STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
In re: Application for transfer of ) Certificate Nos. 159-W and 111-5 )
from WPC UTILITIES SERVICE, INC. to ) Case No. 80-1203 NORTHWEST UTILITIES OF BROWARD ) PSC Docket No. 770625W COUNTY, INC. )
) In re: Amended application of )
NORTHWEST UTILITIES OF BROWARD COUNTY, ) Case No. 80-1204
INC. for extension of water and sewer ) PSC Docket No. 780902WS service. )
) In re: Show cause to NORTHWEST )
UTILITIES OF BROWARD COUNTY, INC. why ) Case No. 80-1205
Certificate Nos. 170-W and 121-5 ) PSC Docket No. 800181WS shoult not be cancelled. )
) In re: Show cause to WPC UTILITIES ) SERVICES, INC. and NORTHWEST UTILITIES )
OF BROWARD COUNTY, INC. for failure to ) Case No. 80-1206
comply with the provisions of Chapter ) PSC Docket No. 800230WS 367, Florida Statutes, and Chapters )
, 25-10, Florida Administrative ) Code. )
) In re: Application of NORTHWEST )
UTILITIES OF BROWARD COUNTY, INC. for ) Case No. 80-1207
authority to borrow the principal ) PSC Docket No. 800299WS amount of $2,610,000. )
)
RECOMMENDED ORDER
Pursuant to notice, an administrative hearing was held before P. Michael Ruff, Hearing Examiner with the Florida Public Service Commission in Pompano Beach, Florida on May 14, 15, and 16, 1980 and on June 5, 1980. The hearing was ultimately concluded in Ft. Lauderdale Florida on June 6, 1980.
APPEARANCES
For Northwest DAVID B. ERWIN, Esquire Utilities of Broward Woods, Johnston and Erwin
County, Inc. and WPC 1030 East Lafayette Street, Suite 112 Utilities Services: Tallahassee, Florida 32301
For the Florida MARTA M. CROWLEY, Esquire Public Service JAMES O. COLLIER, Esquire
Commission and the Florida Public Service Commission public generally: 101 East Gaines Street
Tallahassee, Florida 32301
For Intervenor, PETER A. KNOCKE, Esquire Markborough Carlton, Fields, Ward, Emmanuel, Properties: Smith and Cutler, P.A.
Post Office Drawer 190 Tallahassee, Florida 32302
For Intervenor, BETTY LYNN LEE, Esquire City of Coconut Prominski and Lee
Creek: 800 East Broward Boulevard, Suite 601 Ft. Lauderdale, Florida 33301
For Intervenor, ANDREW S. MAURODIS, Esquire City of Deerfield 4540 North Federal Highway Beach: Fort Lauderdale, Florida 33308
For Intervenor, BURTON HARRISON, Esquire York Development Bretan and Marks Company: 7200 Bird Road
Miami, Florida 33130
For Intervenor,
Jefferson H. Milner, MILTON A. GALBRAITH, JR., Esquire Mayor of the City of 201 West Palmetto Park Road
Boca Raton: Boca Raton, Florida 33432
For Howard WILLIAM E. SUNDSTROM, Esquire
Osterman: Myers, Kaplan, Levinson, Kenin and Richards
1020 East Lafayette Street, Suite 103
Tallahassee, Florida 32301
Five separate cases are involved, including the application for the transfer of certificates from WPC Utilities Services, Inc. to Northwest Utilities of Broward County, Inc.; the application of Northwest Utilities of Broward County, Inc. for an extension of its present water and sewer service territory; the application of Northwest for authority to borrow additional debt capital; and two show-cause orders issued against Northwest regarding the potential cancellation of its authority to provide water and sewer service to a portion or all of its presently certificated territory. On July 1, 1980 these cases were transferred to the Division of Administrative Hearings, but continued to be assigned to P. Michael Ruff, as Division of Administrative Hearings Hearing Officer, for a recommended order. The five cases were heard on a consolidated basis, and will be treated in consolidated fashion in this recommended order, the basis for which treatment is explained hereinbelow.
Status of the Proceedings
In 1978 Northwest Utilities of Broward County, Inc. (Northwest) filed an application with the Public Service Commission (Commission) seeking to extend or enlarge the geographical area to which it is authorized to provide water and sewer service. The territory lies adjacent to the existing water and sewer treatment plants in Broward County. The territory is located in Palm Beach County just north of the Hillsborough Canal, which forms the boundary between Broward and Palm Beach counties. The plants with which the new territories are proposed to be served are located just south of the canal in Broward County.
Notice of this application was duly published pursuant to Section 367.061, Florida Statutes. At the time of the original notice, the territory proposed to
be served was owned by a firm called Boca Del Mar Associates, a partnership, the general partner of which was Texaco Boca Del Mar, Inc. which in turn is a subsidiary of Texaco, Inc. The territory which is the subject of the application is a planned unit development (PUD) known as Boca Del Mar II comprising approximately 1,019 acres and which will, ultimately contain approximately 5,000 single-family residences.
