Discussion
of Issues
Issue 1:
Does Aquarina meet the definition of a non-viable
utility as defined in Rule 25-30.0371(1)(e), F.A.C.?
Recommendation:
No. Aquarina does not meet the definition of a
non-viable utility. If the Commission finds that the Utility is not non-viable,
Issues 2 through 5 should be considered moot. (Bloom, J. Crawford, P. Buys)
Staff Analysis:
Rule 25-30.0371(1)(e), F.A.C.,
provides the definition of a non-viable utility for the purposes of an
acquisition adjustment. Under the rule, a utility is considered non-viable if
it falls within either of two specified categories.
First, a utility is considered non-viable when it is
“unable to provide and maintain safe, adequate, and reliable service and
facilities to its customers over the 5-year period following the date of
acquisition.”[5] The rule
further sets forth the criteria used to determine whether a utility has failed
to maintain safe, adequate, and reliable services and facilities. These
criteria are as follows:
a.
Failure to comply with or history of enforcement or
compliance actions by federal, state, or local regulatory agencies based on
violations of primary or exceedance of secondary water quality standards or other
health, safety, and environmental standards; and
b.
Insufficient investment, repair, maintenance of assets
or an inability to acquire and maintain adequate
managerial, operational, financial, or technical capabilities to ensure
safe and reliable service to its customers.[6]
Second, a utility is considered non-viable if it is
insolvent, meaning the utility cannot pay its debts.[7]
It is important to note that a utility qualifies as non-viable if it falls
within either of the two categories described in the rule.
If the Commission finds that a utility does not meet the
definition of non-viable, Issues 2 through 5 should be considered moot. In
addition, finding a utility not non-viable does not automatically entitle a
utility to a positive acquisition adjustment for viable utilities as set out
under Rule 25-30.0371(4), F.A.C. The utility would need to meet certain
different criteria set out in the subsection of the rule. For example, the rule
requires an applicant to provide a cumulative present value of the revenue
requirements (CPVRR) analysis for a viable utility. CSWR-Florida did not include a CPVRR for
Aquarina in its petition.
Maintenance of Safe, Adequate, and Reliable
Services
The existence of regulatory violations or enforcement
actions does not, standing alone, establish that a utility is non-viable. Under
Rule 25-30.0371(1)(e)1., F.A.C., those matters are criteria for determining
whether the utility was unable to provide and maintain safe, adequate, and
reliable service and facilities. Accordingly, staff believes the relevant
inquiry is not simply whether Aquarina experienced compliance deficiencies, but
whether the nature, frequency, duration, and severity of those deficiencies,
considered together with the condition of the system and the Utility's
managerial, operational, financial, and technical capabilities, demonstrate an
inability to provide and maintain safe, adequate, and reliable service.
Pursuant to Rule 25-30.0371(3)(b)8., F.A.C., CSWR-Florida
submitted any notices of violation, consent decrees or other regulatory actions
issued by a federal, state, regional, or local agency regarding the provision
of Aquarina’s water and wastewater service for the five years prior to the date
of acquisition. Staff reviewed this information along with Florida Department
of Environmental Protection (DEP) records and prior Commission Orders.
On December 29, 2016, in Aquarina’s last staff-assisted
rate case, prior to its acquisition by CSWR-Florida, the Commission determined
that Aquarina’s quality of service was marginal based on the following issues:
fire flow (including no or low water pressure for fire suppression, and
irrigation use disrupting water availability for fire suppression); water
leaks; untimely repairs; debris in the line after repair; failure to issue boil
water notices; failure to follow appropriate safety procedures after repairs;
missing utility equipment; operation of the plant by a non-licensed operator;
appropriate cost allocation of salaries, equipment, and machinery among owners’
entities; communications with customers; and maintenance of complaint logs.[9] The
Commission further ordered a management audit to be completed, which identified
deficiencies in management oversight, customer communications, maintenance
planning, recordkeeping, and regulatory compliance processes and recommended
the Utility to implement more formalized management practices to mitigate these
issues.[10]
From 2017 through 2022, prior to CSWR-Florida’s
acquisition of Aquarina on May 16, 2022, the system was subject to several
compliance-related issues with the DEP. For the water system, these issues
included deficiencies in the system’s cross-connection control plan, a missing
power-failure alarm, missed monthly bacteriological sampling, and failure to
monitor for lead and copper. For the wastewater system, these issues included
failure to annually verify chlorine monitoring equipment, use of expired pH
calibration solution, transcription errors in Discharge Monitoring Reports,
overdue flow meter calibration, and failure to timely report a Total Suspended
Solids exceedance. A more detailed description is provided in Attachment A to
this recommendation.[11]
Based on the above, the primary compliance issues
affecting Aquarina were aging infrastructure and deferred maintenance.
Following CSWR-Florida’s acquisition, between July 2022 and November 2025,
Aquarina’s water system experienced compliance issues with the DEP related to
late sampling reporting, failure to monitor for lead and copper, secondary odor
threshold exceedances, and multiple max day capacity exceedances. In March 2025,
Aquarina’s wastewater system was issued a warning letter for effluent
exceedances. In May 2025, a DEP short form Consent Order was executed for both
Aquarina’s water and wastewater systems due to the following: (1) failure to
distribute public education following a lead action level exceedance in
September 2024; (2) failure to collect two sets of water quality parameter
samples and timely submit them to the DEP; and (3) failure to meet permit
limits for Total Nitrogen at the wastewater facility.[12]
Each of these issues has been resolved, and Aquarina’s water and wastewater
systems are now in compliance with the DEP.[13]
Aquarina has experienced compliance issues both before and
after the acquisition. However, staff recommends that these violations do not
demonstrate a level of regulatory non-compliance that would, by themselves,
establish that the Utility is incapable of providing safe and reliable service
or that it lacks the ability to achieve and maintain compliance. In fact, the
Utility had no compliance issues for several years and the identified
violations above primarily involve reporting deficiencies, monitoring and
sampling requirements, permit exceedances, and operational issues that were
addressed through corrective actions. While these matters are important, they
are the types of compliance issues that utilities periodically encounter and
resolve through appropriate management attention, infrastructure improvements,
and operational adjustments.
While the Utility has experienced regulatory compliance
issues both before and after the acquisition, the record demonstrates that
these issues have been addressed through corrective actions and do not rise to
the level of persistent or systemic deficiencies that would render the Utility
unable to provide safe, adequate, and reliable service. Further, the Utility
has demonstrated the managerial, technical, operational, and financial
capability to identify deficiencies, correct them, and return the system back
to compliance.
Insolvency
While Aquarina has reported having a negative net income
in prior years, there is no evidence that the utility has been insolvent.
