence that SSU 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 Rules 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 the City
that must be disposed of regarding the transfer. According to the purchase
agreement, there was no monetary exchange between SSU and the City for the
transfer of the service territory, with the exception of capacity and
connection fee credits transferred from the City to SSU totaling approximately
$2.9 million. According to the Buyer, the closing date will take place within
30 days after the date of the consummating order for this docket. The consummating
order is scheduled to be filed on August 20, 2020. Therefore, the closing date
will be September 19, 2020, subject to Commission approval, pursuant to Section
367.071(1), F.S.
Facility Description and Compliance
The SSU water
treatment system that will service the Village of Fenney and the Village of
DeSoto consists of two wells, a pre-stressed concrete ground storage tank with
a storage capacity of 1.5 million gallons, a liquid hypochlorination system
used for disinfection, a packed-storage system for sulfide removal, a pH
adjustment system, and a water distribution system. The water treatment system
has a maximum-day design capacity of 4.99 million gallons per day (MGD). The
last Florida Department of Environmental Protection (DEP) sanitary survey was
conducted on June 21, 2019. There were no deficiencies noted. Therefore, the
system appears to be in compliance with the DEP rules.
Wastewater service will be provided through a wastewater
collection system and a bulk wastewater treatment purchase agreement with the
City of Leesburg. The agreement reserves a capacity of 3.0 MGD annual average
daily flow (AADF) of wastewater treatment capacity in the Leesburg wastewater
treatment plant. The total anticipated build-out demand of both the existing
and proposed service area is 1.59 MGD AADF.
Financial and Technical Ability
Pursuant to
Rules 25-30.037(2)(l) and (m), F.A.C., as incorporated by Rule 25-30.037(3)(c),
F.A.C., the application contains statements describing the technical and
financial ability of SSU to provide service to the proposed service area. In
its application, the Utility provided a letter from Holding Company of the
Villages, Inc. (The Villages), an affiliate company through common ownership,
stating The Villages has the ability to provide financial support for SSU.
Staff has reviewed the financial statements of SSU and The Villages. Based on
our review, staff believes The Villages has demonstrated the ability to provide
financial support for SSU.
The Villages
has experience with operating multiple water and wastewater utilities, which
provide service to approximately 120,000 residents. These systems are in good
standing with the DEP. The Utility has retained the operation and maintenance
(O&M) contractor that provides service to its other water and wastewater
utilities in The Villages to provide O&M service to SSU as well.
Based on the above, staff recommends that SSU has demonstrated the
financial and technical ability to provide service to the proposed service
territory.
Regulatory Assessment Fees and Annual Reports
As the Buyer is acquiring non-regulated assets, there are
no annual reports or RAFs on file. The Buyer will be responsible for filing
annual reports and paying RAFs for all future years.
Conclusion
Staff recommends the transfer of the water and wastewater facilities
from the City and the amendment of Certificate Nos. 571-S and 669-W, to include
the territory as described in Attachment A, are in the public interest and
should be approved, effective the date of the Commission’s vote. The resultant
order should serve as SSU’s amended certificate and should be retained by the
Buyer. SSU 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
assets acquired by South Sumter for transfer purposes, and should an acquisition
adjustment be approved?
Recommendation:
The net book value (NBV) of the assets for transfer
purposes is $0 for the water system and $0 for the wastewater system as of
September 19, 2020. An acquisition adjustment should not be included in rate
base. Within 90 days of the date of the final order, SSU 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 SSU’s
2020 Annual Report when filed. (Sewards)
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
NBV of the assets has been updated to reflect balances as of September 19,
2020. Staff’s recommended NBV, as described below, is shown on Schedule Nos. 1-A,
1-B, and 1-C, which are appended to this recommendation.
Utility Plant in Service (UPIS)
The assets being acquired were installed by the developer,
RP Fenney, LLC (RP). The assets were not donated to the City. The Utility
explained that the assets were not donated to the City because they were
installed with the understanding that SSU would be serving the development once
it had the ability to do so. The Utility’s application reflected a UPIS balance
of $3,219,195 for the water system assets and $5,640,775 for the wastewater
system assets. The developer is a non-regulated entity; as such, it does not
maintain its books and records according to the National Association of
Regulatory Utility Commissioners uniform system of accounts (NARUC USOA). On
March 30, 2020, SSU provided specifications and contract documents detailing
the components of the infrastructure to support the original cost of the assets
obtained from RP. The Utility provided a UPIS balance of $3,694,229 for the
water system assets, and $6,355,516 for the wastewater system assets. Staff
reviewed all original cost documentation and verified the correct NARUC USOA
accounts were used.
Staff analyzed the documentation and has verified the
Utility’s calculation of a UPIS balance of $3,694,229 for the water system
assets, and $6,355,516 for the wastewater system assets. As such, staff
recommends that UPIS should be increased by $475,034 for water and $714,741 for
wastewater to reflect UPIS balances of $3,694,229 for water and $6,355,516 for
wastewater, as of September 19, 2020.
Land
The Utility’s application reflects a land balance of $0,
as of December 10, 2018. Therefore, staff recommends a balance of $0 for land,
as of September 19, 2020.
Accumulated Depreciation
The Utility’s application did not reflect an accumulated
depreciation balance for the assets. However, in response to staff’s second
data request, SSU provided accumulated depreciation balances as of March 31,
2020, of $165,240 and $358,491 for the water and wastewater system assets,
respectively. Staff recalculated accumulated depreciation pursuant to Rule
25-30.140, F.A.C., to reflect the appropriate balances as of September 19,
2020. Staff calculated the appropriate accumulated depreciation balances to be
$204,582 and $443,846 for the water and wastewater system assets, respectively.