Inasmuch as protests were filed to the application (Docket No. 780902-WS) the case came on for hearing on April 13, 1979. Upon convening the hearing all protests were withdrawn save the protest of South Palm Beach Utilities Corporation (SPB). On August 7, 1979 the Public Service Commission's Hearing Examiner (the undersigned Hearing Officer) entered a recommended order in which it was found that the docket should remain open for the eliciting of additional evidence in order to more adequately develop a record whereby the Commission could intelligently determine the relative physical, financial and operational capabilities of the utilities vying for the right to serve the territory.
Subsequently thereto, the Commission declined to refer the cause immediately back to the Hearing Examiner for hearing and during the ensuing months additional events and transactions occurred which markedly increased the complexity and the legal and financial impact of these proceedings on these and other parties. Thus, in April, 1980 this proceeding was consolidated with four other dockets, or cases, largely because of the commonality of many of the issues involved in all five cases.
Specifically, after the Examiner's Recommended Order was issued in August, 1979, a number of events occurred which prompted the initiation of the two show- cause proceedings and the financing approval application, as well as the consolidation of the previously filed transfer proceeding, to wit:
South Palm Beach Utilities elected to withdraw its protest of the certificate application described above, leaving the application totally uncontested.
The certificate application itself was amended so that Northwest thus chose to proceed under Section 367.041 Florida Statutes instead of, as formerly, under Section 367.061, Florida Statutes. In so amending, Northwest was permitted to seek an immediate grant of the entire above-described Boca Del Mar II territory instead of being merely allowed to extend its certificated territorial authority in gradual stages as water and sewer lines were extended into the new territory.
The Boca Del Mar PUD was sold in October, 1979 by Texaco, Inc. to Markborough Properties Ltd. (Markborough), a subsidiary of the Hudson's Bay Company of Canada.
Markborough assumed the entire contractual liabilities and responsibilities formerly encumbering Texaco, which bound it to obtain its water and sewer service from Northwest. Additionally Markborough issued a loan commitment in March, 1980 to Northwest Utilities in the sum of $2,610,000 in order to provide necessary capital to construct the water and sewer treatment plant facilities necessary to provide service to their PUD.
Northwest filed an application in Docket No. 800299-WS for approval by the Commission of the proposed loan from Markborough Properties. The question of the approval of this loan application involved issues which directly affect the issues in the certificate application, and resolution of the loan
application is pivotal to a determination of whether to grant the extension of the certificate.
Subsequent to the loan application the Commission entered Show Cause Order No. 9324 in Commission Docket No. 800230-WS directing both Northwest Utilities and WPC Utilities Services, Inc. (WPC) to show cause why each should not have its certificate cancelled or be otherwise penalized for charging for plant or main capacity in excess of that actually available to meet the needs of developers in the pertinent territory of those utilities lying east of the Florida Turnpike, as well as for charging other unauthorized rates and charges (hookups, meters, etc.)
The territory involved in this case certificated to these utilities, and lying east of the Florida Turnpike, is identified in Exhibit 3 by the letter "b". The dispute in this case essentially involves the question of whether the territory initially certificated and granted to WPC Utilities was transferred to Northwest by a transfer of certificates, or alternatively whether only a stock transfer from one utility to the other was effected. The Commission is alleging in this case that only the stock of WPC Utilities was transferred to Northwest and that therefore technically the WPC territory is still certificated to the WPC Corporation, which had not been dissolved at the time the Show-Cause Order was issued, and thus that the application of Northwest tariff rates and charges to customers in that territory is improper.
The issue of the appropriate rates and charges to be imposed by Northwest is germane to the loan application proceeding in that the loan agreement underlying that proceeding contains provisions whereby the various developer charges, as well as revenues attributable to all developments served by Northwest, are to be made available, at least in part, to service that loan.
Because those two cases are closely related and are, in turn, germane to the basic issues in the certificate extension application, the consolidation is appropriate.
Order No. 8821 was issued in Docket No. 770625-WS which had the effect of transferring the stock of WPC to Northwest, although the case involved an application by Northwest to transfer the certificates to Northwest.
Accordingly, Northwest ceased to `consider WPC to be a separate utility after this order was entered and proceeded to conduct all business on its own behalf charging rates in the former WPC territory in accordance with its own tariff, believing that the certificates had been transferred. The order, however, only authorized the transfer of the stock, thus the above rates and charges issue was raised. Since the question of whether the certificates of WPC were transferred to Northwest (and therefore the right to substitute Northwest rates and charges for the former WPC charges) is directly related to the monies available to repay the loan from Markborough Corporation involved in the financing case, which, in turn, is directly related to the efficacy of approving the application for the certificate extension, the motion by Northwest for a Corrective Order addressed to Order No. 8821 in Docket 770625-WS is appropriately consolidated with the other PSC dockets or cases previously discussed.
The issues to be resolved, as alluded to above, are:
Whether Northwest should use its own tariff to compute rates and guaranteed revenue charges for York Development and FDV Westport Properties, Inc. (FDV), the two developers located in the territory east of the Turnpike.
Whether Northwest should be granted an extension of its certificated territory, and whether such an expanded area of service is compatible with Northwest's physical, financial and technical abilities.
Whether the proposed loan from Markborough Properties is legally appropriate and financially or practically feasible given the relative financial and legal positions of the parties to the note.
Whether Northwest certificates numbered 170-W and 121-S should be cancelled (PSC Docket No. 800181-WS).
Whether a corrective order should be issued with regard to Order No. 8821 in Docket No. 770625-WS in order to effect a transfer of the certificates of WPC to Northwest.
