Case Background
Arma Water
Services, LLC (Arma or Seller) is a Class C water utility providing service to
approximately 78 residential customers in Marion County. Wastewater service is
provided by individually owned septic tanks. Arma is located in the St. Johns
River Water Management District. According to the Arma’s 2020 Annual Report,
Arma had gross revenues of $31,112 and a net operating loss of $10,826.
The Florida
Public Service Commission (Commission) granted an original water certificate to
Arma in 2010. On February 22, 2021, Leighton Estates
Utilities, LLC (Buyer or Utility) filed an application for the transfer of
Certificate No. 652-W from Arma to the Utility in Marion County.
This
recommendation addresses the transfer of the water system and Certificate No. 652-W, the appropriate net book value of the system
for transfer purposes, and the need for an acquisition adjustment. The
Commission has jurisdiction pursuant to Sections 367.071 and 367.081, Florida Statutes
(F.S.).
Discussion
of Issues
Issue 1:
Should the transfer of Certificate No. 652-W from
Arma Water Service, LLC to Leighton Estates Utilities, LLC be approved?
Recommendation:
Yes. The transfer of the water system and
Certificate No. 652-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 Utility is current with respect to annual reports and
Regulatory Assessment Fees (RAFs) through December 31, 2020, and the Buyer
should be responsible for all future years. (Lewis, Bethea, Blocker)
Staff Analysis:
On February 22, 2021, the Buyer filed an application
for the transfer of Certificate No. 652-W from
Arma. 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 January 1, 2021, contingent upon Commission’s
approval, pursuant to Section 367.071(1), F.S.
Noticing,
Territory, and Land Ownership
The Utility 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 service territory, which is appended to this recommendation
as Attachment A. The Buyer provided a copy of a warranty deed executed January
4, 2021, as evidence that the Utility has rights to long-term use of the land
upon which the 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)(g), (h), and (i), 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 guaranteed revenue contracts,
developer agreements, customer advances, leases, or debt of Arma that must be
disposed of with regard to the transfer. The customer deposits were forwarded
to the Buyer and credited to customer accounts. According to the Purchase Agreement,
the total purchase price for the water assets is $172,000. According to the Buyer,
the sale took place on January 1, 2021, subject to Commission approval,
pursuant to Section 367.071(1), F.S.
Facility
Description and Compliance
The Utility’s water treatment plant is rated at 65,800
gallons per day. Raw water is drawn from a single well and treated by
hypochlorination and is stored in a 5,000 gallon hydropneumatic tank before
distribution. The Florida Department of Environmental Protection (DEP) conducted
an inspection of the water treatment facility on September 11, 2020, and it was
found to be in compliance with the DEP’s rules and regulations.
Financial
and Technical Ability
Pursuant to
Rule 25-30.037(2)(l) and (m), F.A.C., the Utility provided statements
describing its financial and technical ability to provide water service. As
referenced in the transfer application, the Buyer will fulfill the commitments,
obligations, and representation of the seller with regards to utility matters. Staff
reviewed the financial statements of Florida Utility Services 1, LLC, owned and
managed by Mr. Michael Smallridge, and believes the Buyer has documented
adequate resources to support the Utility’s water operations. Also referenced
in the transfer application and specified in previous dockets, Mr. Smallridge
was appointed to the Citrus County Water and Wastewater Authority, the local
regulatory body for Citrus County, where the Buyer served for seven years. Mr.
Smallridge also served as the “Class C” representative for the Legislative Study
Committee for Investor-Owned Water and Wastewater Utility Systems in 2013. Mr.
Smallridge attends yearly training classes through the Florida Rural Water
Association and completed the NARUC Utility Rate School in 2001. Further, Mr.
Smallridge is the owner and manager of 15 Class C water and wastewater
facilities that are regulated by the Commission, and the Commission recently
acknowledged Mr. Smallridge’s appointed receivership to Sun River Utilities,
Inc. Based on
the above, staff recommends that the Buyer has demonstrated the technical and
financial ability to provide service to the existing service territory.
Rates
and Charges
Arma’s rates and charges were
last approved in its application for an original water certificate in Marion County in 2010.[3] The rates were subsequently
amended by one price index rate adjustment in January 2021. 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 Arma’s existing rates and charges as shown on Schedule No. 2 remain in
effect, until a change is authorized by this Commission.
With respect to miscellaneous service
charges, the Utility has requested to implement two additional miscellaneous
service charges. In addition, staff recommends that the existing miscellaneous
service charges be updated to reflect the recent amendment to Rule
25-30.460, F.A.C., pertaining
to miscellaneous service charges. Miscellaneous service charges are addressed in
Issue 4 and shown on Schedule No. 3.