Specifically, no evidence indicates that Aquarina has been unable to meet its
debt obligations or otherwise satisfy its financial liabilities as they become
due. Accordingly, staff does not believe that Aquarina meets the non-viability
criterion based on insolvency.
Conclusion
Based on the record, staff recommends that the Commission
find that Aquarina does not meet the definition of a non-viable utility under
Rule 25-30.0371(1)(e), F.A.C. Although Aquarina has experienced regulatory,
operational, and infrastructure deficiencies, the record does not demonstrate
that those deficiencies left the utility unable to provide and maintain safe,
adequate, and reliable service and facilities within the meaning of the rule.
The identified compliance matters were capable of correction, corrective
actions were taken, and Aquarina’s water and wastewater systems are currently
in compliance with DEP requirements. The record also does not demonstrate that
Aquarina lacks the managerial, operational, financial, or technical
capabilities necessary to maintain safe and reliable service. Finally, there is
no evidence that Aquarina was insolvent or unable to satisfy its debts.
Accordingly, Aquarina does not qualify as a non-viable utility under either
prong of Rule 25-30.0371(1)(e)1., F.A.C. Staff's recommendation does not depend
on a finding that Aquarina's historical performance was free from deficiencies.
Rather, staff believes that the evidence, considered as a whole, does not
establish the degree of operational and managerial insufficiency and regulatory
non-compliance contemplated by the rule’s definition of a non-viable utility.
If the Commission agrees with staff’s recommendation on
this issue, Issues 2 through 5 are moot because CSWR-Florida’s request in this
proceeding is premised on Aquarina’s qualification as a non-viable utility.
Staff has nevertheless included those issues for the Commission's consideration
in the event the Commission determines that Aquarina satisfies the rule's
definition.
Issue 2:
Was the purchase of Aquarina made as part of an
arms-length transaction?
Recommendation:
If
the Commission approves staff’s recommendation in Issue 1, this Issue is moot.
If the Commission disagrees with staff’s recommendation in Issue 1 and
determines Aquarina is a non-viable utility, staff recommends the Purchase and Sale Agreement between
CSWR-Florida and Aquarina appears
to be an arms-length transaction because it involved two independent unrelated
corporate entities with no shared ownership or affiliation. However, staff
believes the Commission has discretion to find otherwise if the available information,
or lack thereof, demonstrates there were external factors that affected the
purchase price paid by CSWR-Florida to the detriment of its customers. (D’Sa, D. Buys)
Staff Analysis:
Rule 25-30.0371(3)(a), F.A.C., indicates, amongst
other criteria, that the Commission may allow a positive acquisition adjustment
if the acquisition is part of an “arms-length transaction.” While the rule does
not specifically define an arms-length transaction, staff believes in simple
terms it can be defined as a transaction where the buyer and seller act
independently and have no pre-existing relationship, with each party acting in
their own self-interest to reach a mutually agreed upon price. Typically, for a
transaction to be considered arms length, buyers and sellers act independently
to attain the most beneficial outcome for themselves; buyers negotiate to pay
the lowest possible price, while sellers attempt to achieve the highest
possible price.
In its petition, CSWR-Florida asserts that the acquisition
of the Aquarina water and wastewater system satisfies the requirements of an
arms-length transaction. The Utility states that the purchase price and terms
of sale were determined through negotiations between representatives of CSWR-Florida
and Aquarina. CSWR-Florida further claims that there was no prior relationship
or influence between it and the seller. The parties entered into a Purchase and
Sale Agreement, dated January 18, 2021, which includes a purchase price of
$2,500,000 for all assets used by the seller to provide water and wastewater
service to customers in Brevard County. The transaction closed in May 2022.
Upon review of the filing, staff believes that the Utility
has filed the required documentation under Rule 25-30.0371(3)(a), F.A.C.,
including the contract of sale and a calculation of the NBV of the acquired
utility. As indicated above, the transaction involves two distinct corporate
entities - CSWR-Florida and Aquarina - with no documented shared board members
or parent company. Therefore, staff believes the acquisition could be
considered an arms-length transaction as required by Rule 25-30.0371(3)(a),
F.A.C.
However, staff believes this is not a “check the box”
rule. The Commission has discretion to weigh the evidence on the arms-length transaction
requirement. It also has the discretion to infuse its policy on this matter
since it is not clear from the record whether CSWR-Florida acted fairly to the
customers by paying a price that appears to be higher than necessary in lieu of
performing more due diligence to evaluate an actual fair market value. In this
case, the Utility obtained an Asset Valuation Report dated December 24, 2021,
that estimated the original installation cost of the water system and
wastewater system assets at $3,034,683 and $1,069,743, respectively. The report
also estimated a hypothetical installation cost in 2021 of $8,057,837 for the
water system, and $3,468,100 for the wastewater system. The estimated
depreciated book value in the report for both water and wastewater system
assets was $1,289,765.
CSWR-Florida also obtained an engineering evaluation conducted by Woodard &
Curran, dated July 2021, to assess the condition of the wastewater treatment
plant and recommendations for repair or improvements.
In response to Staff’s First Data Request, No. 1,
CSWR-Florida explained it evaluates potential utility acquisitions by
conducting site visits to assess the system’s condition, in addition to
reviewing Commission annual reports and other publicly available information from
health and environmental regulators. Purchase prices are negotiated at arm’s
length, with CSWR-Florida seeking the lowest price acceptable to the seller.
CSWR-Florida stated that utility owners generally have financial incentives to
retain their systems, making sales at NBV uncommon except in extraordinary
circumstances. The Utility’s Florida acquisitions have therefore been completed
at prices above NBV. The company also asserted that NBV can significantly
understate a small utility’s actual economic value because regulatory practices
may discourage adequate capitalization of infrastructure investments. As a
result, CSWR-Florida does not rely on NBV alone when determining acquisition
prices. Instead, it considers the system’s physical condition, operational
risks, required capital investments, and negotiated market value. A final
purchase price is determined through arms-length negotiations between the
parties, with CSWR-Florida’s ultimate objective being to pay the least amount
that a utility/seller will accept. CSWR-Florida undertook no additional due
diligence to determine the fair market value of the acquired utility.
CSWR-Florida requested approval of a positive acquisition
adjustment of $1,875,487 to recover the premium it paid to purchase the assets
of Aquarina. If
approved, the price premium would be included in Aquarina’s rate base and
ultimately increase the rates paid by customers. By establishing a purchase
price based on the anticipation of consumer-funded recovery, the transaction
may not wholly be at arms-length because both buyer and seller have an impetus
to seek a higher than necessary sale price. The price paid may be inflated by a
perception or expectation of a guaranteed regulatory recovery upon the
Commission approving the full acquisition adjustment. This interaction creates
a concept referred to as regulatory circularity, or more precisely,
purchase-price/rate-base circularity. This form of regulatory circularity
occurs when the purchase price of a regulated asset or utility is used to
establish the rate base, while the regulated revenues generated from that rate
base are themselves an important determinant of the asset's economic value and
hence of the purchase price. In this scenario, a utility's market value depends
on its potential earnings, and its earnings are decided by the rates the
regulator allows. Including a potentially higher-than-necessary acquisition
adjustment in the rate base to establish consumer rates has the potential to
create a flawed, self-justifying loop; because here, the price premium is
fundamentally detached from the NBV of the assets. Effectively, this codifies a
purchase price that is substantially above book value as the foundational
baseline for future rates, validating the exact circularity trap.