FINDINGS OF FACT
Northwest Utilities of Broward County, Inc. and WPC Utilities are the two investor-owned utilities primarily involved in these proceedings. The stock of Northwest is wholly-owned by Ralph Bates and Marlene Bates, his wife. The stock of WPC is owned by Northwest.
The Bateses were involved in land development plans in the early 1970's in the subject area of North Broward County lying west of the Florida Turnpike. No utility service was available at that time to serve that area; so the Bateses applied to the Commission in 1973 for water and sewer certificates. After appropriate proceedings territory lying west of the Turnpike, entirely in Broward County, was granted and certificated to Northwest. Within this territory, the Bateses had plans approved for development of a high-density planned unit development (PUD), (depicted on Exhibit 3, as numbers 1 and 2). At the instance of the Bateses', this land was annexed into the City of Coconut Creek.
The advent of the 1973-1975 economic recession, coupled with a refusal to fund a loan commitment and the inability to obtain debt financing elsewhere, resulted in an inability to develop this PUD. The Bateses had, however, initiated steps to provide service to the development. In 1973 they purchased a one million gallon-per-day (mgd) sewage treatment plant at a cost of $192,879, of which there is now a current balance due of $75,000. No development occurred during 1974 or 1975, when the economic climate in the construction and real estate industry was depressed and the utility received no request for service.
A fifteen-acre tract of land for the plant site had been acquired, but that land was relinquished when the need for service failed to materialize.
In 1976 the Bateses bought the Coral Lakes Mobile Home Park (Parcel #4 on Exhibit 3). This park lies in Broward County and is surrounded by the City of Coconut Creek. In 1978 the Bateses sold the mobile home park, but the Northwest Corporation retained ownership of the water and sewer treatment plants and service to the area has since been provided by Northwest by means of these on-site "package' treatment plants.
In 1977 the prospects for development improved and the Bateses entered into a phased purchase agreement for 175 acres of land (Parcel 3 on Exhibit 3). The intent was to develop this property for single family residences. Service was to be provided to the area through the water and sewer treatment plant located in the WPC utility territory and consequently the certificate transfer application in PSC Docket No. 770625-WE was filed. Northwest also constructed
2500 feet respectively of water and sewer transmission and collection lines in the territory west of the Turnpike (Exhibit 9) at a cost of $90,000.
Development of this property was frustrated, however, due to the refusal of the City of Coconut Creek to grant favorable zoning for the property.
In conjunction with the development of this parcel, Northwest received a request for service from WOK, Inc. ,a subsidiary of ATICO Mortgage Investors, for an 8.5 acre parcel which was part of the original Bates PUD. This developer, however, never executed the proffered development agreement with Northwest. Northwest demonstrated a willingness to contractually commit itself to provide service if needed and initiated acquisition and construction of a plant and other facilities to provide that service.
The need for water and sewer service actually arose only in the area east of the Turnpike (Parcel "b" on Exhibit 3) and necessitated use of the existing WPC treatment plants to provide service to the area. York Development Company was the first entity actually requiring service in any area reflected on Exhibit 3. York acquired land in the City of Deerfield Beach (parcel #5 in area "b" on Exhibit 3) in December, 1977. York sought service from Deerfield Beach and prepared plans which were approved by the City. After determining that Northwest was certificated to serve the area, the City refused to provide service, and York entered into a developers agreement with Northwest on October 16, 1978. The agreement reserved water and sewer plant capacity for the 239 residential units of York's first phase of development. A second agreement entered into March 30, 1979 reserved capacity for an additional 270 units.
Approximately 7 months prior to Northwest's execution of the first agreement with York, the proceedings in the certificate transfer case described above were concluded with the issuance of Order No. 8821 on March 27, 1978. The application filed had sought the transfer of the certificates from WPC Utilities to Northwest Utilities. After negotiations with the Commission (Exhibit 64), Northwest elected to maintain its application as one to transfer the certificates of WPC to Northwest rather than convert it to an application for a stock transfer.
The only active developer in the pertinent territory besides York, FDV- Westport Properties (FDV), began development of a tract of 110 acres in the area identified as Parcel 10 in "b" on Exhibit 3 in October, 1979. A concomitant agreement was signed with Northwest on January 15, 1980. Development is proposed to be in phases, and the provisions of the agreement are similar to those of the York agreement submitted to the Public Service Commission in October, 1978. The first phase of development provides for 80 single family residential units.
The only other customers of Northwest presently receiving service besides those customers in Coral Lakes Mobile Home Park and the York Development (Gates of Hillsborough) are customers in a small mobile home park known as El Rancho Seven, also identified as Parcel 7 in area "a" on Exhibit 3. Service to that development is provided from on-site package treatment plants, and the customers are individually metered.
Rates, Charges and Guaranteed Revenues (Docket No. 800230-WS)
The issuance of Order 8821 providing for a stock transfer rather than a transfer of WPC's certificate to Northwest, coupled with the inauguration of these developments, set the stage for the issuance of Show Cause Order No. 9324 in Commission Docket No. 800230-WS raising the issue of whether the rates,
charges and guaranteed revenues charged to these developers should be those approved for Northwest Utilities or WPC Utilities. The essence of the issue has been stated above.
