STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHERN STATES UTILITIES, INC., ) CENTRAL FLORIDA DIVISION, )

)

Petitioner, )

)

vs. ) CASE NO. 80-1183

) FPSC No. 790761-WS

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

)

RECOMMENDED ORDER

An administrative hearing was held on the above matter by H. E. Smithers on July 21-23, 1980 at Leesburg, Belle Isle, Altamonte Springs and Orlando, Florida. The petitioner was represented by Kenneth B. Myers and William E. Sundstrom, the Respondent by William H. Harrold, and Intervenor City of Belle Isle, by Sam Owens.

This matter commenced by Southern States Utilities, Inc. (Petitioner, Utility or Southern) filing an application on January 21, 1980 with the Florida Public Service Commission (Respondent, Commission or FPSC) seeking to increase rates for water and sewer services furnished its Central Florida Division customers located in Lake, Orange, and Seminole counties. Using a June 30, 1979 test year, the application sought a water revenue increase of $67,535 so as to obtain annual gross revenues of $129,619 and a sewer revenue increase of $27,487 so as to obtain annual gross revenues of $31,264. Subsequently Petitioner proposed to increase the annual gross water revenue by $8,805 but this post- notice enlargement of the application is not permitted; however, the post-notice reduction of $499 annual sewer revenue is acceptable. The Commission suspended the proposed rates but authorized interim annual gross revenues of $97,184 for water and $17,640 for sewer, under bond (Order 9252 issued February 19, 1980).

The issues are what revenues, if any, should be authorized and what rate structure is appropriate. More particularly, the Parties disagree only as to the value of plant in service: The Petitioner used its purchase price figure; the Respondent proposed the use of the amount shown in the prior owner's 1977 annual reports.

The record consists of 386 pages of transcript, Petitioner's Exhibits 1, 2, 4-13 and Respondent's Exhibits 1-5. Customers of each system testified, as did four witnesses for the Petitioner and three witnesses for the Respondent.

Intervenor Belle Isle limited its participation to the presentation of one witness on the insufficiency of the utility's fire protection (hydrants and water pressure) within that municipality.

FINDINGS OF FACT

1. The Petitioner is a utility regulated by the Commission that is in the business of acquiring and operating water and sewer systems in Florida, principally in Central Florida. It now operates 39 systems, of which at least

   30 water systems and 5 sewer systems are located in Orange, Lake and Seminole counties. In this case, the Central Florida Division has one water system in Lake County (Picciola Island) , two water systems in Orange County (Daetwyler Shores and Lake Conway), three water systems and one sewer system in Seminole County (Bretton Woods/Druid Hills, Dol Ray Manor, and both water and sewer in Chuluota; these systems serve 949 water customers and 98 sewer customers. Southern commenced operating these systems in the spring of 1978, purchased them from Central Florida Utilities, Inc. in October, 1978 and applied to the Commission for a transfer, which application is still pending. (Docket 780278- WS; Hearing Examiner's Recommended Order approving the transfer was filed January 29, 1979)

   
   

2. Notwithstanding customer complaints of the quality of the water service (low or fluctuating pressure, excess chlorine, sediment, no noticed interruptions and lack of fire protection capabilities) and Southern's admission of the general disrepair of the systems at the time of the purchase, the systems are in compliance with governmental standards. The utility has spent $52,000 since the test year on repair and upgrading with another $87,000 necessary to complete the required projects, of which $25,000 is for governmentally mandated improvements to the Chuluota wastewater system.

   
   

3. The Petitioner's use of the purchase price of $215,800 for the facilities involved in the seven systems as the amount of plant in service as of June 30, 1978, rather than Respondent's use of the 1977 annual reports of the prior owner, is appropriate because: it follows past FPSC decisions on this subject with respect to this utility; the purchase price was considerably less than FPSC's estimated replacement cost of over $800,000; the purchase was an arms-length transaction; the books of the prior owner were considered unreliable; and, following complete integration of operations with Petitioner's other systems in Lake, Orange and Seminole counties, the customers should obtain the best possible service at the lowest rates obtainable. Alternatively, the Utility is entitled to an acquisition adjustment that achieves the same rate base as using the purchase price.

   
   

4. Petitioner's rate bases using a 12-month average, rather than the preferred 13-month average, are as follows:

   
   

   	Water	Sewer
   Average test year plant	$178,305	$ 62,242
   Mandated additions		25,000
   Accumulated depreciation	(1,833)	(623)
   CIAC (net of amortization)	(6,703)
   Working Capital	11,241	1,801
   Income tax lag	(776)	(370)
   	$180,234	$ 89,050

5. The capital structure and rate of return is as stipulated by the parties as follows:

   
   

   WEIGHTED

   TYPE AMOUNT RATIO COST COST

   
   

   Common Stock $1,882,055 60.44 14.0 percent 8.46

   Long Term Debt	1,037,372	33.31	8.89	2.96
   Cost Free	194,768	6.25	0	0
   TOTAL	$3,114,195	100.00		11.42 perc.