The bill impact associated with the Utility’s request when
formulated through the latest assumed customer and cost data filed in the
docket and amortized over 30 years is $22.97 per water customer and $22.97 per
wastewater customer per month without consolidation, and $0.82 per water
customer and $0.82 per wastewater customer per month consolidated with the
other systems owned by CSWR-Florida.[19]
If the full acquisition adjustment is approved, then it is the customers who
ultimately pay for the price premium above book value. As contemplated by Rule
25-30.0371(3)(a), F.A.C., the Commission could approve a partial positive
acquisition adjustment if circumstances justify an amount less than
CSWR-Florida’s request.
Conclusion
If the Commission approves staff’s recommendation in Issue
1, this Issue is moot. If the Commission disagrees with staff’s recommendation
in Issue 1 and determines Aquarina is a non-viable utility, staff recommends the
Purchase and Sale Agreement between CSWR-Florida and Aquarina appears to be an
arms-length transaction because it involved two independent unrelated corporate
entities with no shared ownership or affiliation. However, staff believes the
Commission has discretion to find otherwise if the available information, or
lack thereof, demonstrates there were external factors that affected the
purchase price paid by CSWR-Florida to the detriment of its customers.
Issue 3:
Will the customers of Aquarina benefit from the
acquisition through anticipated improvements in quality of service, regulatory
compliance, cost efficiencies, cost of providing service, the ability to
attract capital, and the professional and experienced managerial, financial,
technical, and operational resources?
Recommendation:
If the Commission approves staff’s recommendation in
Issue 1, this Issue is moot. If the Commission disagrees with staff’s
recommendation in Issue 1 and determines Aquarina is a non-viable utility,
staff’s answer is yes. Staff believes the customers of Aquarina will benefit
from the acquisition by CSWR-Florida through anticipated improvements in
quality of service, regulatory compliance, cost efficiencies, cost of providing
service, the ability to attract capital, and the professional and the Utility’s
provision of experienced managerial, financial, technical, and operational
resources. (P. Buys, Cohn, Souchik, Higgins)
Staff Analysis:
Quality of Service
Rule 25-30.0371(3)(a)1., F.A.C., requires that in
determining the appropriateness of a positive acquisition adjustment for a
non-viable utility, the Commission will consider if the acquired utility’s
customers will benefit from anticipated improvements in quality of service as a
result of the acquisition. A utility’s quality of service considers the quality
of its product (water) and its attempt to address customer satisfaction (water
and wastewater), pursuant to Rule 25-30.433(1), F.A.C.
A review of Aquarina’s historical chemical analyses, both
before and after the acquisition (2020 through 2026), indicated that the system
was in compliance with the DEP’s primary and secondary standards in all years
except 2024. Primary standards protect public health while secondary standards
regulate contaminants that may impact the taste, odor, and color of drinking water.
Aquarina’s overall regulatory compliance is discussed in greater detail below.
Pursuant to Rule 25-30.0371(3)(b)10., F.A.C., CSWR-Florida
listed the actual and expected improvements in the quality of service provided
to Aquarina’s customers as a result of the acquisition.[20]
These improvements are described below.
1.
Infrastructure upgrades and preventative maintenance
program investments to reduce the risk of system failures, and ensure a safe
and reliable water and wastewater system, while minimizing disruptions and
protecting the public’s health and environment.
2.
Having appropriate staffing levels by qualified
operations and maintenance (O&M) personnel that will make a minimum of
three weekly site visits, perform weekly inspections of the facilities, complete
all routinely scheduled work orders, prepare and file necessary regulatory
reports, and ensure personnel are on call for emergencies.
3.
Computerized work order-based maintenance management
system that uses GPS and radio frequency identification technology to provide
faster work order processing by O&M personnel.
4.
Remote system monitoring implementation allowing
operators to identify and remedy system malfunctions before they affect
customer service.
5.
Environmental Management Information System
implementation providing improved real-time regulatory and permit compliance
information, helping to ensure the system complies with applicable laws and
permit limits.
6.
Multiple modes of communication, such as periodic
letters, postcards, Quick Response (QR) codes on bills, and a Florida-specific
website to improve information delivery to customers regarding system operations
and planned and completed system improvements.
7.
Third-party call center that provides around-the-clock
access for customers.
8.
Cloud-based customer information and billing system which
provides customers with electronic access to usage, billing, and payment
information, as well as work-order management.
9.
Customer service response monitoring system that tracks
customer service metrics, such as speed of answer, dropped calls, and call
length, which allows CSWR-Florida to remedy issues quickly and improve quality
of service. This system also offers a voluntary survey to customers who call to
gauge their satisfaction.
Additionally, staff reviewed the complaints received by
the DEP and the Commission’s Consumer Activity Tracking System from January
2020 through February 2026.[21] This
includes complaints filed prior to CSWR-Florida’s acquisition on May 16, 2022.
Under the prior owner, the DEP received no complaints, and the Commission
received two water pressure complaints in 2021. While under CSWR-Florida’s
ownership, the DEP received one boil water notice complaint in 2023, and the
Commission received one quality of service complaint in 2023, one improper
billing complaint in 2024, and one incorrect billing complaint in 2025.
Staff also analyzed the complaints received by CSWR-Florida
from July 2022 to June 2026; however, complaints filed with the Utility prior
to acquisition are unavailable. Table 3-1 shows the total number of complaints
by category that CSWR-Florida reported.
For reference, Aquarina serves approximately 788 customers.
Table 3-1
Number of Utility Post-Acquisition Complaints by
Category
|
Year
|
Billing
|
Customer Service
|
Wastewater Odor/Quality Issues
|
Water Product Quality
|
Service Interruptions
|
Total
|
|
2022
|
20
|
1
|
-
|
-
|
5
|
26
|
|
2023
|
27
|
3
|
-
|
-
|
26
|
56
|
|
2024
|
40
|
7
|
1
|
4
|
11
|
63
|
|
2025
|
22
|
3
|
1
|
4
|
65
|
95
|
|
2026
|
3
|
3
|
2
|
1
|
38
|
47
|
|
Total
|
112
|
17
|
4
|
9
|
145
|
287
|
Source: Document No. 05207-2026.