Regulatory
Assessment Fees (RAFs) and Annual Reports
Staff has verified that the Utility is current on the
filing of annual reports and RAFs through December 31, 2020. The Buyer should
be responsible for filing the Utility’s annual reports and paying RAFs for 2021
and all future years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the water system and Certificate No. 652-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, F.A.C. The Buyer should be responsible
for filing annual reports and paying RAFs for 2021 and all future years.
Issue 2:
What is the appropriate net book value for the Leighton Estates Utilities, LLC water
system for transfer purposes, and should an acquisition adjustment be approved?
Recommendation:
The appropriate net book value (NBV) of the water
system for transfer purposes is $274,981,
as of January 1, 2021.
Within 90 days of the date of the final order, the Utility 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 Utility’s 2021 Annual Report when filed. (Blocker)
Staff Analysis:
Rate base
has never 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 Utility’s NBV has been updated to reflect balances as of January 1, 2021. Staff’s recommended NBV is shown on Schedule No. 1.
Utility
Plant in Service (UPIS)
The Utility’s general ledger
reflects a UPIS balance of $372,047 as of January 1, 2021. Staff reviewed
UPIS additions since December 31, 2010, and found that both services and meters
and meter installations were overstated by $7,812 and $1,958 respectively. As a
result, UPIS should be decreased by $9,770. Therefore, staff recommends a UPIS
balance of $362,277 as of January 1, 2021.
Land
The Utility’s general ledger reflects a land balance of $30,000
as of January 1, 2021. Staff verified the warranty deed from October 27, 2009,
and confirmed that there have been no additions to land since December 31, 2010.
Therefore, staff recommends a land balance of $30,000.
Accumulated
Depreciation
The Utility’s general ledger reflects an accumulated
depreciation balance of $121,439 as of January 1, 2021.
In accordance with Rule 25-30.140, F.A.C., staff calculated the
appropriate accumulated depreciation balance to be $109,809. As a result,
accumulated depreciation should be decreased by $11,630.
Contributions-in-Aid-of-Construction
(CIAC) and Accumulated Amortization of CIAC
The Utility’s general ledger reflects a CIAC balance of
$20,000 and an accumulated amortization of CIAC balance of $3,456 as of January
1, 2021. Staff was only able to confirm eight of
the 20 new customers claimed by the Utility, and as such decreased the CIAC balance
by $12,000. Staff also decreased the accumulated amortization of CIAC balance by
$2,943 based on the reduction of CIAC above. Therefore,
staff recommends a CIAC balance of $8,000 and an accumulated amortization
of CIAC balance of $513, as of January 1, 2021.
Net
Book Value
The Utility’s
general ledger reflects a NBV of $264,064 as of January 1, 2021. Based on the
adjustments described above, staff recommends a NBV of $274,981. Staff’s
recommended NBV and the National Association of Regulatory Utility
Commissioners, Uniform System of Accounts (NARUC USOA) balances for UPIS and accumulated
depreciation are shown on Schedule No. 1, as of January 1, 2021. A negative
acquisition adjustment should be recognized for rate making purposes and is
addressed in Issue 3.
Conclusion
Based on the above, staff recommends that the NBV of the
Utility’s water system for transfer purposes is $274,981, as of January 1, 2021.
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 Utility’s
2021 Annual Report when filed.
Issue 3:
Should an
acquisition adjustment be recognized for ratemaking purposes?
Recommendation:
Yes. Pursuant to Rule 25-30.0371(3), F.A.C., a
negative acquisition adjustment of $47,985 should be recognized for ratemaking
purposes. Beginning with the date of the issuance of the order approving the
transfer, half of the negative acquisition adjustment should be amortized over
a 7-year period and the other half amortized over the remaining life of the
Utility’s assets or 20 years, in accordance with Rule 25-30.0371(4)(b)1, F.A.C.
(Blocker)
Staff Analysis:
An
acquisition adjustment results when the purchase price differs from the
original cost of the assets’ NBV, adjusted to the time of the acquisition.
Pursuant to Rule 25-30.0371(3), F.A.C., if the purchase price is equal to or
less than 80 percent of NBV, a negative acquisition adjustment shall be
included in rate base and will be equal to 80 percent of NBV, less the purchase
price. Pursuant to Rule 25.30.0371(4)(b)1., F.A.C., if the purchase price is
greater than 50 percent of net book value, half of the negative acquisition
adjustment should be amortized over a 7-year period and the other half
amortized over the remaining life of the Utility’s assets. The calculation of
the acquisition adjustment is shown in Table 3-1. Staff estimates the remaining
life of the assets to be 20 years.
