Discussion
of Issues
Issue 1:
Should the transfer of Certificate Nos. 589-W and
507-S from Grenelefe Resort Utility, Inc. to NC Real Estate Projects, LLC d/b/a
Grenelefe Utility, in Polk County be approved?
Recommendation:
Yes. The transfer of the water and wastewater
systems and Certificate Nos. 589-W and 507-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 Seller is current, with respect to annual reports and regulatory
assessment fees (RAFs) through December 31, 2023. The Buyer should be
responsible for filing annual reports and paying RAFs for all future years.
(Wooten, Sewards, Bruce)
Staff Analysis:
On October 10, 2023, Grenelefe Resort Utility, Inc. and NC Real Estate Projects, LLC d/b/a
Grenelefe Utility filed a joint application for the transfer of Certificate Nos.
589-W and 507-S from Grenelefe Resort Utility, Inc. to NC Real Estate Projects,
LLC d/b/a Grenelefe Utility. Staff reviewed the application and determined that
it is in compliance with Section 367.071, F.S., and Commission Rules concerning
applications for transfer of certificates.
Noticing, Territory, and Land Ownership
NC Real Estate
Projects provided notice of the application, pursuant to Section 367.071, F.S.,
and Rule 25-30.030, Florida Administrative Code (F.A.C.). No formal 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. In its application, NC Real Estate Projects provided a copy of a special warranty deed
as evidence that the Buyer has the 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)(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 guaranteed revenue contracts, or customer
advances of Grenelefe Resort Utility, Inc.
that must be disposed of with regard to the transfer. NC Real Estate
Projects has reviewed all leases and developer agreements and assumed those
agreements. Staff has reviewed the purchase and sale agreement, which stated
that the total purchase price for the assets is $2,500,000. Furthermore,
staff’s review of the purchase and sale agreement confirmed that the closing took
place on May 31, 2022, but is dependent on Commission approval of the transfer,
pursuant to Section 367.071(1), F.S.
Facility Description and Compliance
The water system includes a water treatment plant and two wells. The
water is chlorinated for disinfection, and polyphosphate is added for lead and
copper corrosion control. The two wells have capacities of 1,500 gallons per
minute each. The water distribution system extends throughout the service area.
NC Real Estate Projects provided a copy of the Utility’s current
consumptive use permit from the SJRWMD.
The wastewater treatment plant (WWTP) is an extended
aeration activated sludge plant with a design capacity of 680,000 gallons per
day (gpd). The plant is permitted by the Florida Department of Environmental
Protection (DEP) to operate at 340,000 gpd, based on the three-month rolling
average daily flow. The treatment plant consists of: ten aeration basins, four
clarifiers, seven deep bed automatic backwash filters, three pre-filter
chlorine contact chambers, one post chlorine contact chamber, one effluent pump
wetwell, and three digesters. Additionally, there are three lift stations in
the service territory.
In its March 15, 2023 inspection report to the Utility,
DEP stated that based on the information provided during and following the
inspection, the facility was determined to be in compliance with its rules and
regulations. Staff reviewed the most recent DEP sanitary survey, issued on May
10, 2023, which identified six issues that were corrected. Staff also reviewed
the results from the DEP October 4, 2023 water quality tests, including the
secondary water quality test. All results were below the DEP’s maximum
contaminant levels for each primary or secondary contaminant.
Staff reviewed the most recent DEP
compliance evaluation inspections (CEI) for the WWTP. The December 6, 2022 CEI
identified the following issues: only three of the four monitoring wells could
be located, the facility lacked procedures for minimizing spills, and the
facilities’ three lift stations lacked functioning alarms. All deficiencies
were corrected, and the WWTP is currently in compliance with the DEP.
Technical and Financial Ability
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. As referenced in the transfer
application, the Buyer will fulfill the commitments, obligations, and
representations of the Seller, with regards to utility matters. The Utility
stated that NC Real Estate Projects was created for the purpose of owning and
operating the Utility after the transfer, and as such no financial statements
exist. In the Utility’s amended application, the owner of NC Real Estate
Projects, Mr. Fredrick Scott House, provided personal financial statements, as
well as an affidavit stating his ability and intent to meet all reasonable
capital needs arising from the operation of the Utility. Staff has reviewed Mr.