The action by Northwest in Commission Docket No. 770625-WS, the transfer application, is significant in the context of this rates and charges problem. Northwest and WPC, as determined above, applied for a transfer of certificates and not for a transfer of stock from the latter to the former. It was the intent of the parties in that proceeding that Northwest was to be the only remaining operating entity serving the areas identified as "a" and "b" on Exhibit 3 lying both east and west of the Turnpike. Since the issuance of Order 8821, Northwest has been the only operating utility entity in those areas. Northwest has been the entity entering into all developer agreements regardless of the location of development, and has submitted these agreements to the Commission. The York agreement was submitted to the Commission by the utility in October, 1978, which revealed to the Commission that Northwest was operating east of the Turnpike in the original WPC territory. WPC has filed a final corporate return with the IRS, and its annual report for the year ending December 31,1978 filed with the Commission indicated that the stock and assets of WPC had been transferred to Northwest.
The application and other documents in Docket No. 770625-WS bear the caption "Application for Transfer of Certificate" but the final Order No. 8821 bears the caption "Application for Transfer of the Outstanding Stock of WPC Utilities Services, Inc. to Northwest Utilities of Broward County, Inc., Broward County, Florida, Pursuant to Section 367.071, Florida Statutes". That order then authorizes the transfer of only the stock. Northwest operated under the belief that the certificates had been transferred as requested. Although a technical construction of the order could imply a denial of the application, such an interpretation would only naturally follow if the commission had complied with Section 120.59(2), Florida Statutes which states in pertinent part:
If, in accordance with agency rules, a party submitted proposed findings of fact, or filed any written application or other requests in connection with the proceeding, the order shall include a ruling upon each proposed finding and a brief statement of the grounds for denying the application or request.
Nowhere in that order is there any statement indicating an intention to deny the application as filed. Therefore, it must be inferred that the commission actually intended the certificates to be transferred to Northwest.
At the time the transfer application was filed there were no customers in either the territory of Northwest or WPC. Therefore, there could be no adverse affect to any existing customer by granting the application as filed. Northwest has treated the action of the Commission as amounting to a merger of the two utility companies. If the Commission had acted in accordance with the application as filed as, inferentially, it must have intended, then no question would have arisen regarding Northwest's assessment of these charges.
York Development executed a developer's agreement with Northwest on October 16, 1978 and is the first developer executing such an agreement and actually obtaining service from Northwest. Section 367.081(1), Florida Statutes states as follows:
Rates and charges being charged
and collected by utilities shall be changed only by approval of the commission.
When Northwest signed the development agreement on October 16, 1978 no rates or charges were being charged or collected by either utility. Therefore, neither WPC nor Northwest required Commission approval to alter rates and charges prior to October 16, 1978. Thus, at that point in time, the rates and charges which York agreed to pay in that agreement were not improper. Indeed WPC could have increased its rates to the same level as Northwest and signed such an agreement with York and York would be in the same posture regarding the propriety of the rates as it presently is. Therefore, the rates contracted for with York are proper.
Thus, all the parties, including the Commission, originally intended that the two utility operations should merge or that Northwest should remain the only utility entity providing service to the subject territories. The language in Order 8821 transferring stock only was in error. The only questions then remaining regarding this subject matter involve the charging of guaranteed revenues to York and FDV.
The level of guaranteed revenue to be charged was determined by adding together Northwest's minimum charge for water and sewer, which coincidentally, is the same method of computing then employed by South Palm Beach Utilities (SPB), and is a method approved by the Commission in past decisions when confronted with a dearth of data required by Rule 25-10.121(12), Florida Administrative Code. The level of guaranteed revenues is thus appropriate.
Northwest was required to charge guaranteed revenues in order to recover costs of operation so as to make the agreement to provide service to York and FDV financially feasible. Both those developers agreed in writing to pay guaranteed revenues as defined in the above rule and, inasmuch as they are a device to place the risk of development on a developer instead of on a utility, the agreements between Northwest and those developers accomplished that end.
See Rule 25-10.138, Florida Administrative Code.
There is no rule extant that requires a utility to have an approved service availability policy as a condition precedent to charging guaranteed revenues. In fact, of the more than 500 utilities regulated by the Public Service Commission, less than ten percent have approved service availability policies. And, indeed, Rule 25-10.138 contemplates the filing of "special contracts" with the Commission. That portion of the above developers agreements dealing with guaranteed revenues renders those agreements to be "special contracts" within the meaning of the Rule, and since the Rule provides that the Commission shall approve such contracts, the fact of such approval has become an issue in this proceeding. The Commission has alleged that the York contract was never-approved since no document approving it was ever transmitted to the utility. Nor was any timely disapproval ever served on the utility. The Commission never responded to the filing of the contract between October, 1978 and the issuance of Show Cause Order 9324 in April, 1980. In 1979 York inquired regarding the filed agreement and received no response. Thus, under the facts of this case, the Commission's silent acquiescence must be found to constitute tacit approval of the contract. Northwest should not be penalized for failure of the Commission to act. It is not unreasonable for Northwest and York, after so much passage of time, to have assumed that the contracts were appropriate.
Indeed, York and Northwest, as well as FDV, entered further similar agreements in reliance on the lack of objection by the Commission.