Table 3-1
Calculation of Negative
Acquisition Adjustment
|
Net book value as of January 1, 2021
|
$274,981
|
|
80
percent of net book value
|
$219,985
|
|
Purchase
price
|
$172,000
|
|
Negative
acquisition adjustment
|
$47,985
|
Therefore, pursuant to Rule 25-30.0371(3), F.A.C., staff
recommends a negative acquisition adjustment of $47,985 be recognized for
ratemaking purposes. Beginning with the date of issuance of the order approving
the transfer, one half of the negative acquisition adjustment should be
amortized over a 7-year period and the other half amortized over the remaining
life of the Utility’s assets, or 20 years, in accordance with Rule
25-30.0371(4)(b)1, F.A.C.
Issue 4:
Should the miscellaneous service charges be revised
to reflect Leighton Estates Utilities, LLC’s request for late payment and
non-sufficient funds (NSF) charges, as well as to conform to amended Rule
25-30.460, F.A.C.?
Recommendation:
Yes.
The Utility’s request to add a $5.00 late payment charge and NSF charges to its
miscellaneous service charges should be approved. In addition, staff recommends
the miscellaneous service charges be revised to conform to the recent amendment
to Rule 25-30.460, F.A.C. The recommended miscellaneous service charges are shown
on Schedule No. 3. The Utility should be required to file a proposed customer
notice to reflect the Commission-approved charges. The approved charges should
be effective on or after the stamped approval date on the tariff sheet pursuant
to Rule 25-30.475(1), F.A.C. In addition, the approved charge should not be
implemented until staff has approved the proposed customer notice and the
notice has been received by customers. The Utility should provide proof of the
date notice was given no less than 10 days after the date of the notice.
(Bethea)
Staff Analysis:
Late Payment Charge
The Utility is requesting a $5.00 late payment charge to recover
the cost of labor, supplies, and postage associated with processing late
payment notices. The Utility currently does not have a late payment charge. The
purpose of this charge is not only to provide an incentive for customers to
make timely payment, thereby reducing the number of delinquent accounts, but
also to place the cost burden of processing delinquent accounts solely upon
those who are cost causers. Section 367.091, F.S., authorizes the Commission to
establish, increase, or change a rate or charge other than monthly rates or
service availability charges.
The Utility calculated the actual costs for its late payment
charges to be $5.33. The Utility indicated that it will take approximately 5
minutes per account to research, compile, and produce late notices. The
delinquent customer accounts will be processed by the administrative employee,
which results in labor cost of $4.68 ($58.50 x 0.08hr).[4] In
addition, the Utility included material cost of $.65 for paper, envelopes, and
postage, which results in total costs of $5.33 ($4.68 + $.65). This is
consistent with prior Commission decisions where the Commission has allowed
5-15 minutes per account per month for the administrative labor associated with
processing delinquent customer accounts.[5]
However, the Utility is requesting only a charge of $5.00. The Utility’s
calculation for its actual costs associated with a late payment charge is shown
in Table 4-1. The Utility’s proposed late payment charge is reasonable and
should be approved.
Table 4-1
Late Payment Charge Cost Justification
|
Activity
|
Cost
|
|
Labor
|
$4.68
|
|
Materials
|
$0.12
|
|
Postage
|
$0.53
|
|
Total Cost
|
$5.33
|
Source:
Utility’s cost justification documentation
Non-Sufficient Funds Charge (NSF)
Section
367.091, F.S., requires that rates, charges, and customer service policies be
approved by the Commission. Staff recommends that the Utility should be
authorized to collect NSF charges consistent with Section 68.065, F.S., which
allows for the assessment of charges for the collection of worthless checks,
drafts, or orders of payment. As currently set forth in Section 68.065(2),
F.S., the following NSF charges may be assessed:
(1)
$25, if the face value does not exceed $50;
(2)
$30, if the face value exceeds $50 but does
not exceed $300;
(3)
$40, if the face value exceeds $300; or
(4)
5 percent of the face amount of the check,
whichever is greater.
Approval of NSF charges is
consistent with prior Commission decisions.[6]
Furthermore, NSF charges place the cost on the cost-causer, rather than
requiring that the costs associated with the return of the NSF checks be spread
across the general body of the ratepayers. As such, the Utility should be
authorized to collect NSF charges.
