STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COOPER CITY UTILITIES, INC. )

)

Petitioner, )

) CASE NO. 80-1188

vs. ) Docket No. 800415-WS

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

)

RECOMMENDED ORDER

PURSUANT TO NOTICE, the Division of Administrative Hearings, by its duly designated Hearing Officer, William B. Thomas, held public hearings in this matter on July 16 and 17, and on September 23 and 24, 1980, in Cooper City, Florida. The parties were represented by:

APPEARANCES

For Petitioner: Andrew T. Lavin, Esquire

Post Office Box 650 Hollywood, Florida 33022

and

Sam Spector, Esquire Post Office Box 82

Tallahassee, Florida 32302

For Intervenor James L. Ade and William A. in opposition, Van Nortwick, Esquires PCH corporation: Post Office Box 59

Jacksonville, Florida 32201

For Intervenor: John W. McWhirter, Jr., Esquire in opposition Post Office Box 2150

Cooper City Tampa, Florida 33601

and

Alan F. Ruf, Esquire

2801 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

For Respondent: William H. Harrold, Esquire

Florida Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

On December 27, 1979, Cooper City Utilities, Inc., filed its application for authority to increase water and sewer rates to its customers in Broward County, Florida. This application, as filed, did not comply with the Commission's minimum filing requirements; but on March 31, 1980, by submitting

additional information, the utility had completed the application. Since March 31, 1980, is the date the minimum filing requirements were met, this is when the time limitations set forth in Section 367.081(5), Florida Statutes, commenced.

By Order No. 9352, issued April 29, 1980, the Commission suspended the rates initially proposed by the utility, but granted an interim increase in water rates. Water revenues were increased by $141,135, so as to produce annual revenue of $517,756. Because the Commission's analysis indicated that the sewer system might be generating excessive revenues, Order No. 9352 denied the utility an Interim sewer rate increase, and required that $43,000 of annual sewer revenue be placed under bond, and subject to refund to the customers.

The issues to be determined are whether the water and sewer service provided by Cooper City Utilities, Inc., meets relevant quality standards, what amount of revenue is just, reasonable, compensatory and not unfairly discriminatory, in accordance with Section 367.081, Florida Statutes, and the establishment of an appropriate rate structure for the utility.

FINDINGS OF FACT

1. Cooper City Utilities, Inc. provides water and sewer service to its customers in Broward County, Florida, under the jurisdiction of the Commission pursuant to Chapter 367, Florida Statutes. The company was incorporated in 1973. All of the outstanding stock of the utility was owned by Moses Hornstein until his death on October 28, 1979, when ownership thereof became vested in the estate of Moses Hornstein, deceased. The personal representatives of this estate are Gertrude Hornstein, S. Lawrence Hornstein, and Judith A. Goldman. Gertrude Hornstein serves as president of Cooper City Utilities, Paul B. Anton as vice president, and Lawrence Lukin as secretary.

   
   

   Quality of Service

   
   

2. At the hearing, a representative of the Broward County Health Department testified concerning the quality of service. Although some customer complaints had been received, there are no outstanding citations against Cooper City Utilities, Inc., and the quality of the utility's service will be improved when its new lime-softening plant, under construction, is completed in approximately August, 1980. The investigation by the Commission's staff engineer did not reveal any outstanding citations against either the water or sewer treatment facilities. Accordingly, on the basis of the entire record, the evidence supports a finding that the utility is in compliance with all state standards, and that the quality of its water and sewer service is satisfactory.

   
   

   Rate Base and Operating Statement

   
   

3. Between the time in July when public hearings commenced, and September

   24 when the hearings concluded, the utility abandoned its position on several matters which had been in dispute, leaving only two controverted subjects for resolution. These two remaining areas of disagreement are, (1) the cost of money [because of a pending petition for approval of additional financing (Docket No. 800562-WS)], and (2) the expense for an additional field laborer hired subsequent to the test year, which the utility seeks to have included as a pro forma expense.

4. Based on the stipulation of the parties, the following schedule sets forth the rate base of Cooker City Utilities (Exhibit 15):

Based on the stipulation of parties, prior to any consideration of the allowance of any expense for the laborer hired subsequent to the test year, the following schedule sets forth the utility's operating statement (Exhibit 15):

Water Sewer

Operating Revenues $ 368,562 $ 489,886 Operating Expenses:

one additional laborer hired after the test year, the estimated annual expense is approximately $7,240. However, to the extent that this employee was hired due to an increase in the number of customers subsequent to the test year, or due to plant capacity not used and useful, it is not a proper pro forma adjustment. Without an affirmative showing that the laborer was necessary during the test year for existing customers, the adjustment should be disallowed, and there is insufficient evidence in this record to support such a finding.