The complaints range from billing/payment disputes to
having no water to general inquiries. Based on the provided complaint log, CSWR-Florida
has been responsive to these customer complaints.
In order to resolve the complaints, the Utility: (1) assisted customers with
payment methodologies and provided payment plans; (2) restored service,
repaired lines, and corrected the water pressure; and (3) answered questions
about billing and boil water notices.
The identified customer concerns should be further mitigated
by the distribution line repair and remote monitoring projects, which will be
discussed further below. In addition, it appears that CSWR-Florida has been
responsive to billing/payment disputes as they arise. CSWR-Florida identified
improvements such as a third-party call center and cloud-based billing system
aimed at improving the customer’s experience.
Based on the above, staff believes that Aquarina’s
customers will benefit from the acquisition through anticipated improvements in
quality of service. CSWR-Florida has identified and, in some cases, already
implemented the above improvements aimed at system reliability, regulatory
compliance, responsiveness, and overall customer experience. Staff believes
these improvements will enhance the quality of service provided to Aquarina’s
customers.
Regulatory Compliance
Rule 25-30.0371(3)(a)2., F.A.C., requires that in
determining the appropriateness of a positive acquisition adjustment for a non-viable
utility, the Commission will consider if the acquired utility’s customers will
benefit from anticipated improvements in regulatory compliance as a result of
the acquisition. Pursuant to Rule 25-30.433(2), F.A.C., in determining a
utility’s regulatory compliance, the Commission will consider whether the
infrastructure and operating conditions of the plant and facilities are in
compliance with Rule 25-30.225, F.A.C. Rule 25-30.225(2), F.A.C., requires each
water and wastewater utility to maintain and operate its plant and facilities
by employing qualified operators in accordance with the rules of the DEP. To
determine whether Aquarina’s customers will benefit from anticipated
improvements in regulatory compliance, as a result of CSWR-Florida’s acquisition,
staff reviewed Aquarina’s compliance history for the 5 years preceding the date
of the acquisition, as well as its compliance history post-acquisition.
As discussed in Issue 1, CSWR-Florida submitted any notices
of violation, consent decrees or other regulatory actions issued during the 5
years prior to the date of acquisition, pursuant to Rule 25-30.0371(3)(b)8.,
F.A.C., which staff reviewed along with DEP records and prior Commission
Orders. Staff’s analysis in this issue considers this pre-acquisition
compliance history, as detailed in Attachment A, as well as the Commission’s
determination regarding Aquarina’s compliance in its last rate case prior to
CSWR-Florida’s acquisition, the system’s compliance following the Utility’s
acquisition, and any improvements that the Utility identified pursuant to Rule
25-30.0371(3)(b)10., F.A.C., that may improve compliance with environmental
regulations.
Prior to acquisition, Aquarina had water and wastewater
operational and compliance issues, as discussed in Issue 1. In the order issued
on December 29, 2016, in Aquarina’s last staff-assisted rate case before the
system was acquired by CSWR-Florida, the Commission determined that Aquarina’s
quality of service was marginal based on issues involving fire flow and water
pressure, leaks and repairs, boil water notices and post-repair safety
procedures, utility equipment, operator licensing, customer communications,
complaint logs, and cost allocation.[25]
The Commission also ordered a management audit, which identified deficiencies
in management oversight, customer communications, maintenance planning,
recordkeeping, and regulatory compliance processes.[26]
From 2017 through 2022, Aquarina had additional compliance-related issues with
the DEP involving water system monitoring and reporting, cross-connection
control, and required power-failure alarms, as well as wastewater monitoring,
calibration, and reporting.[27] Following
CSWR-Florida’s acquisition on May 16, 2022, Aquarina’s water and wastewater
systems experienced additional DEP compliance issues involving monitoring and
reporting, water quality, capacity, odors, and wastewater effluent limits. In
May 2025, the DEP executed a short form Consent Order addressing these
violations.[28] These
compliance issues have been resolved, and Aquarina’s water and wastewater
systems are now in compliance with the DEP.[29]
As part of its petition, CSWR-Florida included a
third-party engineering report from Woodard & Curran, dated July 2021,
which evaluated the water and wastewater systems and identified 10 projects
deemed necessary for the water system and their associated costs of $270,500,
and 11 projects deemed necessary for the wastewater system and their associated
costs of $325,000. In addition, CSWR-Florida identified five additional
projects for water, and six additional projects for wastewater necessary for
completion based on its own system assessments following the acquisition.[30] The total
cost for all the completed projects is approximately $2,849,707. Below are the
projects that have been completed for the water system.[31]
1.
Disinfection System – Resolved issues related to
inadequate chemical containment and installation of continuous chlorine
monitoring to verify residual chlorine. These projects were completed May 31,
2023, through August 1, 2024. The total cost of the projects is $7,863.
2.
Distribution System – Installed, repaired, or
replaced isolation valves, out of service flushing hydrants, and damaged mains.
These projects were completed May 31, 2023, through January 1, 2026. The total
cost of the projects is $622,820.
3.
Electrical and Monitoring Systems – Installed
remote monitoring, including various sensors, meters, and transmitters. These
projects were completed May 31, 2023, February 1, 2024, and June 1, 2025. The
total cost is $215,678.
4.
Flow Meters – Flow meters were installed on each
well. These projects were completed May 31, 2023, and January 1, 2025. The
total cost is $47,482.
5.
Tanks – Tanks were recoated and inspected. The
hydropneumatic tank was found to have leaks and removed from service. A
temporary tank was installed followed by the permanent tank. These projects
were completed April 1, 2024, and August 1, 2024. The total cost for the
projects is $45,443.
6.
Structures and Piping – All exposed structures,
steel piping, and associated equipment were cleaned and repainted to reduce
corrosion. These projects were completed May 31, 2023, and August 1, 2024. The
total cost for the projects is $92,937.
7.
Site Improvements – Removed nuisance vegetation,
replaced fencing, and improved access roads. These projects were completed
August 1, 2024, through March 1, 2025. The total cost for the projects is
$132,917.
8.
Safety Equipment – Installed chemical shower,
eye wash station, fire extinguishers, and warning signs. These projects were
completed May 31, 2023, and August 1, 2024. The total amount for these projects
is $3,840.
Below are the projects that have been completed for the
wastewater system.
1.
Aeration System – Installed a shade structure
over the blowers, and repaired aeration piping, drop legs, and diffusers. These
projects were completed May 31, 2023, through August 1, 2024. The total cost of
the projects is $117,174.
2.
Electrical and Monitoring Systems – Installation
of remote monitoring equipment at the plant and lift stations, replaced
electrical feed powering the clarifier sludge pumps. These projects were
completed May 31, 2023, through February 2, 2025. The total cost for the
projects is $80,710.