   Rate of Return

   
   

6. The above rate bases and rate of return provide an authorized constructed net operating income from water service of $20,583 and from sewer service of $10,170. This results in the following constructed statement of operations for year ended June 30, 1979:

   
   

   Water Sewer

   
   

   Operating Revenue $122,993 $29,085 Operating Expense

   Operation		84,760	12,346
   Maintenance		4,103	2,065
   Depreciation		3,531	1,245
   Taxes, other than	income	6,138	1,409
   Income taxes		3,878	1,850
   Total		$102,410	$18,915
   Net Operating Income		$ 20,583	$10,170

   
   

   It is noted that the above revenue requirement is more than the interim authorized revenue of $97,184 for water and $17,640 for sewer.

   
   

7. The staff proposed that the rate structure should be changed from the present block structure far water and flat rate for sewer to a base facility charge for both water and sewer. This concept is appropriate since it serves to conserve water and insures that each customer pays his fair share of the costs of providing service. No evidence opposing this type rate structure was presented.

   
   

   CONCLUSIONS OF LAW

   
   

8. Section 367.081(2) Florida Statutes (1979) provides in pertinent part:

   
   

   The commission shall ... fix rates which are just, reasonable, compensatory, and not unjustly discriminatory. In all such pro- ceedings, the commission shall consider the value and quality of the service and the cost of providing the service, which shall include, but not be limited to, debt in- terest, the utility's requirements for working capital, maintenance, depreciation, tax, and operating expenses incurred in the operation of all property used and useful in the public service, and a fair return on the utility's investment in property used and

   useful in the public service. The commission

   shall also consider the utility's investment in property required by duly authorized governmental authority to be constructed in the public interest within a reasonable time in the future, not to exceed 24 months.

   
   

   As can be seen, this law does not authorize, as proposed by the Petitioner, the inclusion of the post test year plant additions in the rate base, except for those required by a governmental agency to be made within two years; in the last regard FPSC did not propose to include the $25,000 addition to the Chuluota sewer facility.

   
   

9. On the question of plant in service - acquisition adjustment, the commission's past policy of allowing this utility to use the purchase price (orders 6543 and 7272) can only be changed by the presentation of evidence that would justify the modification. Respondent's mention of the Commission's policy in acquisition adjustment as stated in an unrelated case (order 8206), reference to the Uniform System of Accounts (Rule 25-10.04, Florida Administrative Code) and post hearing allowance of $100,000 acquisition adjustment to water rate base "came almost as an afterthought and was not intricably related to the facts in the case. Florida Cities Water Company v. Florida Public Service Commission, 384 So.2d 1280, 1282 (Fla. 1980).

   
   

10. As requested by the City of Belle Isle, the Petitioner should establish an appropriate tariff provision covering the cost of installing the fire hydrants and providing fire flow protection within that municipality.

    
    

11. In sum, the Petitioner has established that it is providing satisfactory service at a reasonable cost. The revenue requirement should be met through the use of the base facility charge type rate structure for water and sewer service.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Southern States Utilities, Inc.,

Central Florida Division, be granted and that the utility be authorized to file new tariffs to be approved by the Florida Public Service Commission that would have provided for the test year ending June 30, 1979 annual gross revenues of

$122,993 for water service and $29,085 far sewer service. It is further

RECOMMENDED that the utility be required to implement rates for fire protection service in Belle Isle and a base facility charge in structuring water and sewer rates. It is further

RECOMMENDED that the refund bond be returned to utility.

DONE and ORDERED this 24th day of October, 1980, in Tallahassee, Florida.

H. E. SMITHERS Hearing Officer

Division of Administrative Hearings Room 101 Collins Building Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 24th day of October, 1980.

COPIES FURNISHED:

Kenneth H. Myers, Esquire 1428 Brickell Avenue

Miami, Florida 33131

William H. Harrold, Esquire

101 E. Gaines Street Tallahassee, Florida 32301

Sam Owens, Esquire

101 E. Washington Street Orlando, Florida 32801

Steve Tribble, Clerk

Florida Public Service Commission

101 E. Gaines Street Tallahassee, Florida 32301

Robert T. Mann, Chairman Public Service Commission

101 E. Gaines Street Tallahassee, Florida 32301

Docket for Case No: 80-001183

Orders for Case No: 80-001183