1. On the issue of cost of money, during the test year the utility's capital structure was composed of one hundred percent debt at a stated cost of ten percent. In Docket No. 800562-WS the company seeks Commission authority to borrow an additional sum of $450,000, and it plans to amend this application to include authority to borrow $400,000 more in order to make refunds to customers in compliance with a Commission order which was upheld in Cooper City Utilities, Inc. v. Mann (Fla. Sup. Ct. Case No. 58,047, September 12, 1980). However, the utility's proposed debt has not yet been approved by the Commission, and will not be incurred until some time in the future, if approved. In these circumstances, it is not appropriate to take the cost of new debt into consideration in determining cost of capital in this rate case. The evidence in the record supports a ten percent cost of capital.

2. The earned rate of return for the water system is a negative 16.33 percent. The earned rate of return for the sewer system is 10.57 percent. Therefore, the utility's water rates should be increased, and its sewer rates should be decreased, to achieve an overall ten percent rate of return. Accordingly, the annual revenue requirement for the water system is $564,370, which amounts to an annual revenue increase of $195,808. The annual revenue requirement for the sewer system is $485,067, which amounts to an annual revenue decrease of $4,819.

   
   

   Rate Structure

   
   

3. The present rates of Cooper City Utilities are structured in the conventional manner, consisting of a minimum gallonage charge and a one-step excess rate over the minimum. The utility proposes. rates with the same basic structure, but with changes in the minimum charge and the minimum gallonage allowance. However, the Commission has consistently taken the position that any rate that requires customers to pay for a minimum number of gallons, whether used or not, is discriminatory. Invariably, a base facilities type of rate structure has been required to be implemented in these circumstances.

   
   

4. Under the base facilities charge, each customer pays a pro-rata share of the related facilities cost necessary to provide service, and in addition, pays only the cost of providing the service actually consumed under the gallonage charge. The evidence in this record supports the implementation of the base facilities charge form of rate structure.

   
   

5. Under its tariff, Cooper City Utilities is authorized to charge guaranteed revenues in an amount equal to the minimum rate for water service and the applicable rate for sewer service for each equivalent residential connection to be served for a period of one calendar year in advance. Under the base facilities charge type of rate structure, the utility should be authorized to collect guaranteed revenues solely in the amount of the base facilities charge.

   
   

   CONCLUSIONS OF LAW

   
   

6. Section 367.081(2) of the Florida Statutes requires the Public Service Commission to fix rates which are just, reasonable, compensatory, and not unfairly discriminatory; and the Commission is required to consider the value and quality of the service, and the cost of providing the service, including debt interest, working capital requirements, maintenance, depreciation, tax and operating expenses incurred in the operation of all property used and useful in the public service. From the foregoing factual findings and these statutory criteria, it is concluded as follows:

1. The quality of the water and sewer service provided by the utility meets all state standards.

   
   

2. The utility's adjusted rate base for water is $725,093 and its adjusted rate base for sewer is $831,648.

   
   

3. The utility's capital structure consists of 100 percent debt, and the overall weighted cost of this debt is ten percent.

   
   

4. The gross annual revenue requirement for water is $564,370, and lie gross annual sewer revenue requirement is $485,067. These revenues represent a

   gross increase in annual water revenue of $195,808, and a gross annual decrease in sewer revenue of $4,819.

   
   

5. The base facility charge form of rate design will produce rates which are just, reasonable, compensatory, and not unfairly discriminatory.

RECOMMENDATION

Based upon the findings of fact and conclusions of law set forth above, it

is

RECOMMENDED that the application of Cooper City Utilities, Inc., 3201

Griffin Road, Suite 106, Fort Lauderdale, Florida, 33312, be granted for the water system and denied for the sewer system, and that the utility be authorized to file revised tariff pages, containing rates designed to produce annual gross revenues of $564,370 for its water system and $485,067 for its sewer system. It is further

RECOMMENDED that the utility be required to implement a base facility charge type of rate structure. It is further

RECOMMENDED that the utility be required to make appropriate refunds to its sewer customers in amounts to be approved by the Commission. It is further

RECOMMENDED that the rate-refunding bond filed in this docket be maintained until the utility has accomplished the refunds indicated above.