3.
Lift Stations – Pumps were replaced due to poor
performance and age. These projects were completed April 1, 2024, through
January 1, 2026. The total cost for the projects is $169,326.
4.
Sludge Pumps – Sludge pumps, piping, fittings,
and valves were replaced to improve solids handling. These projects were
completed May 31, 2023, through January 1, 2026. The total cost for these
projects is $341,364.
5.
Tanks, Piping, and Walkways – These items have
been cleaned and painted to reduce corrosion. These projects were completed May
31, 2022, through January 1, 2026. The total cost for the projects is $829,037.
6.
Site Improvements – Removed nuisance vegetation,
replaced fencing, and improved access roads. This project was completed on
August 1, 2024, and cost $119,817.
7.
Safety Equipment – Installed chemical shower,
eye wash station, fire extinguishers, and warning signs. These projects were
completed on May 31, 2023, and April 1, 2024. The total cost of the projects is
$4,283.
8.
Irrigation Pumping – Rehabilitated irrigation
pumping, which included pumps and pipes to ensure proper function and halt
issues with ponding in the drain field area. This project was completed April
1, 2024, and cost $11,153.
9.
Disinfection System – Reconstructed the
disinfection system as the system that was in service did not match the 2018
permit renewal. This project was completed May 31, 2023, April 1, 2024, and
August 1, 2024, and cost $7,863.
In addition to the projects above,
and as discussed in the Quality of Service section, CSWR-Florida has also
implemented an Environmental Management Information System which provides
real-time regulatory and permit compliance information and helps to ensure the
system complies with applicable laws and permit limits.
For the planned water system projects, CSWR-Florida
originally identified distribution system and hydropneumatic tank projects.
These projects were completed during the course of this docket and are included
in the water project listings above (Nos. 2 and 5, respectively).
Below are the projects that are planned for the wastewater
system. The total cost for these projects is approximately $1,207,500 at this
time.
1.
New Monitoring Well – A new well will be
installed in the drain field area to comply with sampling and monitoring
requirements. This project is planned to be completed by August 30, 2027, and
will cost approximately $7,500.
2.
Safety Grating and Catwalks – Damaged grating
will be addressed, and a catwalk system will be installed over the clarifier to
ensure safety. This project is planned to be completed by August 30, 2027, and
will cost approximately $750,000.
3.
Shade Structure – A shade structure will be
installed over the return active sludge and waste active sludge pumping
equipment to prevent overheating. See No. 5 below for estimated in-service date
and cost.
4.
New Headworks – New headworks, including a
hydrosieve (screen) to capture and divert nuisance solids will be installed to
eliminate nuisance solids from entering the facility. See No. 5 below for
estimated in-service date and cost.
5.
Blowers and Aeration Piping – The blowers and
aeration piping will be replaced as they are approaching the end of their
useful lives. This project along with the shade structure and new headworks
projects are planned to be completed at one time by August 30, 2028. The total
estimated cost for all three projects is approximately $450,000.
6.
Sand Filter – The old sand filter system was
removed from service prior to CSWR-Florida’s acquisition and was never properly
decommissioned. CSWR-Florida will remove the remaining equipment. This project
is still in the planning phase, so there are no estimated in-service dates or
costs at this time.
Overall, Aquarina experienced varying compliance issues
with the DEP both before and after acquisition. Some of the compliance issues
identified during CSWR-Florida’s ownership may have been a continuation of
conditions that existed under the prior owner and required time to fully
identify and resolve. However, staff believes that CSWR-Florida’s completed
projects and continued investments demonstrate meaningful improvements which
will contribute to continued regulatory compliance. Additionally, the resolution of the compliance
issues encountered under CSWR-Florida’s ownership demonstrate the Utility’s
ability to address non-compliance issues as they arise. Therefore, staff
believes that Aquarina’s customers will benefit from the anticipated
improvements in regulatory compliance as a result of CSWR-Florida’s acquisition
and that this criterion for a positive acquisition adjustment has been met.
Cost Efficiencies and Cost of Providing Service
Pursuant to Rule 25-30.0371(3) and 25-30.0371(4), F.A.C.,
in determining whether the acquired utility customers benefit from the
acquisition, the Commission will consider the anticipated impacts on the cost
of providing service over the next five-year period from the date of
acquisition, as well as anticipated cost efficiencies, including any economies
of scale.
Economies of scale means that an entity is able to reduce
its overall fixed costs of operations by spreading those costs over additional
production units, or customers, while maintaining its fixed cost structure.[32]
According to the Utility’s petition, CSWR, LLC (CSWR’s
parent company) and CSWR-Florida are part of an affiliate group that currently
owns and operates water and wastewater systems serving approximately 434,000
customers.[33] The
affiliate group owns and operates more than 940 water and wastewater plants in 11
states, with 38 of them being in Florida. As a result, the Utility is
positioned to achieve cost efficiencies through economies of scale by sharing
administrative functions, operational personnel, technical expertise, and other
resources across multiple systems. These arrangements may improve operational
efficiency, reduce duplicate costs, and help moderate future increases in the
cost of providing service.
In addition, CSWR, LLC’s operation of multiple utility systems
may increase its bargaining power for materials, equipment, and contracted
services. By procuring these goods and services on a larger scale, the Utility
may achieve lower per-unit costs and reduce expenses that would otherwise be
borne by individual systems. Furthermore, the allocation of fixed costs across
a larger customer base may improve overall cost efficiency and contribute to
long-term rate stability.
In 2021, the final year of operation prior to acquisition
by CSWR-Florida, Aquarina’s O&M expense was $559,534. Aquarina’s average
O&M expense during the five-year period preceding the acquisition was
$492,990.
CSWR-Florida acquired Aquarina on May 16, 2022. In response
to staff’s first data request, CSWR-Florida projected an average O&M
expense of $435,695 during the first five years following the acquisition.[34] Table 3-2
summarizes Aquarina’s historical and projected O&M expenses.
Table
3-2
Aquarina’s Actual and
Projected O&M Expenses Pre- and Post-Acquisition
|
Year
|
O&M Expense
|
Difference from
Previous Year (%)
|
|
2017 (actual)
|
$476,615
|
|
|
2018 (actual)
|
$477,946
|
0.28%
|
|
2019 (actual)
|
$447,201
|
-6.43%
|
|
2020 (actual)
|
$503,653
|
12.62%
|
|
2021 (actual)
|
$559,534
|
11.10%
|
|
Pre-Acquisition Average
|
$492,990
|
|
|
2022 (projected)
|
$406,245
|
|
|
2023 (projected)
|
$420,464
|
3.50%
|
|
2024 (projected)
|
$435,180
|
3.50%
|
|
2025 (projected)
|
$450,411
|
3.50%
|
|
2026 (projected)
|
$466,176
|
3.50%
|
|
Projected Post-Acquisition Average
|
$435,695
|
|
Source: Document
Nos. 01788-2025, and 01162-2026.
