Discussion
of Issues
Issue 1:
Should Vantage Oaks be required to show cause why it
should not be fined for an apparent violation of Section 367.071(1), F.S., and
Rule 25-30.037(1)(a), Florida Administrative code (F.A.C.), for failing to
obtain Commission approval prior to the transfer of its assets, and failing to
submit an application to the Commission for authority to transfer no later than
90 days after the sale closing date?
Recommendation:
No. Staff recommends that the Utility's apparent
violation of Section 367.071(1), F.S.,
and Rule 25-30.037(1)(a), F.A.C., does not rise to the level which warrants the
initiation of a show cause proceeding. However, Vantage Oaks should be placed
on notice that show cause proceedings may be initiated if further violations of
Commission laws or rules regarding the transfer of certificates are identified.
(Sandy)
Staff Analysis:
On September 27, 2023, Vantage Oaks submitted an
application for authority to transfer wastewater facilities and Certificate No.
537-S in Okeechobee County from Vantage Development to Vantage Oaks. According
to the information contained in the application, the parties closed on the sale
of the Utility on June 20, 2022. Notably, Vantage Development’s contract for
sale to Vantage Oaks did not include any provisions stating that the contract
was contingent upon Commission approval.
Section 367.071(1), F.S., provides that no utility shall
transfer its certificate of authorization, facilities or any portion thereof,
or majority organizational control without determination and approval of the Commission
that the proposed transfer is in the public interest and that the buyer,
assignee, or transferee will fulfill the commitments, obligations, and
representations of the utility. However, a transfer of certificate of
authorization, facilities or any portion thereof, or majority organizational
control may occur prior to Commission approval if the contract for sale,
assignment, or transfer is made contingent upon Commission approval.
Furthermore, Rule 25-30.037(1)(a), F.A.C.,
provides that if a transfer occurs prior to Commission approval, the utility
shall submit an application for authority to transfer no later than 90 days
after the sale closing date.
Violations
of the provisions of any lawful rule or any statute administered by the
Commission may result in penalties as provided by Section 367.161, F.S. In
particular, violations of the provisions of Chapter 367, F.S., or any rule
adopted pursuant to the Chapter, may result in a penalty for each offense of
not more than $5,000. Utilities are charged with the knowledge of Commission
rules and statutes. Additionally, “it is a common maxim, familiar to all minds
that ‘ignorance of the law’ will not excuse any person, either civilly or
criminally.” Barlow v. United States,
32 U.S. 404, 411 (1833).
By failing to
make the sale contingent upon Commission approval, and by filing its transfer
application fifteen months after the sale was closed, it appears that Vantage
Oaks violated Section 367.071(1), F.S.,
and Rule 25-30.037(1)(a), F.A.C. On February 20, 2024, Vantage Oaks was mailed
a notice of apparent violation. Vantage promptly responded to the notice of
apparent violation on February 26, 2024, providing mitigating circumstances as
to why Vantage Oaks should not be fined or otherwise penalized. The Commission considers
the existence of mitigating circumstances when deciding whether to pursue show
cause proceedings against utilities.
Vantage Oaks
states that it was unaware that the system it acquired as a part of its
purchase of Vantage Oaks RV park was a Commission-regulated system. The seller
did not make Vantage Oaks aware of this during negotiations for sale nor at the
time of closing. However, since learning of its violations, Vantage Oaks has
shown diligence in working with Commission staff to ensure transfer of this
system is in conformity with Commission laws and rules.
Staff
believes that Vantage Oaks has made a good faith effort to effect a lawful transfer
of this system, and that the transfer is in the best interest of its customers.
Because the Utility has been responsive in coming into compliance with the
applicable rules and statutes regarding transfer of certificates, staff
recommends that the Utility's apparent violation of Section 367.071(1), F.S., and Rule 25-30.037(1)(a), F.A.C., does
not rise to the level which warrants the initiation of a show cause proceeding.
Therefore, Vantage Oaks should not be required to show cause for failing to
obtain Commission approval prior to closing on the sale of its facilities, and
failing to submit an application to the Commission for authority to transfer
no later than 90 days after the sale closing date. However, Vantage Oaks
should be placed on notice that show cause proceedings may be initiated if
further violations of the Commission laws or rules regarding the transfer of
certificates are identified.
Issue 2:
Should the transfer of Certificate No. 537-S in
Okeechobee County from The Vantage Development Corporation to Vantage Oaks
Utility, LLC be approved?
Recommendation:
Yes. The transfer of the wastewater system and
Certificate No. 537-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 Utility’s
existing rates and initial customer deposits, as shown on Schedule No. 2,
should remain in effect until a change is authorized by the 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. The Utility is current with respect to regulatory
assessment fees (RAFs) and annual reports, and should be responsible for filing
annual reports and paying RAFs for all future years. (Ramirez-Abundez, M.