House’s personal financial statements, and believes the Buyer has documented
adequate resources to support the Utility’s water and wastewater operations.
Pursuant to Rule 25-30.037(2)(m), F.A.C., the application
contains statements describing the technical ability of the Buyer to provide
service to the proposed service area. NC Real Estate Projects’ application
states that while it does not own any other water or wastewater systems in
Florida, the Buyer’s sister company has acquired the housing development served
by the Utility, which incentivizes the Buyer to continue the proper maintenance
and operation of the Utility. Furthermore, the Buyer plans to use the same
operations personnel employed by the Seller to provide routine operation and
maintenance of the systems, as well as to handle billing and customer service.
As the operations personnel have experience with the Utility’s facilities, it
is reasonable for the Buyer to retain those employees. Based on the above, the
Buyer has demonstrated the technical and financial ability to provide service
to the existing service territory.
Rates, Charges, and Initial Customer Deposits
The Utility’s rates, charges, and
initial customer deposits were last approved in a 2012 staff-assisted rate
case.[5] The
Utility’s service availability charges were approved in 1996 in a grandfather
certificate. The
Utility’s rates were subsequently amended by three price index rate
adjustments. 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 existing miscellaneous service
charges, the late payment charge and non-sufficient funds charges are
appropriate. However, the remaining Utility’s miscellaneous service charges do
not conform to Rule 25-30.460, F.A.C., and are discussed in Issue 3.
NC Real Estate Projects requested
to increase its meter installation charges for the 5/8 inch x 3/4 inch meter
size, which is discussed in Issue 4. The meter installation charge for meter
sizes larger than the 5/8 inch x 3/4 inch would remain the same. Therefore,
staff recommends that the Utility's existing rates and initial customer
deposits for water and wastewater, as shown on Schedule Nos. 1-A and 1-B,
remain in effect until a change is authorized 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 sheets, pursuant
to Rule 25-30.475(1), F.A.C.
Regulatory Assessment Fees and Annual Report
Staff has verified the Utility is current on the filing of
annual reports and RAFs through December 31, 2023. The Buyer will be responsible
for filing the annual reports and paying RAFs for 2024 and all future years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the water and wastewater systems and Certificate Nos. 589-W and 507-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 Seller is current, with respect to
annual reports and regulatory assessment fees (RAFs), through December 31, 2023.
The Buyer should be responsible for filing annual reports and paying RAFs for
all future years.
Issue
2:
What
is the appropriate net book value for NC Real Estate Projects, LLC d/b/a
Grenelefe Utility water and wastewater systems for transfer purposes?
Recommendation:
The net book values (NBV) of the water and
wastewater systems for transfer purposes are $65,267 and $59,677, respectively,
as of May 31, 2022. An acquisition adjustment should not be included in rate
base. Within 90 days of the date of the final order, Grenelefe should be
required to notify the Commission in writing that is has adjusted its books in
accordance with the Commission decision and the adjustment should be reflected
in the Utility’s 2024 Annual Report when filed. (Veaughn)
Staff Analysis:
Rate base was last established for the Utility as of
March 31, 2011. 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 May 31, 2022. Staff’s
recommended NBV, as described below, is shown on Schedule No 2.
Utility Plant in Service (UPIS)
The Utility’s general ledger reflected water and
wastewater UPIS balances of $3,141,633 and $3,312,204, respectively, as of May
31, 2022. Audit staff reviewed UPIS additions since the last rate case
proceeding and found that the Utility was unable to provide invoices for any
additions prior to 2016. Additionally, the Utility was unable to provide
several invoices from 2016 to May 31, 2022. Consequently, audit staff
determined that UPIS was overstated by $76,800 for water and $252,709 for
wastewater, as of May 31, 2022. As such, staff recommends a UPIS balance of
$3,064,833 for water and $3,059,495 for wastewater, as of May 31, 2022.