The Utility provided the following
(post-acquisition) actual operating expenses for the first three years of
operations under CSWR-Florida: $604,112, $478,108, and $502,743 respectively.[35] The
average actual O&M expense for the first three years of operations was
$528,321.
The Utility explained that
actual O&M expenses exceeded the post-acquisition pro forma estimates due
to unforeseen maintenance and repair expenditures associated with the aging
infrastructure, including leaks and equipment failures that were not
anticipated at the time the pro forma was prepared.[36]
The Utility further states that certain administrative and operational expenses
incurred at the CSWR-Florida level are allocated among systems based on
customer count. According to the Utility, these shared costs support
managerial, technical, operational, and financial services that are provided
across multiple systems and would otherwise need to be incurred independently
by a stand-alone utility. As a result, CSWR-Florida believes that, through
economies of scale, costs incurred by Aquarina will be less than if they were
incurred by the utility on a stand-alone basis.[37]
Although the actual post-acquisition O&M expenses
initially exceeded the Utility’s projections, expenses show a declining trend
following the acquisition. Actual post-acquisition O&M expenses decreased
by 20.9 percent and increased by 5.2 percent respectively between the first
three years. By 2025, Aquarina’s O&M expense had decreased to $502,743,
approximately 10.1 percent below the pre-acquisition expense level of $559,534
recorded in 2021.
Staff recognizes that a portion of post-acquisition
expenses are necessary to address aging infrastructure and improve system
operations. Staff also notes that Aquarina benefits from access to shared
managerial, technical, and administrative resources that are distributed across
a substantially larger customer base. Based on the Utility’s operational
structure, anticipated economies of scale, and the declining trend in O&M
expenses, staff believes customers are anticipated to benefit from cost
efficiencies and anticipated improvements in the cost of providing service.
Ability to Attract
Capital
Pursuant to Rule 25-30.0371(3)(a)5.,
F.A.C., the Commission will consider the utility’s ability to attract capital
at reasonable costs. The rule requires an explanation of how the acquiring
utility has greater access to capital than the acquired utility. Aquarina
benefits from being part of a substantially larger utility that operates
numerous water and wastewater systems across multiple states. These economies
of scale improve operational efficiencies and increase Aquarina’s ability to attract
third-party funding.
As demonstrated
in its petition, CSWR-Florida has greater access to capital than Aquarina
through its affiliation with its parent company CSWR, LLC, which has obtained
private placement financing through Brookfield Asset Management, Ltd
(Brookfield). CSWR-Florida explained that CSWR, LLC secured a $325 million debt
facility from Brookfield. For that reason, CSWR-Florida has greater access to
debt and equity capital necessary to fund improvements compared to Aquarina
prior to the acquisition. CSWR-Florida’s greater access to capital has enabled
it to make the necessary utility improvements in establishing compliance status
with DEP requirements. CSWR-Florida explained that although it currently lacks
sufficient independent net operating income to directly obtain commercial debt
financing using its own creditworthiness, CSWR-Florida anticipates generating
sufficient net income to support debt service as well as obtain commercial debt
financing upon conclusion of its pending rate case.[38] CSWR-Florida’s goal is to achieve a more
balanced capital structure of approximately 50 percent equity and 50 percent
debt through the use of non-affiliated commercial debt financing.
Based on its
analysis, staff recommends that CSWR-Florida has demonstrated the customers of
Aquarina will benefit from the acquisition through anticipated improvements in
the ability to attract capital.
Professional and Experienced Managerial,
Financial, Technical, and Operational Resources
CSWR, LLC currently owns and
operates numerous water and wastewater systems serving thousands of customers.
The petition indicates that CSWR-Florida benefits from its affiliation with
CSWR, LLC, which is a large multi-state utility organization. CSWR, LLC or its
affiliates have received regulatory approvals for utility-related matters in
Missouri, Kentucky, Louisiana, Texas, Tennessee, Mississippi, Florida, North
Carolina, South Carolina, and Arizona. CSWR, LLC has received more than 290
separate orders from regulators in each of those states that determined it, or
its affiliates have the technical, managerial, and financial qualifications
necessary to acquire, own, and operate water and/or wastewater systems. The
Commission has made a similar determination when it authorized CSWR-Florida to
operate several systems in Florida, including Aquarina.[39]
Staff recommends that CSWR-Florida, in conjunction with its parent company, continues
to demonstrate that it has the managerial, financial, technical, and
operational resources to provide water and wastewater services in Florida.
Conclusion
If the Commission approves staff’s recommendation in Issue
1, this Issue is moot. If the Commission disagrees with staff’s recommendation
in Issue 1, staff recommends the customers of Aquarina will benefit from the
acquisition by CSWR-Florida through actual experienced and anticipated
improvements in quality of service, regulatory compliance, cost efficiencies,
cost of providing service, the ability to attract capital, and the provision of
professional and experienced managerial, financial, technical, and operational
resources.
Issue 4:
What is the appropriate amount, if any, of the
positive acquisition adjustment?
Recommendation:
If the Commission approves staff’s recommendation in Issue
1, this Issue is moot. If the Commission disagrees with staff’s recommendation
in Issue 1 and determines Aquarina is a non-viable utility, staff recommends the Commission approve an
acquisition adjustment of $133,422 related to the purchase of Aquarina by CSWR-Florida.
Further, staff recommends the Commission exercise its existing authority under
Rule 25-30.0371(6), F.A.C., to revisit the Aquarina acquisition adjustment if
it finds that customer benefits did not materialize or subsequently improve
within 5 years of the order granting the adjustment. (Higgins, Cicchetti,
Bloom, J. Crawford)
Staff Analysis:
CSWR-Florida requests the Commission approve a positive
acquisition adjustment of $1,875,487 related to its 2022 purchase of the
Aquarina water and wastewater systems and allow that acquisition adjustment to
be amortized over 30 years. The total purchase price was $2,500,000 for assets
with a NBV of $624,513. This information, as well as the percentage difference
between the purchase price and NBV and the purchase price as a multiple of NBV
are shown in Table 4-1.
Table 4-1
Acquisition Adjustment
Summary
|
Acquired Utility
|
Purchase Price
|
Net Book Value
|
Requested
Acquisition Adjustment
|
Percentage Difference
Between the Purchase Price and NBV
|
Purchase Price as
a Multiple of NBV
|
|
Aquarina
|
$2,500,000
|
$624,513
|
$1,875,487
|
300%
|
4.00x
|
Source: Document No. 01788-2025 and staff calculations.