Watts, Veaughn, Bruce)
Staff Analysis:
On September 27, 2023, Vantage Oaks filed an
application for the transfer of Certificate No. 537-S from Vantage Development
to Vantage Oaks in Okeechobee County. The application is in compliance with
Section 367.071, F.S., and Commission rules concerning applications for
transfer of certificates. The sale of the wastewater system to Vantage Oaks
took place in 2022.
Noticing, Territory, and Land Ownership
Vantage Oaks 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 Utility’s authorized service territory, which is
appended to this recommendation as Attachment A. In its application, Vantage Oaks provided a
copy of a 99-year land lease that was executed on August 31, 2023, as evidence
that Vantage Oaks has continued use of the land upon which the wastewater
treatment facilities are located, pursuant to Rule 25-30.037(2)(s), F.A.C.
Vantage Oaks stated that upon approval of the transfer, the executed lease will
be recorded in the Okeechobee County Public Records.
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, customer advances, leases, developer agreements,
or debt of the Seller that must be disposed of in regard to the transfer.
According to the purchase and sale agreement, the total purchase price for the
wastewater assets is $3,700. According to the Buyer, the closing took place
June 30, 2022.
Facility Description and Compliance
The Utility’s domestic wastewater treatment plant (WWTP)
is a 50,000 gallons per day extended aeration plant, consisting of flow
equalization, aeration, secondary clarification and chlorination, with a
polishing pond and additional filtration before land application. Vantage Oaks
provided a copy of the Utility’s current permit from the Florida Department of
Environmental Protection (DEP), pursuant to Rule 25-30.037(2)(r)1., F.A.C., and
has also completed the permit renewal process with DEP to reflect the change in
ownership.
Staff reviewed the most recent DEP compliance evaluation
inspection for the WWTP, dated January 27, 2023, which identified eight issues.
The DEP subsequently issued a warning letter on March 22, 2023, listing the
eight issues which included an outdated manual, a missing annual report
regarding the available connectivity to a regional system, and inoperable or
deteriorating equipment. The warning letter also recognized an unauthorized discharge
on December 29, 2022, due to an equipment failure. In its response to staff’s
first data request, the Utility
explained that it worked with its contract operator, US Water Services
Corporation, to correct the identified issues, and subsequently met with the DEP
to discuss these corrective actions.
Staff confirmed with the DEP that the Utility’s corrective actions identified
from its warning letter have been completed.
Technical and Financial Ability
Pursuant to Rule 25-30.037(2)(1) 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 will fulfill the commitments, obligations, and
representations of the Seller with regard to Utility matters. Vantage Oaks’
application states that it has no prior experience operating a regulated water
or wastewater utility in Florida; however, the Buyer and its affiliates have
operated water and wastewater systems throughout the United States. Vantage
Oaks committed to employing the appropriate operational, technical, and
managerial personnel and contractors with knowledge and experience in utility
operation, who will ensure the continuous efficient and effective operation and
management of the wastewater system. At this time, Vantage Oaks utilizes US
Water Services Corporation for the contract operations and maintenance of its
wastewater system.
The Utility stated that the purchasing entity was created for the purpose
of owning and operating the Utility after the transfer, and as such no
financial statements exist for Vantage Oaks Utility, LLC. In the Utility’s
application, the parent company of Vantage Oaks, Parakeet Holding Company,
provided financial statements, as well as an affidavit stating its ability and
intent to meet all reasonable capital needs arising from the operation of the
Utility. Staff has reviewed the parent company’s financial statements. 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
Vantage Oaks’ rates and initial customer deposits were
last approved in a 2007 staff-assisted rate case.
The Utility’s miscellaneous service charges were approved in 2005 in a
grandfather certificate docket.
The Utility’s rates were subsequently amended by one price index increase rate
adjustment in 2009 and a rate reduction to remove expired rate case expense amortization
in 2012. 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. However, the Utility’s miscellaneous service charges do not conform
to Rule 25-30.460, F.A.C., and are discussed in Issue 5. Staff recommends that
the Utility's existing rates and initial customer deposits for wastewater shown
on Schedule No. 2 remain in effect, until a change is authorized by the
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 Reports
Staff has verified the Utility is current on its filing of
annual reports and RAFs through December 31, 2023. The Buyer will be
responsible for the Utility’s annual reports and paying RAFs for 2024 and all
future years.
Conclusion
Based on the foregoing, staff recommends that the transfer
of the wastewater system and Certificate No. 537-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 Utility’s existing rates and initial customer deposits, as
shown on Schedule No. 2, should remain in effect until a change is authorized
by the 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. The Utility is current,
with respect to RAFs and annual reports, and should be responsible for filing
annual reports and paying RAFs for all future years.
Issue 3:
What is the appropriate net book value for Vantage Oaks
Utility, LLC’s wastewater system for transfer purposes?