Land
The Utility’s general ledger reflected a land balance of
$7,000 for water, and $49,400 for wastewater, as of May 31, 2022. In Order No. PSC-12-0433-PAA-WS, the Commission established the
value of the land to be $3,000 for water and $49,400 for wastewater.
There have been no additions to land purchased since the Order was issued. As a
result, land for water should be reduced by $4,000. Therefore, staff recommends
land balances of $3,000 for water and $49,400 for wastewater as of May 31,
2022.
Accumulated Depreciation
The Utility’s general ledger reflected water and
wastewater accumulated depreciation balances of $2,733,497 and $3,024,931,
respectively, as of May 31, 2022. Audit staff recalculated accumulated
depreciation using the audited UPIS plant balances and the depreciation rates
established by Rule 25-30,140(2), F.A.C. Audit staff determined accumulated
depreciation to be overstated by $62,890 and $286,980 for water and wastewater,
respectively. The difference is the result of adjustments made to UPIS
explained above. As a result, accumulated depreciation should be decreased by
$62,890 for water and $286,980 for wastewater, as of May 31, 2022. As such,
staff recommends the appropriate accumulated depreciation balance is $2,670,608
for water and $2,737,951 for wastewater.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of
CIAC
As of May 31, 2022, the Utility's general ledger reflected
water and wastewater CIAC balances of $2,302,685 and $1,051,361, respectively,
and accumulated amortization of CIAC balances of $2,063,146 and $808,785,
respectively. Audit staff decreased water and wastewater accumulated
amortization of CIAC by $92,419 and $68,691, respectively, to reflect
Commission-ordered adjustments prescribed in Order No. PSC-2012-0433-PAA-WS.
Staff also notes that adjustments were made due to differences in the composite
rate used by the Utility and staff. Staff’s composite rate was based on the
adjusted UPIS balances, as discussed above. Therefore, staff recommends CIAC
balances of $2,302,685 for water and $1,051,361 for wastewater and accumulated
amortization of CIAC balances of $1,970,727 for water and $740,094 for
wastewater as of May 31, 2022.
Net Book Value
The Utility’s general ledger reflected a NBV of $175,597
for water and $94,097 for wastewater. Based on the adjustments above, staff
recommends that the NBV for the Utility’s water and wastewater systems are
$65,267 and $59,677, respectively, as of May 31, 2022. Staff’s recommended NBV
and the National Association of Regulatory Utility Commissioners, Uniform System
of Accounts (NARUC USOA) balance for UPIS and accumulated depreciation as of
May 31, 2022 are shown on Schedule No. 2.
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 $2.5 million. As shown on Schedule No. 2,
staff has determined the appropriate NBV total to be $124,944 ($65,267 +
$59,677). 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, and there are no extraordinary circumstances. As such,
staff recommends that no acquisition adjustment be included.
Conclusion
Based on the above, staff recommends that the NBVs of NC
Real Estate Projects, LLC d/b/a Grenelefe Utility’s water and wastewater
systems for transfer purposes are $65,267 and $59,677, respectively, as of May
31, 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 NC Real Estate
Projects, LLC d/b/a Grenelefe Utility’s 2024 Annual Report when filed.
Issue 3:
Should NC Real Estate Projects, LLC d/b/a Grenelefe
Utility’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 should be revised to conform 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 Buyer 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 Buyer should provide proof of
the date notice was given, no less than 10 days after the date of the notice.
The utility should be required to charge the approved miscellaneous services
charges until authorized to change them by the Commission in a subsequent
proceeding. (Bruce)
Staff Analysis:
NC Real Estate Projects did
not request to revise the miscellaneous charges; however, the charges do not
conform to Rule 25-30.460, F.A.C. The Utility’s current miscellaneous service
charges are shown below in Table 3-1.