An acquisition premium (or discount) in utility regulation
is the difference between what a utility pays to acquire another utility and
its assets and the depreciated original book cost of those assets. When the
utility seeks to include that difference in its cost of service, or rate base,
it will do so by seeking an acquisition adjustment. Concerning the instant
request, the question before the Commission is whether customers or utility
investors should pay for any of the price above NBV, and if so, what amount?
In general, Commission
regulatory practice starts with a presumption against including acquisition premiums
in rates; however, Rule 25-30.0371, F.A.C., affords an exception where clear,
measurable ratepayer benefits can be demonstrated as a result of the
acquisition.[40] The
purpose for this exception was historically to encourage large, sophisticated
companies to buy and operate smaller, troubled utilities, to facilitate better
quality of service to the utility’s customers and improved operation,
investment, and maintenance of the utility.
Summary
Rule 25-30.0371, F.A.C., allows for a full or partial
acquisition adjustment to recognize the need to incentivize a utility while
maintaining reasonable rate impact. If the Commission disagrees with staff’s
recommendation in Issue 1 and determines Aquarina was a non-viable system,
staff recommends that the Commission should approve an acquisition adjustment
associated with CSWR-Florida’s purchase of the Aquarina water and wastewater
systems for the following reasons. The record demonstrates that customers have
benefited and should continue to benefit from the acquisition by CSWR-Florida.
Benefits include improved system reliability, enhanced compliance with
environmental regulations, staffing and operational expertise, implementation
of modern monitoring and management technologies, and improved customer service
capabilities. These improvements are both immediate and ongoing, and they
directly address certain deficiencies that negatively impacted service quality.
The transaction was conducted as an arm’s-length purchase between unaffiliated
entities, and there is no evidence suggesting the purchase price was influenced
by affiliate relationships or other improper considerations. The acquisition is
consistent with staff’s understanding of the policy objective of Rule
25-30.0371, F.A.C., which is to promote the consolidation of small (especially
troubled) water and wastewater systems into larger organizations.
In determining the appropriate amount of the acquisition
adjustment, the Commission should balance two competing considerations: (1)
encouraging the acquisition and rehabilitation of non-viable systems as being
in the public interest; and (2) ensuring that customers, who have no engagement
in negotiating a purchase price, do not bear unreasonable costs associated with
an acquisition adjustment. It is staff’s opinion that much of the acquisition
premium in this instance reflects business judgment rather than costs that
should be borne by customers. However, a limited portion should be recoverable
because it provides an appropriate regulatory incentive consistent with staff’s
understanding of the policy objectives of Rule 25-30.0371, F.A.C. Staff
believes this harmonizes the purpose of the rule with the Commission’s
obligation to set rates consistent with the requirements of Section
367.081(2)(a)1., F.S.
Staff believes the appropriate outcome is to allow
recovery only to the level that fairly preserves utility incentives while
protecting customer interests. As discussed in greater detail below, staff
recommends setting the incentive level to 50 basis points of return related to
the acquired system’s rate base. Thus, staff believes an acquisition adjustment
of $133,422 for Aquarina, should be approved.
Policy Rationale for Granting, Limiting, or
Denying an Acquisition Adjustment
As discussed previously, there is no specific statutory
provision addressing acquisition adjustments in Chapter 367, F.S. However, staff
believes the legal framework applicable to this issue is the statutory
requirement that the Commission prescribe fair and reasonable rates and charges
under Section 367.121(1)(a), F.S., and to fix rates that are just, reasonable,
compensatory, and not unfairly discriminatory under Section 367.081, F.S. This
is consistent with the landmark U.S. Supreme Court case, Fed. Power Comm'n
v. Hope Nat. Gas Co.,[41] holding
that the legality of utility rates depends on whether they are just and
reasonable overall, not on any particular accounting method used to calculate
them.
Rule 25-30.0371, F.A.C., allows the Commission discretion
under Section 367.081(2)(a), F.S., to fix rates that are just, reasonable,
compensatory, and not unfairly discriminatory. The Commission is not limited to
granting the company’s entire request; both the statute and the rule give the
Commission discretion to examine and weigh the evidence offered by the company.
Rate impact is not alone a basis for denying an otherwise warranted acquisition
adjustment. Rather, it is relevant to determining whether the amount sought to
be recovered from customers bears a reasonable relationship to the demonstrated
benefits of the acquisition and the incentive necessary to encourage the
acquisition and rehabilitation of a non-viable utility.
If the Commission believes any of the cost to acquire Aquarina
is rooted in a financial or business-related decision, staff believes that it
may not be appropriate for customers to pay the entire premium above book value; rather, the Commission may find that
some portion of the price reflects business
judgment, with that portion of the premium to be borne by the purchaser.[42] A
reduction of the acquisition adjustment would offer balance between investor
and customer interests in this regard. Further, the Commission may be concerned
with setting a precedent of approving a requested acquisition adjustment for a non-viable
system that is many multiples (3.0 times) of NBV. In other words, some level of
premium is appropriate to encourage acquisition of troubled systems, but this
should be weighted with the actual benefits received by the customers who are
acquired, recognizing that the customers are not a party to negotiating the
purchase price between the seller and buyer.
If the Commission disagrees with staff’s recommendation in
Issue 1, staff recommends that in this case, based on the record showing
anticipated improvements in quality of service, wastewater regulatory
requirements, impacts on the cost of providing service, cost efficiencies,
including economies of scale, the ability to attract capital at reasonable cost,
and the professional and experienced managerial, financial, technical, and
operational resources of the acquiring utility, that the Commission should
limit, in part or whole, any acquisition adjustment if it found that the
benefits of the transaction are too speculative or not likely to be realized.
Rule 25-30.0371(6), F.A.C., states: “[n]othing herein removes the Commission’s
existing authority to review a positive acquisition adjustment if the
Commission finds that customer benefits did not materialize or subsequently
changed within 5 years of the date of the order approving the positive
acquisition adjustment.” Staff understands this language as authority for the
Commission to re-evaluate, and if warranted, rescind future recovery of any
unamortized acquisition adjustment if meaningful customer benefits do not
materialize as projected.
If the Commission determines that some acquisition
adjustment is appropriate, staff evaluated the requested acquisition adjustment
using a return-based analysis that the Commission may consider in determining a
reasonable recoverable amount in this proceeding. This analysis is a way to
develop an acquisition adjustment that corresponds to an incentive level (rate
of return) for the acquiring utility. Rather than beginning with the
acquisition premium itself, the analysis begins by identifying a reasonable
incentive expressed as an incremental return. That incremental return is then
applied to the acquired utility’s rate base to calculate an earnings incentive.
