Discussion
of Issues
Issue 1:
Should the transfer of Certificate
Nos. 674-W and 575-S from River Grove Utilities, Inc., to Cobblestone II RVG
LLC, be approved?
Recommendation:
Yes. The transfer of Certificate Nos. 674-W and
575-S 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 shown on
Schedule No. 2 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 Seller is current with respect to annual
reports and Regulatory Assessment Fees (RAFs) through December 31, 2021. The
Buyer should be responsible for filing the Utility’s annual reports and paying
RAFs after April 21, 2022, and all future years. (Lewis, Sewards, Bethea)
Staff Analysis:
On April 22, 2022, the Buyer filed an application
for the transfer of Certificate Nos. 674-W and 575-S from RGU to Cobblestone.
The application is in compliance with Section 367.071, F.S., and the Commission
rules concerning applications for transfer of certificates. The sale to the
Buyer occurred on April 21, 2022, contingent upon the Commission’s approval,
pursuant to Section 367.071(1), F.S.
Noticing,
Territory, and Land Ownership
Cobblestone
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 the warranty deed executed on April 15, 2022, as
evidence that the Utility has rights to long-term use of the land upon which
the treatment facilities are located pursuant Rule 25-30.30.037(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 customer deposits, guaranteed revenue contracts,
developer agreements, customer advances, leases, or debt of River Grove that
must be disposed of with regard to the transfer. According to the Purchase Agreement,
the total purchase price for the mobile home community, as well as the water
and wastewater assets is $19,000,000. In response to staff’s data request, the
Buyer stated the specific purchase price of the water and wastewater assets
should be set equal to the depreciated original cost as established by this
Commission. As discussed later, staff has calculated a net book value of
$159,093 for water and $2,250 for wastewater. Therefore, staff recommends a
purchase price of $161,343 ($159,093 + $2,250) for the water and wastewater
assets should be recognized
.
Facility
Description and Compliance
In
March 2019, RGU interconnected its water distribution system with Brevard
County’s Barefoot Bay and now purchases bulk water service from Barefoot Bay. RGU’s
wastewater treatment plant (WWTP) has the permitted capacity of 0.030 million
gallons per day and consists of flow equalization, influent screening,
aeration, secondary clarification, chlorination, and aerobic digestion of
biosolids. Based on the Utility’s application and staff’s investigation, the
systems appear to be in satisfactory condition and compliant with the Florida
Department of Environmental Protection standards.
Financial
and Technical Ability
Pursuant
to Rule 25-30.037(2)(l), and (m), F.A.C., the Buyer provided statements
describing its financial and technical ability to provide water and wastewater
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 the parent company,
Cobblestone MHC Fund II LP, and believes the Buyer has documented adequate
resources to support the Utility’s operations.
In
its application, the Buyer indicated that it has no experience in the water or
wastewater industry; however, it will rely on one of its related parties which
operates a wastewater system serving one of its other mobile home communities
in Florida. Additionally, the Seller contracted its WWTP operations to US Water
Services Corporation and the Buyer indicated that it intends to keep this
contract in place. 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,
Charges, and Customer Deposits
The Utility's rates, charges, and
initial customer deposits were last approved in its 2019 application for
original certificates to provide water and wastewater.[3]
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. In
regard to the Utility’s miscellaneous service charges, the late payment charge
of $7.50 is appropriate. However, the
remaining miscellaneous service charges do not conform to Rule 25-30.460,
F.A.C., and are discussed in Issue 3. Therefore, staff recommends that the
Utility’s existing rates, late payment charge, service availability charges,
non-sufficient funds charges, and initial customer deposits as shown Schedule
No. 2, should remain in effect, until authorized to change by this Commission
in a subsequent proceeding. The tariff pages reflecting the transfer should be
effective on or after the stamped approval date on the tariff sheet pursuant to
Rule 25-30.475(1), F.A.C.
Regulatory
Assessment Fees (RAFs) and Annual Reports
Staff
has verified that the Seller is current on the filing of annual reports and
RAFs through December 31, 2021. The Buyer should be responsible for filing the
Utility’s annual reports and paying RAFs after April 21, 2022, and all future
years.
Conclusion
Based on the
foregoing, staff recommends the transfer of Certificate Nos. 674-W and
575-S 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
shown on Schedule No. 2 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
Utility is current with respect to annual reports and RAFs through December 31,
2021. The Buyer should be responsible for filing the Utility’s annual reports
and paying RAFs after April 21, 2022, and all future years.
Issue 2:
What is the appropriate net book value (NBV) for the River
Grove water and wastewater systems for transfer purposes, and should an
acquisition adjustment be approved?
Recommendation:
The appropriate NBV of the water and wastewater systems
for transfer purposes are $159,093
and $2,250, respectively, as of April 1, 2022. No acquisition adjustment is necessary as the
purchase price is equal to the NBV. 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 Cobblestone’s 2022 Annual Report when filed.
(Sewards)
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 April 1, 2022. Staff’s recommended NBV is shown on Schedule No. 1.
Utility Plant in Service (UPIS)
The Utility’s general ledger
reflects UPIS balances of $661,426 for water and $8,100 for wastewater as
of April 1, 2022. Staff does not have any adjustments to the Utility’s UPIS
balances. Therefore, staff recommends UPIS balances of $661,426 for water and $8,100 for wastewater as of April 1, 2022.