Table 3-1
Utility’s Existing
Miscellaneous Service Charges
|
|
Normal Hours
|
After Hours
|
|
Initial Connection Charge
|
$21.00
|
$42.00
|
|
Normal Reconnection Charge
|
$21.00
|
$42.00
|
|
Violation Reconnection Charge -
Water
|
$21.00
|
$42.00
|
|
Violation Reconnection Charge -
Wastewater
|
Actual Cost
|
Actual Cost
|
|
Premises Visit Charge
|
$21.00
|
$42.00
|
The rule does not allow for
initial connection and normal reconnection charges. These charges are the same
as the premises visit charge. Therefore, the current initial connection and
normal reconnection charges are obsolete and inconsistent with the rule and
should be removed. Staff also recommends that the definition for
the premises visit charge be updated to comply with Rule 25-30.460, F.A.C.
Staff’s recommended miscellaneous service charges are shown below in Table 3-2.
Table 3-2
Staff’s Recommended Miscellaneous
Service Charges
|
|
Normal Hours
|
After Hours
|
|
Violation Reconnection Charge -
Water
|
$21.00
|
$42.00
|
|
Violation Reconnection Charge -
Wastewater
|
Actual Cost
|
Actual Cost
|
|
Premises Visit Charge
|
$21.00
|
$42.00
|
Conclusion
Based on the above, the miscellaneous service charges
should be revised to conform to Rule 25-30.460, F.A.C. The tariff should be
revised to reflect the removal of initial connection and normal reconnection
charges. NC Real Estate Projects 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. NC Real Estate Projects should
provide proof of the date notice was given, no less than 10 days after the date
of the notice. The Utility should be required to charge the approved
miscellaneous services charges until authorized to change them by the
Commission in a subsequent proceeding.
Issue 4:
Should the Commission approve a new meter
installation fee for NC Real Estate Projects, LLC d/b/a Grenelefe Utility?
Recommendation:
Yes. NC Real Estate Projects’ requested meter
installation charge of $600 for the 5/8 inch x 3/4 inch meter size should be
approved. The Buyer should file a tariff sheet and a proposed customer notice.
The Buyer should provide notice to potential customers who have requested
service within 12 calendar months prior to the month the application was filed,
and up until this Order becomes final. The approved charge should be effective
for connections made on or after the stamped approval date on the tariff sheet.
The Utility should provide proof of the date notice was given within 10 days of
the date of notice. (Bruce)
Staff Analysis:
Currently, the Utility has
a meter installation charge of $65 for the 5/8 inch x 3/4 inch meter size and
actual cost for all other meter sizes. The Buyer requested a meter installation
charge of $600 for the 5/8 inch x 3/4 inch meter size. The charge for all other
meter sizes would remain at actual cost. The Buyer’s requested meter
installation charge includes the cost of materials and labor ($334) and the
cost of the meter ($265). The Utility indicated that the new owners are
attempting to modernize and update the acquired system, which includes a
complete change out of meters to radio read meters on a going forward basis.
Staff has reviewed the NC Real Estate Projects’ cost justification and its reasons,
and staff recommends that the NC Real Estate Projects proposed meter
installation charge of $600 for the 5/8 inch x 3/4 inch is reasonable and
should be approved.
Conclusion
Based on the above, NC Real
Estate Projects’ requested meter installation charge of $600 for the 5/8 inch x
3/4 inch meter size should be approved. NC Real Estate Projects should file a
tariff sheet and a proposed customer notice. NC Real Estate Projects should
provide notice to potential customers who have requested service within 12
calendar months prior to the month the application was filed, and up until this
Order becomes final. The approved charge should be effective for connections
made on or after the stamped approval date on the tariff sheet. NC Real Estate
Projects should provide proof of the date notice was given within 10 days of
the date of 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, that the Buyer has submitted the executed and recorded warranty deed,
that the Buyer has provided the customers with the required notice, and that
the Buyer has submitted copies of its applications for permit transfers to the
DEP and the SJRWMD, within 60 days of the Commission's Order approving the
transfer. (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,
that the Buyer has submitted the executed and recorded warranty deed, that the
Buyer has provided the customers with the required notice, and that the Buyer
has submitted copies of its applications for permit transfers to the DEP and
the SJRWMD, within 60 days of the Commission's Order approving the transfer.