Using the Utility’s weighted average cost of capital (WACC), that earnings
amount can then be translated into the corresponding acquisition adjustment
necessary to produce the selected level of return. In this manner, the
acquisition adjustment is evaluated in relation to the level of incentive it
would provide. The calculations supporting this analysis are discussed below.
The information provided in this docket provides several
reasons why the Commission may find this analysis useful. First, expressing the
incentive in terms of incremental return associates the acquisition adjustment
with a familiar ratemaking concept. The Commission has long relied on
authorized returns as a means of balancing investor and customer interests and,
in other contexts, has adjusted authorized returns to recognize differing
levels of risk or performance. Evaluating an acquisition adjustment through the
lens of incremental return provides one means of assessing whether the
requested incentive is reasonable considering the evidence presented.
Second, this analysis can be used to evaluate the
requested acquisition adjustment in relation to the acquired utility’s
investment in utility assets rather than solely the difference between purchase
price and the NBV. For purposes of this proceeding, staff relied on Aquarina’s
rate base information, together with audit and technical staff adjustments,
filed in Docket No. 20250052-WS to illustrate how this analysis may be
performed using a utility’s financial information. Staff recognizes that the
evidence available will vary from case to case, and this analysis is based on
the information available in this instance rather than suggesting that
identical financial information or calculations will be available or
appropriate in every acquisition adjustment case.
Third, by expressing the requested acquisition adjustment
as the amount of additional rate base necessary to produce a selected
incremental return, the Commission can evaluate whether the resulting incentive
is proportionate to the circumstances of this acquisition and supported by the
information available in this docket.
For purposes of this proceeding, staff evaluated
incremental return levels of 25, 50, 75 and 100 basis points to illustrate a
range of potential incentives. Based on the information in this docket, staff
concluded that an incremental return of 50 basis points represents one
reasonable level of incentive. Staff then applied each incremental return level
to Aquarina’s adjusted rate base to calculate the corresponding earnings
incentive. Using the Utility’s WACC, staff translated those earnings amounts
into the acquisition adjustment necessary to produce the selected incentive
over a 30-year amortization period.
Applying this analysis to Aquarina, which reported a rate
base of $1,246,740 in its Minimum Filing Requirements, and incorporating audit
and technical staff’s proposed adjustments, results in an adjusted rate base of
$1,092,273.[43] Applying
a 50-basis-point incremental return over a 30-year amortization period produces
a target earnings incentive of $176,293. Using the Utility’s WACC of
approximately 8.52 percent, that earnings incentive corresponds to an
acquisition adjustment of approximately $133,422. The calculations supporting
this analysis are shown in Table 4-2.
This analysis is offered as one method of evaluating
whether the requested acquisition adjustment represents a reasonable incentive
based on the evidence presented in this proceeding. The weight to be afforded
this analysis, together with all other evidence in the record, remains within
the Commission’s discretion.
Table 4-2
Acquisition Adjustment
Calculation
|
Description
|
Figures
|
|
Adjusted Rate Base
|
$1,092,273
|
|
50-Basis-Point Future Value Factor
|
× 1.1614
|
|
Future Value
|
$1,268,566
|
|
Target Earnings (Future Value - Adjusted Rate Base)
|
$176,293
|
|
Time Period
|
30 Years
|
|
CSWR-Florida’s WACC
|
8.52%
|
|
Acquisition Adjustment
|
$133,422
|
Source: Staff calculations.
As previously mentioned, staff recognizes that alternative
incentive levels may also be reasonable, and therefore, evaluated the impacts
of alternative incentive rates. A summary of resulting acquisition adjustments
under different incentive/return rates is shown in Table 4-3.
Table 4-3
Incentive Range
|
Range - Basis Points
|
Acquisition
Adjustment
|
Stand-Alone Bill
Impact
|
Consolidated Bill
Impact
|
|
25
|
$64,300
|
$0.79
|
$0.03
|
|
50
|
$133,422
|
$1.63
|
$0.06
|
|
75
|
$207,716
|
$2.54
|
$0.09
|
|
100
|
$287,552
|
$3.52
|
$0.13
|
Source: Staff calculations.
Staff calculated an acquisition adjustment of $133,422
based on an incentive level of 50 basis points. Staff’s proposed acquisition
adjustment represents approximately 7.1 percent of CSWR-Florida’s requested
amount. The bill impact associated with staff’s recommendation when formulated
through the latest assumed customer and cost data filed in the docket, is $1.63
per water customer and $1.63 per wastewater customer per month for 30 years on
a stand-alone basis, or $0.06 per water customer and $0.06 per wastewater customer
per month for 30 years on a consolidated basis.[46]
Staff notes these figures are inclusive of the return on the acquisition
adjustment principal balance and associated gross up for income taxes.
Conclusion
If the Commission
approves staff’s recommendation in Issue 1, this Issue is moot. If the
Commission disagrees with staff’s recommendation in Issue 1, staff recommends
the Commission approve an acquisition adjustment of $133,422 related to the
purchase of Aquarina by CSWR-Florida. Further, staff recommends the Commission
exercise its existing authority under Rule 25-30.0371(6), F.A.C., to revisit
the Aquarina acquisition adjustment if it finds that customer benefits did not
materialize or subsequently improve within 5 years of the order granting the
adjustment.
Issue 5:
What is the appropriate amortization period for any
positive acquisition adjustment?
Recommendation:
If the Commission approves staff’s recommendation in Issue
1, this Issue is moot. If the Commission disagrees with staff’s recommendation
in Issue 1 and determines Aquarina is a non-viable utility, staff recommends
that the amortization period for the positive acquisition adjustment should be
30 years. This period should begin on the date of issuance of the order
approving the acquisition adjustment. (Worrall)
Staff Analysis:
The Commission determines the amortization period
for all acquisition adjustments. In this instance, and pursuant to Rule
25-30.0371(5), F.A.C., amortization will begin on the date of issuance of the
order approving the acquisition adjustment or on the date the sale closes,
whichever occurs last. In its petition, the Utility requested an amortization
period of 30 years. This amortization period was formulated based on the
Utility’s belief that 30 years aligns with the average lifespan of water and
wastewater systems. Further, spreading the acquisition over a longer period
would lessen the rate impact relative to a shorter period. Staff concurs in
this assessment, and thus, recommends that the 30-year amortization period is
reasonable.
Conclusion
If the Commission approves staff’s recommendation in Issue
1, this Issue is moot. If the Commission disagrees with staff’s recommendation
in Issue 1 and determines Aquarina is a non-viable utility, staff recommends
the amortization period for the acquisition adjustment for Aquarina to be 30
years. Pursuant to Rule 25-30.0371(5), F.A.C., the amortization period should
begin on the date of issuance of the order approving the acquisition
adjustment.
Issue 6:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Bloom, J. Crawford)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the issuance
of the order, this docket should be closed upon the issuance of a consummating
order.