Land
The Utility’s general ledger reflects land balances of
$2,250 for water and $2,250 for wastewater as of April 1, 2022. Staff does not
have any adjustments to the Utility’s land balances. Therefore, staff
recommends land balances of $2,250 for water and
$2,250 for wastewater as of April 1, 2022.
Accumulated Depreciation
The Utility’s general ledger reflects accumulated
depreciation balances of $73,163 for water and $8,100 for wastewater as of
April 1, 2022. Staff does not have any adjustments to the Utility’s accumulated
depreciation balances. Therefore, staff recommends accumulated depreciation
balances of $73,163 for water and $8,100 for
wastewater as of April 1, 2022.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of CIAC
The Utility’s general ledger reflects CIAC balances of
$476,202 for water and $0 for wastewater as of April 1, 2022. The Utility’s
general ledger also reflects accumulated amortization of CIAC balances of
$44,782 for water and $0 for wastewater as of April 1, 2022. Staff does not have any adjustments to the
Utility’s CIAC or Accumulated Amortization of CIAC balances. Therefore, staff recommends CIAC balances of $476,202 for water and $0 for
wastewater, and accumulated amortization of CIAC
balances of $44,782 for water and $0 for wastewater, as of April 1, 2022.
Net Book Value
The Utility’s general ledger reflects NBV of $159,093 for
water and $2,250 for wastewater as of April 1, 2022. Staff does not recommend any
adjustments. As such, staff recommends NBV of $159,093 for water and $2,250 for
wastewater. 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 April 1,
2022.
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 $161,343. As stated above, staff recommends the
appropriate NBV total to be $161,343. 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.
As the purchase price is equal to the NBV, staff recommends that no acquisition
adjustment is warranted.
Conclusion
Based on the above, staff recommends that the NBV of the
water and wastewater systems for transfer purposes is $159,093 and $2,250,
respectively, as of April 1, 2022. 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 Utility’s 2022 Annual Report when filed.
Issue 3:
Should Cobblestone’s miscellaneous service charges
be revised to conform to amended Rule 25-30.460, F.A.C.?
Recommendation:
Yes.
Staff recommends the miscellaneous service charges be revised to conform to the
recent amendment to Rule 25-30.460, F.A.C. The tariff should be revised to
reflect the removal of initial connection and normal reconnection 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. Cobblestone should be
required to charge the approved miscellaneous service charges until authorized
to change them by the Commission in a subsequent proceeding. (Bethea)
Staff Analysis:
Effective June 24, 2021, Rule 25-30.460, F.A.C., was
amended to remove initial connection and normal reconnection charges.[4] 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. Therefore, staff recommends
that the initial connection and normal reconnection charges be removed and the
definition for the premises visit charge be updated to comply with amended Rule
25-30.460, F.A.C. The Utility’s proposed and staff’s recommended miscellaneous
service charges are shown below in Tables 3-1 and 3-2.
Table
3-1
Utility Proposed Miscellaneous Service Charges
|
|
Normal
Hours
|
|
Initial Connection Charge
|
$30.00
|
|
Normal Reconnection Charge
|
$30.00
|
|
Violation Reconnection Charge
|
$30.00
|
|
Premises Visit Charge
(in lieu of disconnection)
|
$30.00
|
Table
3-2
Staff Recommended Miscellaneous Service Charges
|
|
Normal
Hours
|
|
Violation Reconnection Charge
|
$30.00
|
|
Premises Visit Charge
|
$30.00
|
Conclusion
Based on the above, the miscellaneous service charges should
be revised to conform to the recent amendment to Rule 25-30.460, F.A.C. The
tariff should be revised to reflect the removal of initial connection and
normal reconnection 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. Cobblestone should be required to charge the approved
miscellaneous service charges until authorized to change them by the Commission
in a subsequent proceeding.
Issue 4:
Should the Commission approve Cobblestone’s
application for amendment of Certificate Nos. 674-W and 575-S to delete
territory from its certificated service area in Brevard County?
Recommendation:
Yes. The Commission should approve the application
filed by Cobblestone to delete a portion of its service territory, as reflected
in Attachment A. The resultant Order should serve as Cobblestone’s amended
certificates and should be retained by the Utility. (Lewis)
Staff Analysis:
On May 5, 2022, Cobblestone
applied for an amendment to delete a portion of its certificated service
territory. In its application, Cobblestone provided a legal description of the
territory proposed to be deleted in the format prescribed in Rule 25-30.029,
F.A.C., along with a complete legal description of the remaining territory.
Cobblestone also provided a detailed system map with the territory proposed to
be deleted and retained plotted thereon.
In addition to their application,
Cobblestone filed a notice with the Commission Clerk on June 14, 2022. As
set forth in the application and notice, the area to be deleted is undeveloped
acreage with two single-family homes that are not served by the Utility. The
property is owned by the Seller of RGU, who does not object to this deletion.
No objections to the application have been received and the time for filing
such has expired. The Utility’s application is compliant with the filing
requirements set forth in Rule 25-30.036(4), F.A.C.
Conclusion
Based on the above, staff recommends that it is in the
public interest to approve the application filed by Cobblestone to amend its
water and wastewater certificates to delete territory with the resulting
territory as shown in Attachment A. The resultant Order should serve as
Cobblestone’s amended certificates and should be retained by the Utility.
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
within 90 days of the date of the final order, the buyer has notified
Commission staff in writing that it has adjusted its books in accordance with
the Commission’s Order approving the transfer. (Sandy)
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 within 90
days of the date of the final order, the buyer has notified Commission staff in
writing that it has adjusted its books in accordance with the Commission’s
Order approving the transfer.