There is then no justification for cancellation of Northwest's certificates to serve the subject territory (area "b" on Exhibit B). Further, the evidence submitted by the City of Deerfield Beach is deemed irrelevant to any matters under consideration in this docket, since that City is not authorized to serve in Northwest's certificated territory. Even assuming arguendo that Northwest's certificates (or WPC's) were cancelled, serious legal impediments must be overcome before Deerfield Beach could serve the York development. For instance, all the lines through which service would be provided are owned by Northwest Utilities, and the public interest would certainly not be served by duplication of those lines or by duplicate payments of contributions in aid of construction to Deerfield Beach, or by the rendering useless of a new water treatment plant which is presently approximately 50 percent completed and represents a substantial investment.
The Certificate Application (Docket #780902-WF)
Section 367.041(1), Florida Statutes, provides as follows:
Application.-- Each applicant for certificate shall:
Provide information required by the commission which may include a detailed inquiry into the ability of the applicant to provide service, the territory and facilities involved, and the existence or non-existence of service from other sources within geographical proximity to the territory applied for;
Section 367.051(3), Florida Statutes, provides in pertinent part as follows:
(3) In either event, the commission may grant a certificate, in whole or in part or with modifications in the public interest, or,
after notice and hearing, deny a certificate.
Resolution of the certification issue requires consideration of the capability of Northwest to provide the proposed service, a consideration of the quality of the service to be provided and the feasibility of the proposed extension of service from a financial, economic and technical point of view.
Markborough Properties has a substantial need for water and sewer service to be provided its development which will ultimately consist of approximately 5,000 homes as previously described. Northwest presently has a sewage treatment plant with a capacity of 260,000 gallons per day, although the present capacity is limited to 100,000 gallons per day (GPD) until the percolation ponds are approved for additional flow. The 260,000 GPD plant will be utilized to full capacity in the immediate future. Northwest also has facilities to provide water to the York and Coquina Lake Developments which is chlorinated, but not otherwise treated. The Broward County Health Department has mandated fully treated water for these developments in the very near future, and water supplied residents of the York Development at Gates of Hillsborough should be likewise improved even though all water produced presently meets state
regulatory standards. There is no question that if Boca del Mar II is to be served by the applicant, additional facilities for water and sewage treatment must be developed.
In order to provide service to Boca Del Mar II as well as to existing or potential users in the area east of the Florida Turnpike (area "b" on Exhibit 3), a 1.5 MGD sewage treatment plant will be added to the existing 260,000 GPD sewage plant with the result that Northwest will be capable of treating sewage in the amount of at least 1.76 million gallons per day. Thereupon, the plant would have the capability to treat all sewage produced by Boca Del Mar II as well as the other developments named. The sewage from Boca Del Mar II would be collected in that development then pumped to the treatment facility located at the present plant site south of the Hillsborough Canal. The sewage would be given secondary treatment there, with the effluent stored in percolation ponds on the treatment plant site until the treated effluent is pumped to a golf course within the Boca Del Mar II development for disposal by spray irrigation.
All sewage generated in the developments served by Northwest in Broward County would eventually be pumped south to the North Broward County regional sewage treatment facility. In order to implement this concept Northwest has entered into a "large user's agreement" with the Broward County Utilities Department. The sewage generated in Broward County would be treated initially in the sewage treatment plant constructed on Northwest's site. When that sewage treatment plant is used to 50 percent of its capacity, Northwest would be contractually obligated with Markborough Properties to start procedures that would permit the Broward County generated sewage to be treated elsewhere (the North Broward Regional Sewage Treatment Facility), leaving the Northwest Sewage treatment plant dedicated for the use of Markborough alone. Northwest has entered into a contract with Davco, Inc. to purchase and construct 1.5 MGD sewage treatment plant, conditioned upon favorable action by the Commission on this certificate application. The plant can be constructed and in full operation within nine months.
Northwest has prepared detailed engineering plans for a two MGD water treatment facility to provide fully-treated water to Boca Del Mar II as well as the existing developments of York and Coquina Lakes. This facility has been permitted for construction by the Department of Environmental Regulation, and a permit has been obtained from the South Florida Water Management District (SFWMD) authorizing withdrawal of 315 million gallons of ground water per year. SFWMD does not object to Northwest's crossing the Hillsborough Canal with the necessary water main. Construction is approximately 50 percent complete on the water treatment plant, and the plant can be operational in approximately four months.
The water treatment concept espoused by Northwest is feasible and practical. (The legislature has mandated removal of any consideration of political or property boundaries in the allocation and use of water in the state. See Section 373.223, Florida Statutes.) Similarly, with the sewage treatment concept proposed by the utility, there is no statutory impediment to crossing political boundaries in the process of sewage collection and treatment. Both the Broward County Environmental Quality Control Board and the Department of Environmental Regulation are agreeable to the proposed concept of sewage treatment and are willing to resolve any problems occasioned by the crossing of the county boundary with collection lines in favor of the utility's proposal.
Northwest has developed detailed cost analyses regarding construction of the water and sewage treatment facilities to serve Boca Del Mar II.
Northwest has also developed engineering cost estimates to provide transmission facilities to enable connection to the Broward County Regional Sewage Treatment Facility. The costs of construction were developed in accordance with sound engineering principles and current market prices for materials, equipment and labor and are reasonable. Several factors contribute to the reasonableness of the construction costs. Ralph Bates, a contractor experienced in this type construction, will perform a substantial part of the plant construction and can accomplish this work for substantially less than a third party contractor.