Amended Rule 25-30.460, F.A.C., Application of Miscellaneous Service
Charges
Effective
June 24, 2021, Rule 25-30.460, F.A.C., was amended to remove initial connection
and normal reconnection charges.[7] The
definitions for initial connection charges and normal reconnection charges were
subsumed in the definition of the premises visit charge. It was envisioned that
the utility tariffs would be reviewed by staff
on a prospective basis to ensure conformance with the amended rule. The
Utility’s miscellaneous service charges consist of initial connection and
normal reconnection charges. These charges are the same as the premises visit
charge. Therefore, staff believes it is appropriate at this time to remove the
initial connection and normal reconnection charges and update the definition
for the premises visit charge to comply with amended Rule 25-30.460, F.A.C.
Conclusion
The Utility’s request to add a
$5.00 late payment charge and NSF charges to its miscellaneous service charges
should be approved. In addition, staff recommends the miscellaneous service
charges be revised to conform to the recent revision to Rule 25-30.460, F.A.C.
The recommended miscellaneous service charges are shown on Schedule No. 3. The
Utility should be required to file a proposed customer notice to reflect the
Commission-approved charges. The approved charges should be effective on or
after the stamped approval date on the tariff sheet pursuant to Rule
25-30.475(1), F.A.C. In addition, the approved charge should not be implemented
until staff has approved the proposed customer notice and the notice has been
received by customers. The Utility should provide proof of the date notice was
given no less than 10 days after the date of the notice.
Issue 5:
Should this docket be closed?
Recommendation:
Yes. 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, the Buyer has notified the Commission in
writing that it has adjusted its books in accordance with the Commission’s
decision, and proof that appropriate noticing has been done pursuant to Rule
25-30.4345, F.A.C. (Stiller)
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, the Buyer has notified the Commission in writing
that it has adjusted its books in accordance with the Commission’s decision,
and proof that appropriate noticing has been done pursuant to Rule 25-30.4345,
F.A.C.
LEIGHTON ESTATES UTILITIES, LLC
WATER SERVICE AREA
MARION COUNTY
A portion of Section 23, Township 16 South, Range 21 East,
more particularly described as follow:
The SW quarter of the NE quarter;
The NW quarter of the SE quarter;
The North 600 feet of the SW quarter of the SE quarter.
FLORIDA PUBLIC SRVICE COMMISSION
Authorizes
Leighton Estates
Utilities, LLC
Pursuant to
Certificate Number
652-W
To provide
water services in Marion County in accordance with the provisions of Chapter
367, Florida Statutes, and the Rules, Regulations, and Order of this Commission
in the territory described by the Orders of this Commission. This authorization
shale remain in force and effect until superseded, suspended, concealed or
revoked by Order of the Commission.
Order
Number Date
Issued Docket Number Filing Type
PSC-10-0552-PAA-WU 09/03/2010 20090366-WU Original Certificate
* *
20210043-WU Transfer
Leighton Estates Utilities, LLC
Water System
Schedule of Net Book Value as of
January 1, 2021
|
Description
|
Balance
Per Utility
|
Adjustments
|
|
Staff
|
|
|
|
|
|
|
|
Utility Plant in Service
|
$372,047
|
($9,770)
|
A
|
$362,277
|
|
Land & Land Rights
|
30,000
|
0
|
|
30,000
|
|
Accumulated Depreciation
|
(121,439)
|
11,630
|
B
|
(109,809)
|
|
CIAC
|
(20,000)
|
12,000
|
C
|
(8,000)
|
|
Amortization of CIAC
|
3,456
|
(2,943)
|
D
|
513
|
|
|
|
|
|
|
|
Total
|
$264,064
|
$10,917
|
|
$274,981
|
Leighton Estates Utilities, LLC
Water System
Explanation of
Adjustments to Net Book Value as of January 1, 2021
|
Explanation
|
Amount
|
|
|
|
|
A.
UPIS
|
|
|
To
remove plant additions.
|
($9,770)
|
|
|
|
|
B.
Accumulated Depreciation
|
|
|
To
reflect the appropriate amount of accumulated depreciation.
|
11,630
|
|
|
|
|
C.
CIAC
|
|
|
To
remove new customer additions.
|
12,000
|
|
|
|
|
D.