GRENELEFE RESORT
UTILITY INC.
WATER AND WASTEWATER
SERVICE AREA
DESCRIPTION OF
TERRITORY SERVED
That following areas in Range 28 East, Township 28 South,
Sections 5, 6, 7 and 8, Polk County, Florida:
The South ˝ of Section 6;
The North ˝ of Section 7; and
In Sections 7 and 8 described as follows: The Point of
Beginning (POB) identified as the SE corner of the NW Ľ of Section 7; from the
POB run N 89°42’32” E a distance of 2,599.05 feet; to the NW corner of Section
8; thence N 89°50’22” E, a distance of 1,320.00 feet; thence South a distance
of 1,317.85 feet more or less; thence S 03°59’01” E a distance of 827.42 feet;
thence N 89°54’04” W a distance of 1,378.88 feet; to the East line of Section
7; thence S 89°26’13” W a distance of 2,574.02 feet; thence N 00°37’09” W a
distance of 2,152.99 feet; to the POB; and
In Section 5 described as follows: Begin at the SW corner of
Section 5, Range 28 E, Township 28 S; run N 00°13’39” E a distance of 2,641.87
feet to the POB; from the POB run N 00°05’32” W a distance of 660.00 feet;
thence N 89°49’05” E a distance of 1,600 feet more or less; thence Southerly
along the water’s edge of Lake Marion a distance of 688 feet more or less;
thence S 89°50’03” W a distance of 1,407 feet more or less to the POB; and
In Section 5 described as follows: From the SW corner of
Section 5, Range 28 E, Township 28 S also the POB; run N 00°13’39” E a distance
of 2,641.87 feet; thence N 89°49’05” W a distance of 971.87 feet; thence S
00°43’25” E a distance of 2,642.27 feet; thence S 89°50’03” W a distance of
994.74 feet to the POB; and
In Section 8 described as follows: From the NW corner of
Section 8, Range 28 E, Township 28 S also the POB; run N 89°50’03” E a distance
of 994.74 feet; thence S 00°02’32” W a distance of 2,634.51 feet; thence S
89°50’22” W a distance of 1,000.27 feet; thence N 00°09’45” E a distance of
2,634.45 feet to the POB.
FLORIDA PUBLIC SERVICE COMMISSION
Authorizes
NC Real Estate Projects, LLC d/b/a Grenelefe Utility
pursuant to
Certificate Number 589-W
to provide water service in Polk
County in accordance with the provisions of Chapter 367, Florida Statutes, and
the Rules, Regulations, and Orders of this Commission in the territory
described by the Orders of this Commission. This authorization shall remain in
force and effect until superseded, suspended, cancelled or revoked by Order of
this Commission.
Order Number Date
Issued Docket Number Filing Type
PSC-97-1546-FOF-WS 12/09/1997 961006-WS Grandfather
Certificate
PSC-05-0142-PAA-WS 02/07/2005 030123-WS Transfer
of Majority
Organizational
Control
* * 20220142-WS Transfer of Certificate
*Order Number and
date to be provided at time of issuance.
FLORIDA PUBLIC SERVICE COMMISSION
Authorizes
NC Real Estate Projects, LLC d/b/a Grenelefe Utility
pursuant to
Certificate Number 507-S
to provide wastewater service in Polk
County in accordance with the provisions of Chapter 367, Florida Statutes, and
the Rules, Regulations, and Orders of this Commission in the territory
described by the Orders of this Commission. This authorization shall remain in
force and effect until superseded, suspended, cancelled or revoked by Order of
this Commission.
Order Number Date
Issued Docket Number Filing Type
PSC-97-1546-FOF-WS 12/09/1997 961006-WS Grandfather
Certificate
PSC-05-0142-PAA-WS 02/07/2005 030123-WS Transfer
of Majority
Organizational
Control
* * 20220142-WS Transfer of Certificate
*Order Number and
date to be provided at time of issuance.