THIS RECOMMENDED ORDER entered on this 18th day of November, 1980, in Tallahassee, Florida.

WILLIAM B. THOMAS

Hearing Officer

Division of Administrative Hearings

101 Collins Building Tallahassee, Florida 32301 (904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 18th day of November, 1980.

COPIES FURNISHED:

Andrew T. Lavin, Esquire Post Office Box 650 Hollywood, Florida 33022

Sam Spector, Esquire Post Office Box 82

Tallahassee, Florida 32302

James L. Ade and William

A. Van Nortwick, Esquires Post Office Box 59 Jacksonville, Florida 32201

John W. McWhirter, Jr., Esquire Post Office Box 2150

Tampa, Florida 33601

Alan F. Ruf, Esquire

2801 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

William H. Harrold, Esquire Florida Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

================================================================= AGENCY FINAL ORDER

================================================================= BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION

In re: Application of Cooper City DOCKET NO. 800415-WS (CR)

Utilities, Inc. for a rate increase ORDER NO. 9699

to its water and sewer customers in DOAH CASE NO. 80-1188 Broward County, Florida. ISSUED: 12-16-80

/

The following Commissioners participated in the disposition of this matter: WILLIAM T. MAYO

GERALD L. GUNTER JOSEPH P. CRESSE JOHN R. MARKS, III

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William B. Thomas, held public hearings in this matter on July 16 and 17, and on September 23 and 24, 1980, in Cooper City, Florida. The Division of Administrative Hearings assigned Case No. 80-1188 to the above-noted docket.

APPEARANCES: Andrew T. Lavin, Esquire

Post Office Box 650 Hollywood, Florida 33022

and

Sam Spector, Esquire Post Office Box 82

Tallahassee, Florida 32302

for the Petitioner, Cooper City Utilities, Inc.

James L. Ade and William A. Van Nortwick, Esquires Post Office Box 59

Jacksonville, Florida 32201

for PCH Corporation Intervenor in opposition.

John W. McWhirter, Jr., Esquire Post Office Box 2150

Tampa, Florida 33601 and

Alan F. Ruf, Esquire

2801 East Oakland Park Boulevard Fort Lauderdale, Florida 33306

for the City of Cooper City, Florida, Intervenor in opposition.

William H. Harrold, Esquire Florida Public Service Commission

101 E. Gaines Street Tallahassee, Florida 32301

for the Respondent, Florida Public Service Commission and the public generally.

The Hearing Officer's Recommended Order was entered on November 18, 1980. The time for filing exceptions thereto has expired and no exceptions have been filed. After considering all the evidence in the record, we now enter our order.

ORDER

BY THE COMMISSION:

The Hearing Officer's Recommended Order is as follows:

* * *

"On December 27, 1979, Cooper City Utilities, Inc. filed its application for authority to increase water and sewer rates to its customers in Broward County, Florida. This application, as filed, did not comply with the Commission's minimum filing requirements; but on March 31, 1980, by submitting additional information, the utility had completed the application. Since March 31, 1980, is the date the minimum filing requirements were met, this is when the time limitations set forth in Section 367.081(5), Florida Statutes, commenced.

By Order No. 9352, issued April 29, 1980, the Commission suspended the rates initially proposed by the utility, but granted an interim increase in water rates. Water revenues were increased by $141,135, so as to produce annual revenue of $517,756. Because the Commission's analysis indicated that the sewer system might be generating excessive revenues, Order No. 9352 denied the utility an interim sewer rate increase, and required that $43,000 of annual sewer revenue be placed under bond, and subject to refund to the customers.

The issues to be determined are whether the water and sewer service provided by Cooper City Utilities, Inc., meets relevant quality standards, what amount of revenue is just, reasonable, compensatory and not unfairly discriminatory, in accordance with Section 367.081, Florida Statutes, and the establishment of an appropriate rate structure for the utility.