Additionally, Northwest has obtained a loan commitment at an extremely favorable interest rate considering the cost of money in today's market.
When these facilities are constructed Northwest will be capable of providing water and sewage collection and treatment service to Boca Del Mar II and to the territory east the Florida Turnpike (area "b" of Exhibit 3). Northwest will be able to provide good quality service with the facilities to be constructed, and the proposed financing arrangement discussed hereinafter will render the extent and type of service proposed by Northwest financially and economically feasible.
The remaining issue to be addressed in this certificate proceeding, having determined the capability of the applicant, concerns the question of the availability of adequate service from other sources.
Section 367.051(3), Florida Statutes, states in pertinent part:
. . .The commission shall not grant a certificate for a proposed system, or for the extension of an existing system, which will be in competition with, or duplication of, any other system or portion of a system, unless it shall first determine that such other system or portion thereof is inadequate to meet the reasonable needs of the public
or that the person operating the system is unable or refuses or neglects, after hearing on reasonable notice, to provide reasonably adequate service.
Section 367.041(1) states in pertinent part as follows:
. . . Provide information required by the commission, which may include a detailed inquiry into the ability of the applicant to provide service, the territory and facilities involved, and the existence
or non-existence of service from other sources within geographical proximity to the territory applied for . . .
The potential sources of service within a reasonable, feasible geographical proximity to Boca Del Mar II are the City of Boca Raton and South Palm Beach Utilities (SPB).
The City of Boca Raton raised no objection to a grant of the certificate and authority sought by Northwest. The city previously refused to serve the Boca Del Mar area, and if Markborough were to attempt to obtain service from the city inordinate delays would result. Markborough is
experiencing a cost of capital of $100,000 per week in interest and other charges for each week that its development is delayed. The consistent ability of the City of Boca Raton to provide adequate water service to the development has not been adequately demonstrated. The city has a sporadic water shortage problem and is in the process of constructing new water treatment facilities that may partially alleviate the problem, but that relief is 18 months away.
The city is contemplating embarking on what is known as a "201 plan" to construct and operate a regional sewage treatment facility pursuant to the Federal Water Pollution Control Act as amended in 1972. 33 USCS Section 1281. This plan is only in its initial stages, and it will be several years before the study and any resulting construction is completed and sewage treated.
Markborough has no desire to have service provided by South Palm Beach Utilities. It is also questionable whether SPB is seriously interested in providing service. No application for a certificate for this territory has ever been filed by SPB, and the protest to the Northwest application has been withdrawn by SPB. If service were provided by SPB to Boca Del Mar II, it would disrupt the provision of service to York and FDV from an operational and financial standpoint. Such an eventuality would not serve the public interest and since the same application process undertaken by Northwest would also be a prerequisite to the provision of service by SPB, there would be an unacceptable delay attendant to any provision of service by SPB, even assuming no engineering or financial impediments arose. Further, a minimum of seven months would be necessary for completion of necessary expansion to provide service even if it already had authority to do so. Nearly all of SPB's present water and sewage plant capacity is already committed. Thus, the present and future customers would be most clearly satisfied and served by a grant of a certificate to Northwest. That entity is the most capable from an an engineering and operational standpoint of constructing and providing required adequate service in the shortest time and, as will be seen, will have adequate financial resources available to underwrite this effort.
Application for Approval of Debt Financing (Docket #800299-WS)
In order to have the financial resources available to expand facilities to provide service to Boca Del Mar II and to upgrade quality of service to other customers, Northwest must obtain capital from outside sources. These funds are most readily available from Markborough Properties in the form of a loan. Markborough is keenly interested in a resolution of these and other delays to Boca del Mar II's development, particularly due to the fact that it is experiencing interest and opportunity costs of $100,000 per week for every week of delay in implementing its development plans. Consequently, Markborough has signed a loan commitment to Northwest for an aggregate principal sum of
$2,610,000. A loan agreement to accompany this commitment has been proposed which contains the requirements of the lender and the terms of the arrangement. The loan up to the above aggregate amount will be evidenced by a promissory note with interest at a less-than-market rate of 10 percent per annum.
The agreement provides for various advances under the terms of the note for specific items of construction of the water and sewage facilities. Interest would be paid monthly upon the outstanding principal balance of the note commencing one month after its execution, and interest only will be paid for two years or until the note is fully advanced. At that point, called the advance date, the entire principal and interest will be set up on a 30-year amortization schedule, with level principal and interest payments, with those payments to be made over a period of five years. After five years, the existing balance on the note would be fully due and payable as a "balloon" payment.
There are provisions for pre-payment of principal and interest out of various developer contributions-in-aid-of construction (CIAC) that would be attributed to the interest and then principal outstanding on the note.
The note would be secured in a customary manner. There would be a first mortgage lien on the real property, which is basically the water and sewer plant site and improvements. Security interests in the present and future personal property, equipment and inventory on the two plant sites would also be given the lender. The entire agreement would be personally guaranteed by the stockholders, Ralph and Marlene Bates, and in conjunction with that they would also pledge all the capital stock which they own in Northwest, as well as the stock which that company owns in WPC. There further is an assignment of present and future developer contributions-in-aid-of construction that would be attributed to the reduction of principal and interest by a stated formula.