As a result, accumulated depreciation should be increased by $39,343 and
$85,355 to reflect balances of $204,582 and $443,846, for the water and
wastewater system assets, respectively, as of September 19, 2020.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
As mentioned above, the City is a non-regulated entity and
thus does not maintain its books and records in accordance to the NARUC USOA.
As such, no CIAC was recorded. In response to staff’s second data request, the
Utility stated that its intention is to record the full cost of the assets
acquired as CIAC. Given the unique nature of the agreement between the City and
developer as discussed in the UPIS section, staff believes it is appropriate to
record the assets acquired as CIAC. Therefore, staff recommends CIAC balances
of $3,694,229 and $6,355,516 for the water and wastewater system assets,
respectively. Additionally, staff has calculated accumulated amortization of
CIAC balances of $204,582 and $443,846 for the water and wastewater system
assets, respectively.
Net Book Value
Based on the adjustments described above, staff recommends
NBVs of $0 for the water system assets and $0 for the wastewater system assets,
as of September 19, 2020. Staff’s recommended NBV and the NARUC USOA balances
for UPIS and accumulated depreciation are shown on Schedule Nos. 1-A, 1-B, and
1-C.
Acquisition Adjustment
An acquisition adjustment occurs 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 the NBV. As
mentioned above, staff recommends that the appropriate NBV for the water and
wastewater assets is $0. Additionally, as the Utility intends to record the
cost of the assets as CIAC, staff believes no acquisition adjustment is
warranted. As such, staff recommends that no acquisition adjustment be
approved.
Conclusion
Based on the above, staff recommends that the NBV of the
assets for transfer purposes is $0 for both the water and wastewater systems as
of September 19, 2020. No acquisition adjustment should be included in rate
base. Within 90 days 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 SSU’s 2020 Annual
Report when filed.
Issue 3:
What are the appropriate rates and charges for the
Village of Fenney and the Village of DeSoto?
Recommendation:
The appropriate rates and charges for the Village of
Fenney and the Village of DeSoto are the existing service rates of the City and
the existing charges of SSU, as shown on Schedule Nos. 2-A and 2-B, which are appended
to this recommendation. These rates and charges should remain in effect until a
change is authorized by the Commission in a subsequent proceeding. The approved
rates and charges should be effective for services rendered after the order
becomes final, the closing on the agreement, and the customers of Village of
Feeney and the Village of DeSoto have received notice pursuant to Rule
25-30.475, F.A.C. The Utility should provide proof of noticing within 10 days
of rendering its approved notice. (Bethea, Hudson)
Staff Analysis:
The
Village of Fenney and the Village of DeSoto are currently subject to the
service rates and charges of the City. To minimize disturbance to the existing
residents, SSU is requesting that all developed areas of the service area being
transferred remain at the City of Wildwood’s established service rates. Rule
25-9.044(1), F.A.C, provides that:
In
case of change of ownership or control of a utility which places the operation
under a different or new utility, or when its name is changed, the company
which will thereafter operate the utility business must adopt and use the
rates, classification and regulations of the former operating company (unless
authorized to change by the commission) . . . .
SSU will maintain the
existing City service rates in the Village of Fenney and the Village of DeSoto.
The Utility indicated that it may revisit adjusting the rates to the SSU rates
at a future time if the lower City rates affect the overall profitability of
the Utility. SSU stated that any areas developed after the transfer will
utilize SSU service rates in existence at the time of development.
In addition, SSU is
seeking to implement its existing miscellaneous service, service availability,
and other charges to the Village of Fenney and the Village of DeSoto. SSU’s
water service availability charges consist of a main extension and meter
installation charge. SSU’s wastewater service availability charges consist of
main extension and plant capacity charges. The Village of Fenney and the
Village of DeSoto’s existing infrastructure has been donated to SSU by the developer.
Therefore, the main extension and plant capacity charges will not be applicable
to the developed area. In the event there is a need to replace a meter at the
customer’s expense, SSU’s existing meter installation charge is reasonable and
appropriate for the Village of Fenney and the Village of DeSoto. Only new
development after the transfer should be subject to all of SSU’s service
availability charges in existence at the time of development or connection of
the customer.
The appropriate rates and charges for the
Village of Fenney and the Village of DeSoto are the existing service rates of
the City and the existing charges of SSU, as shown on Schedule Nos. 2-A and
2-B. These rates and charges should remain in effect until a change is
authorized by the Commission in a subsequent proceeding. The approved rates and
charges should be effective for services rendered after the order becomes
final, the closing on the agreement, and the customers of Village of Fenney and
the Village of DeSoto have received notice pursuant to Rule 25-30.475, F.A.C.
The Utility should provide proof of noticing within 10 days of rendering its
approved notice.
Issue 4:
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
administratively upon Commission staff’s verification that the revised tariff
sheets have been filed, the Buyer has provided proof of noticing, and the Buyer
has notified the Commission in writing that it has adjusted its books and
records in accordance with the Commission’s decision. (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 administratively upon Commission staff’s verification that the
revised tariff sheets have been filed, the Buyer has provided proof of
noticing, and the Buyer has notified the Commission in writing that it has
adjusted its books and records in accordance with the Commission’s decision.