Accumulated Amortization of CIAC
|
|
|
To
reflect the appropriate amount of accumulated amortization of CIAC.
|
(2,943)
|
|
|
|
|
Total Adjustments to Net Book Value as of January 1, 2021.
|
$10,917
|
Leighton Estates Utilities, LLC
Water System
Schedule of Staff
Recommended Account Balances as of January 1, 2021
|
Account
No.
|
Description
|
UPIS
|
Accumulated
Depreciation
|
|
301
|
Organization
|
$6,200
|
$1,628
|
|
304
|
Structures & Improvements
|
12,600
|
4,235
|
|
307
|
Wells & Springs
|
24,700
|
7,471
|
|
309
|
Supply Mains
|
6,300
|
2,067
|
|
311
|
Pumping Equipment
|
19,800
|
5,676
|
|
320
|
Water Treatment Equipment
|
36,480
|
22,029
|
|
330
|
Distribution Reservoirs
|
2,400
|
763
|
|
331
|
Transmission and Distribution Mains
|
231,997
|
56,761
|
|
333
|
Services
|
12,200
|
3,660
|
|
334
|
Meter and Meter Install.
|
5,600
|
3,034
|
|
339
|
Other Plant and Misc.
|
1,800
|
945
|
|
340
|
Office Furniture & Equip.
|
2,200
|
1,540
|
|
|
|
|
|
|
|
|
$362,277
|
$109,809
|
Leighton Estates
Utilities, LLC.
Monthly Water Rates
|
Residential
and General Service
Base
Facility Charge by Meter Size
|
|
|
|
5/8”
x 3/4"
|
|
$22.00
|
|
1"
|
|
$55.00
|
|
1
1/2"
|
|
$110.00
|
|
2"
|
|
$176.00
|
|
|
|
|
|
Charge
Per 1,000 gallons
|
|
$1.66
|
|
Initial
Customer Deposits
|
|
|
|
|
|
|
|
Residential
and General Service
|
|
|
|
|
5/8”
x 3/4”
|
|
$50.00
|
|
|
|
|
|
|
|
Service Availability
Charges
Customer Connection (Tap-in) Charge
5/8” x 3/4" meter service
$875.00
1” meter service
$875.00
1 1/2" meter service $875.00
2” meter service
$875.00
Over 2” meter service $875.00
Meter Installation Charge
5/8" x 3/4"
$125.00
All other meter sizes" Actual Cost
Leighton Estates
Utilities, LLC.
Existing
Miscellaneous Service
Charges
|
|
Normal
Hours
|
After
Hours
|
|
Initial Connection Charge
|
$25.00
|
$50.00
|
|
Normal Reconnection Charge
|
$25.00
|
$50.00
|
|
Violation Reconnection Charge
|
$25.00
|
$50.00
|
|
Premises Visit Charge
|
$25.00
|
$50.00
|
|
(in lieu of disconnection)
|
|
Staff Recommended
Miscellaneous Service
Charges
|
|
Normal
Hours
|
After
Hours
|
|
Premises Visit Charge
|
$25.00
|
$50.00
|
|
Violation Reconnection Charge
|
$25.00
|
$50.00
|
|
Late Payment Charge
|
|
$5.00
|
|
NSF Charges
|
Pursuant
to Section 68.065, F.S.
|
Order Nos. PSC-16-0041-TRF-WU, issued January 25,
2016, in Docket No. 20150215-WU, In re: Request for approval of tariff
amendment to include miscellaneous service charges for the Earlene and Ray Keen
Subdivisions, the Ellison Park Subdivision and the Lake Region Paradise Island
Subdivision in Polk County, by Keen Sales, and Utilities, Inc. and
PSC-15-0569-PAA-WS, issued December 16, 2015, in Docket No. 20140239-WS, In
re: Application for staff-assisted rate case in Polk County by Orchid Springs
Development Corporation.
Order Nos. PSC-2020-0086-PAA-WU, issued March 24,
2020, in Docket No. 20190114-WU, In re:
Application for staff-assisted rate case in Alachua County, and request for
interim rate increase by Gator Waterworks, Inc.; PSC-2018-0334-PAA-WU,
issued June 28, 2018, in Docket No. 20170155-WU, In re: Application for
grandfather water certificate in Leon County and application for pass through
increase of regulatory fees, by Seminole Waterworks, Inc.;
PSC-14-0198-TRF-SU, issued May 2, 2014, in Docket No. 20140030-SU, In re:
Request for approval to amend Miscellaneous Service charges to include all NSF
charges by Environmental Protection Systems of Pine Island, Inc.; and
PSC-13-0646-PAA-WU, issued December 5, 2013, in Docket No. 20130025-WU, In
re: Application for increase in water rates in Highlands County by Placid Lakes
Utilities, Inc.