All CIAC payments would be directed to Markborough to be applied as called for by Paragraph 9.2 of the loan agreement. The allocation of those payments would be as follows: 75 percent of the CIAC from developers within the Boca Del Mar II development would be retained by Markborough, specifically to reduce the principal and interest on the loan. The remaining 25 percent of those CIAC payments would be disbursed to the borrower, Northwest. Twenty-five percent of the CIAC from developers not within the Boca del Mar II area would be similarly retained and used for reduction of the loan. Fifty percent would be retained by Markborough in an interest-bearing escrow account for use by Northwest to facilitate either the expansion of its plant facilities, to assist it in rendering service to other developers or to make the necessary capital payments to enter into a bulk sewage treatment contract with Broward County.
The remaining 25 percent of non Boca Del Mar II CIAC payments would go to Northwest.
Because of the low interest rate, Markborough and Northwest have agreed to what is commonly referred to in the construction and financing industry as an "equity kicker". This equity incentive or right of the lender is an amount equal to 40 percent of such portion of the net proceeds of the sale or disposition of assets or stock, (after debts securing such assets or stock and sales expenses, but prior to income taxes) as the number of units under service by Northwest (and number of units to be built upon land then under contract to be sold to a subdeveloper) in Boca del Mar II bears to the total number of units under service by Northwest, including units under contract, but not yet in service. This provision is customary in such financing arrangements and is allowed by Section 687.03(4), Florida Statutes. This "equity kicker" in effect provides an additional incentive to the lender to offset the below-market interest rate, and it survives the satisfaction of the mortgage debt and loan if there is ever a sale of all or a portion of the stock or assets of the utility.
This "equity kicker" provision would inure to the benefit of customers of the utility by providing lower utility rates through the effect of the lower interest cost provision. Northwest would provide this "additional interest" out of any profits from a sale, and therefore only the principals of Northwest would ever feel any impact from this arrangement.
The safeguards to the lender are numerous, but they are safeguards similar to conditions normally imposed for construction loans of this type and magnitude. The principal disadvantage of this loan proposal and agreement is that Markborough would have great control over virtually all the operations of the utility. It would have representation on its board of directors, would
participate in all major decisions and possibly even in the day-to-day operations of the utility, which control could potentially extend to other developments and not just Boca Del Mar II. In fact, the agreement ultimately calls for the utility's capacity to be largely dedicated to the sole use of Markborough. The major advantage of the loan agreement is that the utility would be able to obtain financing at a low rate of interest in order to construct the facilities necessary to serve Boca Del Mar II. Through this construction, the utility will be able to serve a much larger customer base and will be able to obtain a more viable financial position. York Development and other creditors of the utility would be paid off, capital available for future use would be accumulated under the terms of this agreement, and finally management expertise would be available from Markborough which could greatly enhance the effectiveness of the utility's operation.
In order to hasten construction of improved water treatment facilities, York has made various short-term loans to Northwest. Both York and Northwest contemplate that the indebtedness would be discharged upon securing of long-term financing. Under the terms of the Markborough loan, Northwest would draw down a substantial portion of the loan at closing. The monies obtained on the first "draw" would satisfy substantially all the current indebtedness of Northwest. All existing mortgages, some of which are in default, would be satisfied, and Markborough would become the first lien holder. The Markborough loan is thus designed to achieve the objectives of providing the utility with funds to construct a plant to serve Boca Del Mar II; to help Northwest become a financially viable utility able to provide quality service to customers; to enable Northwest to repay current creditors, including York Development to whom it owes some $185,000; to accumulate enough CIAC to aid in retiring the debt; and to provide Markborough with an equity interest and sufficient control over the operations of the utility to ensure continuous quality service to its development. The Markborough loan, then, is part of a comprehensive plan by this utility to ensure financial viability and continuous quality water and sewer service to York and other customers in an expanding territory in the future. The Markborough loan proposal achieves all the above objectives and represents the only viable means offered to achieve them.
The remaining issue concerning this financing arrangement is whether the utility has the ability to repay the debt. If only the known developments in the area east of the Florida Turnpike are considered, with only the minimum rates chargeable to them used to forecast operating revenues, Northwest will have the capability of repaying the money borrowed from Markborough. However, there are two occasions in the projections of available cash flow to service debt (to 1985) when a cash deficit might occur. At the end of 1980 there is a relatively immaterial predicted deficit. There will be a deficit at the end of 1983, when it will be necessary to construct the transmission line to the Broward County sewage treatment facility. That deficit at the end of 1983 has been provided for, however, in that York Development has agreed to advance money to cover that deficit if it should prove necessary.
In effect, the worst conceivable situation that could occur should Northwest be unable to service the debt would be foreclosure and ultimate ownership by a financially sound development company, Markborough, which has a high degree of management expertise as well as a keen interest in having quality water and sewer service provided its development in order to successfully market it. Thus, should Markborough ever become the operator of the utility, there is no conceivable way that such an event would not inure to the benefit of all customers served.