FINDINGS OF FACT

1. Cooper City Utilities, Inc. provides water and sewer service to its customers in Broward County, Florida, under the jurisdiction of the Commission pursuant to Chapter 367, Florida Statutes. The company was incorporated in 1973. All of the outstanding stock of the utility was owned by Moses Hornstein until his death on October 28, 1979, when ownership thereof became vested in the estate of Moses Hornstein, deceased. The personal representatives of this estate are Gertrude Hornstein, S. Lawrence Hornstein, and Judith A. Goldman. Gertrude Hornstein serves as president of Cooper City Utilities, Paul B. Anton as vice president, and Lawrence Lukin as secretary.

   
   

   Quality of Service

   
   

2. At the hearing, a representative of the Broward County Health Department testified concerning the quality of service. Although some customer complaints had been received, there are no outstanding citations against Cooper City Utilities, Inc., and the quality of the utility's service will be improved when its new lime-softening plant, under construction, is completed in approximately August, 1980. The investigation by the Commission's staff engineer did not reveal any outstanding citations against either the water or sewer treatment facilities. Accordingly, on the basis of the entire record, the evidence supports a finding that the utility is in compliance with all state standards, and that the quality of its water and sewer service is satisfactory.

   
   

   Rate Base and Operating Statement

   
   

3. Between the time in July when public hearings commended, and September

   24 when the hearing concluded, the utility abandoned its position on several matters which had been in dispute, leaving only two controverted subjects for resolution. These two remaining areas of disagreement are, (1) the cost of money [because of a pending petition for approval of additional financing (Docket No. 800562-WS), and (2) the expense for an additional field laborer hired subsequent to the test year, which the utility seeks to have included as a pro forma expense.

   
   

4. Based on the stipulation of the parties, the following schedule sets forth the rate base of Cooper City Utilities (Exhibit 15):

   
   

   Water Sewer

   
   

   Utility plant in service	$2,331,137	$3,723,347
   Plant held for future use	(47,989)	(166,375)
   Accumulated depreciation	(286,651)	(460,297)
   CIAC (net of amortization)	(1,322,487)	(2,302,707)
   Working capital allowance	51,083	37,680

   
   

   Rate Base $ 725,093 $ 831,648

   Based on the stipulation of parties, prior to any consideration of the allowance of any expense for the laborer hired subsequent to the test year, the following schedule sets forth the utility's operating statement (Exhibit 15):

   
   

   Water Sewer

   Operating Revenues $ 368,562 $ 489,886 Operating Expenses:

   Operation 346,916 232,406

   Maintenance 61,750 69,030

   Depreciation 22,447 25,543

   Amortization -0- -0-

   Taxes other than income 55,853 75,043

   Other expenses -0- -0-

   Income taxes -0- -0- Total Operating Expenses $ 486,966 $ 402,022

   Operating Income (Loss) $ (118,404) $ 87,864

   
   

5. On the matter of allowance of sufficient revenue to cover the cost of one additional laborer hired after the test year, the estimated annual expense is approximately $7,240. However, to the extent that this employee was hired due to an increase in the number of customers subsequent to the test year, or due to plant capacity not used and useful, it is not a proper pro forma adjustment. Without an affirmative showing that the laborer was necessary during the test year for existing customers, the adjustment should be disallowed, and there is insufficient evidence in this record to support such a finding.

   
   

6. On the issue of cost of money, during the test year the utility's capital structure was composed of one hundred percent debt at a stated cost of ten percent. In Docket No. 800562-WS the company seeks Commission authority to borrow an additional sum of $450,000, and it plans to amend this application to include authority to borrow $400,000 more in order to make refunds to customers in compliance with a Commission order which was upheld in Cooper City Utilities, Inc. v. Mann (Fla. Sup. Ct. Case No. 58,047, September 12, 1980). However, the utility's proposed debt has not yet been approved by the Commission, and will not be incurred until some time in the future, if approved. In these circumstances, it is not appropriate to take the cost of new debt into consideration in determining cost of capital in this rate case. The evidence in the record supports a ten percent cost of capital.

   
   

7. The earned rate of return for the water system is a negative 16.33 percent. The earned rate of return for the sewer system is 10.57 percent. Therefore, the utility's water rates should be increase, and its sewer rates should be decreased, to achieve an overall ten percent rate of return. Accordingly, the annual revenue requirement for the water system if $564,370, which amounts to an annual revenue increase of $195,808. The annual revenue requirement for the sewer system is $485,067, which amounts to an annual revenue decrease of $4,819.