Recommendation:
The net book value of the wastewater
system for transfer purposes is $57,409 as of June 30, 2022. Within 90 days of
the date of the consummating order, Vantage Oaks 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
2024 Annual Report when filed. (Veaughn)
Staff Analysis:
Rate base was last established for the
Utility as of December 31, 2006. 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
June 30, 2022. Staff’s recommended NBV, as described below, is shown on
Schedule No. 1
Utility Plant in Service (UPIS)
The Utility’s general ledger reflected
a UPIS balance of $336,868, as of June 30, 2022. Audit staff reviewed UPIS
additions and retirements since the last rate case proceeding, and found that
the Utility had excluded several plant additions and retirements. Additionally,
the Utility used incorrect accounts in its calculation of UPIS. Consequently,
audit staff determined that UPIS was understated by $1,264. As such, staff
recommends a UPIS balance of $338,132 as of June 30, 2022.
Land
The Utility’s general ledger reflected
a land balance of $10,350, as of June 30, 2022. Audit staff reviewed the
Utility’s general ledger and made no adjustments. As such, staff recommends a
land balance of $10,350, as of June 30, 2022.
Accumulated Depreciation
The Utility’s general ledger reflected
an accumulated depreciation balance of $333,201, as of June 30, 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 $42,128. As
a result, accumulated depreciation should be decreased by $42,128. As such,
staff recommends an accumulated depreciation balance of $291,073, as of June
30, 2022.
Contributions-in-Aid-of-Construction (CIAC) and
Accumulated Amortization of
CIAC
As of June 30, 2022, the Utility's
general ledger reflected a CIAC balance of $135,538, and an accumulated
amortization of CIAC balance of $135,538. Audit staff reviewed the Utility’s
CIAC and Accumulated Amortization of CIAC balances and made no adjustments.
Therefore, staff recommends a CIAC balance of $135,538, and an accumulated
amortization of CIAC balance of $135,538, as of June 30, 2022.
Net Book Value
The Utility’s general ledger reflected
a NBV of $14,017, as of June 30, 2022. Based on the adjustments above, staff
recommends a NBV for the Utility of $57,409, as of June 30, 2022. Staff’s recommended
NBV and the National Association of Regulatory Utility Commissioners Uniform System
of Accounts balances for UPIS and accumulated depreciation are shown on Schedule
No. 1, as of June 30, 2022.
Conclusion
Based on the above, staff recommends
that the NBV of the Utility’s wastewater system for transfer purposes is
$57,409, as of June 30, 2022. Within 90 days of the date of the consummating
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 2024 Annual Report when filed.
Issue 4:
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 $42,227 should be recognized for
ratemaking purposes. Beginning with the date of the issuance of the Final 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 about four years, in accordance with Rule
25-30.0371(4)(b)2., F.A.C. (Veaughn)
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)2.,
F.A.C., if the purchase price is less than 50 percent of NBV, 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 4-1. Staff
estimates the remaining life of the assets to be about four years.
Table 4-1
Calculation of Negative
Acquisition Adjustment
|
Net book value as of June 30, 2022
|
$57,409
|
|
80 percent of net book value
|
$45,927
|
|
Purchase price
|
$3,700
|
|
Negative acquisition adjustment
|
$42,227
|
Therefore, pursuant to Rule
25-30.0371(3), F.A.C., staff recommends a negative acquisition adjustment of
$42,227 be recognized for ratemaking purposes. Beginning with the date of
issuance of the Final 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 four years, in
accordance with Rule 25-30.0371(4)(b)2., F.A.C.
Issue 5:
Should Vantage Oaks Utility, LLC’s miscellaneous
service charges be revised to conform to 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 Utility should be required to file a proposed
customer notice to reflect the Commission-approved charges. The approved charges
should be effective for service rendered or connections made 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. 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:
The Utility did not request
to revise its miscellaneous charges; however, the charges do not conform to
Rule 25-30.460, F.A.C. The Utility’s current miscellaneous service charges
consist of several miscellaneous service charges as shown below in Table 5-1.
Table 5-1
Utility’s Existing
Miscellaneous Service Charges
|
|
Business Hours
|
|
Initial Connection Charge
|
$15.00
|
|
Normal Reconnection Charge
|
$15.00
|
|
Violation Reconnection Charge -
Wastewater
|
Actual Cost
|
|
Premises Visit Charge
(in lieu of disconnection)
|
$10.00
|
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. Since the premises visit entails a broader range
of tasks, staff recommends the premises visit charge should reflect the amount
of the normal reconnection charge of $15. 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 5-2.
Table 5-2
Staff’s Recommended Miscellaneous
Service Charges
|
|
Business Hours
|
|
Violation Reconnection Charge -
Wastewater
|
Actual Cost
|
|
Premises Visit Charge
|
$15.00
|
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. The Utility should be required to
file a proposed customer notice to reflect the Commission-approved charges. The
approved charges should be effective for service rendered or connections made 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. 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 6:
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, that proof has been provided that
appropriate noticing has been done pursuant to Rule 25-30.475, F.A.C., and that
within 90 days of the date of the Consummating 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 the revised
tariff sheets have been filed, that proof has been provided that appropriate
noticing has been done pursuant to Rule 25-30.475, F.A.C, and that within 90
days of the date of the Consummating 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.