   
   

   Rate Structure

   
   

8. The present rates of Cooper City Utilities are structured in the conventional manner, consisting of a minimum gallonage charge and a one-step

   excess rate over the minimum. The utility proposes rates with the same basic structure, but with changes in the minimum charge and the minimum gallonage allowance. However, the Commission has consistently taken the postition (sic) that any rate that requires customers to pay for a minimum number of gallons whether used or not, is discriminatory. Invariably, a base facilities type of rate structure has been required to be implemented in these circumstances.

   
   

9. Under the base facilities charge, each customer pays a pro-rata share of the related facilities cost necessary to provide service, and in addition, pays only the cost of providing the service actually consumed under the gallonage charge. The evidence in this record supports the implementation of the base facilities charge form of rate structure.

   
   

10. Under its tariff, Cooper City Utilities is authorized to charge guaranteed revenues in an amount equal to the minimum rate for water service and the applicable rate for sewer service for each equivalent residential connection to be served for a period of one calendar year in advance. Under the base facilities charge type of rate structure, the utility should be authorized to collect guaranteed revenues solely in the amount of the base facilities charge.

    
    

    CONCLUSIONS OF LAW

    
    

11. Section 367.081(2) of the Florida Statutes requires the Public Service Commission to fix rates which are just, reasonable, compensatory, and not unfairly discriminatory; and the Commission is required to consider the value and quality of the service, and the cost of providing the service, including debt interest, working capital requirements, maintenance, depreciation, tax and operating expenses incurred in the operation of all property used and useful in the public service. From the foregoing factual findings and these statutory criteria, it is concluded as follows:

1. The quality of the water and sewer service provided by the utility meets all state standards.

   
   

2. The utility's adjusted rate base for water is $725,093 and its adjusted rate base for sewer is $831,648.

   
   

3. The utility's capital structure consists of 100 percent debt, and the overall weighted cost of this debt is ten percent.

   
   

4. The gross annual revenue requirement for water is $564,370, and the gross annual sewer revenue requirement is $485,067. These revenues represent a gross increase in annual water revenue of $195,808, and a gross annual decrease in sewer revenue of $4,819.

   
   

5. The base facility charge form of rate design will produce rates which are just, reasonable, compensatory, and not unfairly discriminatory.

RECOMMENDATION

Based upon the findings of fact and conclusions of law set forth above, it

is

RECOMMENDED that the application of Cooper City Utilities, Inc. 3201

Griffin Road, Suite 106, Fort Lauderdale, Florida 33312, be granted for the water system and denied for the sewer system, and that the utility be authorized to file revised tariff pages, containing rates designed to produce annual gross

revenues of $564,370 for its water system and $485,067 for its sewer system. It is further

RECOMMENDED that the utility be required to implement a base facility charge type of rate structure. It is further

RECOMMENDED that the utility be required to make appropriate refunds to its sewer customers in amounts to be approved by the Commission. It is further

RECOMMENDED that the rate-refunding bond filed in this docket be maintained until the utility has accomplished the refunds indicated above."

After review of the record, we find the Hearing Officer's findings to be supported by the record, and, therefore, adopt his findings. It is, therefore,

ORDERED by the Florida Public Service Commission that the application of Cooper City Utilities, Inc., 3201 Griffin Road, Suite 106, Fort Lauderdale, Florida 33312, be granted for the water system and denied for the sewer system. It is further

ORDERED that the utility be required to file revised tariff pages containing rates designed to produce annual water revenues of $564,370 and annual sewer revenues of $485,067. It is further

ORDERED that the utility be required to implement a base facility type rate structure. It is further

ORDERED that the utility be required to make appropriate refunds to its sewer customers. It is further

ORDERED that the utility shall submit, within thirty (30) days of the date of this order, its proposed method for making the appropriate refunds to sewer customers. It is further

ORDERED that the rate-refunding bond filed in this docket be maintained until the utility has accomplished the refund required herein. It is further

ORDERED that the increased rates for water service shall become effective for meter readings on or after thirty (30) days from the date of this order. It is further

ORDERED that the utility shall notify its customers of the rate changes authorized herein explaining the reasons for said changes. A letter of explanation is to be submitted to the Commission for prior approval.

By Order of the Florida Public Service Commission, this 16th day of December 1980.

(SEAL)

WHH

Steve Tribble COMMISSION CLERK

Docket for Case No: 80-001188

Orders for Case No: 80-001188