Show Cause Order No. 9305 (Docket #800181-WS)
Certificates 170-W and 121-S were granted to Northwest after application made in 1973. The area encompassed by these certificates is identified as "a" on Exhibit 3. The certificates were ultimately granted to the utility in April, 1974, and the above-referenced Show Cause Order contains allegations proposing that the Commission cancel these certificates. The allegations in the Show Cause Order are essentially that the certificates were issued on the premise that service was needed in this service area, but that no service has been provided, and therefore the premises upon which the certificates were issued no longer exist and they should be cancelled.
The certificates were issued on the premise that service was needed in the territory, and service was initially needed at that time for the high density Bates PUD discussed above. The need for service ultimately failed to materialize because of economic conditions, but since economic conditions change, the need for service can and has arisen once again. Thus, consideration of this issue must take into consideration current developments and economic realities, including the steps recently taken by Northwest to expand its service.
Northwest has built or acquired plant facilities for the purpose of providing service in this territory. It purchased in 1973 a one-MGD-sewage- treatment plant, which is now stored on the Bates's, property and available for use if an appropriate development should require it in this territory. Further, to provide service where needed, Northwest has invested in the on-site package plants to serve Carol Lakes Mobile Home Park. A need for service arose in the park in 1976, and Northwest provided it. Another apparent need arose in 1977 in the area identified as Parcel 3 on Exhibit 3, and Northwest took steps to provide that service. Mains were installed at a cost of $9,000, and the acquisition of the WPC plants was undertaken at a cost of $300.,000. The actual need for service did not materialize, but there is no question that Northwest stood ready and held itself out to provide service upon request. Its investment of substantial amounts of money, and its demonstrated willingness to provide service when requested, indicates that Northwest has taken the obligation imposed by those certificates seriously, and any actual cancellation would, in effect, deprive Northwest of effective use of a substantial investment in property without just compensation.
Given that the rate-making criteria in Section 367.081, Florida Statutes, provides that a return through rates can only be allowed a utility on property or investment which is "used and useful" in the public service, the Commission has uniformly insisted, for rate-making purposes, that investments be prudent and in accordance with this statutory standard. Therefore, Northwest should not be required to run the risk imposed by this Show Cause Order of losing its territory merely because it has not built a plant and laid down mains and lines throughout the territory in question, since no service in that territory has heretofore been needed. There is no requirement in the above- cited statute nor in decisional law which would provide that a utility should place lines and/or plants throughout a territory where no service is yet required and for which no request has been received; and indeed the Commission has uniformly discouraged and penalized that practice in numerous past decisions.
The only possible alternative source of service to this territory is the City of Coconut Creek. The city has no sewage or water treatment facilities and would serve the area by having sewage treated at the Broward County facility
which Northwest would probably use in the future. There is no showing that the public would gain any cost advantage by obtaining service from the City of Coconut Creek as opposed to Northwest. The city's argument that it should serve the territory since it lies within its city limits is unpersuasive. Many cities or portions of cities are served by privately-owned facilities in this state.
Further, only certain portions of Northwest's territory lie within the city limits of Coconut Creek. Those are the areas where the highest density development is probable, such that if it were given the right to serve those areas, only Coconut Creek would obtain the bulk of the revenue, leaving Northwest to serve low density areas with only marginal practicality due to the low resultant revenues. The provision of service to the area outside the city limits of Coconut Creek is only feasible if the utility serving the area also retains the right to serve those within the city limits.
An additional problem would occur if this certificated territory were cancelled. Coral Lakes Mobile Home Park lies surrounded by the City of Coconut Creek, so if the area within the city limits of Coconut Creek was deleted from the Northwest certificates, the mobile home park would become isolated, rendering it extremely difficult to upgrade and maintain quality service to the park by Northwest, which would remain obligated to serve it. Thus, deletion of the territory within the city limits of Coconut Creek from the certificates of Northwest would render service to those areas and contiguous areas operationally and financially unfeasible.
Northwest has not failed to provide service to any person reasonably entitled thereto or requesting it. It has thus far offered service to every person or entity making a request.
CONCLUSIONS OF LAW
Section 367.081(1), Florida Statutes, provides as follows:
Rates and charges being charged
and collected by a utility shall be changed only by approval of the commission.
Section 367.041(1), Florida Statutes, provides as follows:
Application. -- Each applicant for a certificate shall:
Provide information required by the commission, which may include
a detailed inquiry into the ability of the applicant to provide service, the territory and facilities involved,
and the existence or non-existence of service from other sources within
geographical proximity to the territory applied for;
Section 367.051(3), Florida Statutes, provides:
In either event, the commission may grant a certificate, in whole or in part, or with modifications in the public interest, or, after
notice and hearing, deny a certificate. The commission shall
not grant a certificate for a proposed system, or for the extension of an existing system, which will be in competition with or duplication
of, any other system or portion of a system, unless it shall first determine that such other system or portion thereof is inadequate to meet the reasonable needs of the public or that the person operating
the system is unable or refuses or neglects, after hearing on reasonable notice, to provide reasonably adequate service.
Section 367.111(1), Florida Statutes, states as follows:
Each utility shall provide service
to the territory described in its certificate within a reasonable time. If the commission finds, after notice and hearing, that any utility has failed to provide service to any person reasonably entitled thereto, it may amend the certificate to delete the territory not served or not properly served by the utility or it may rescind the certificate.
Having considered the foregoing Findings of Fact and the above statutory criteria, it is concluded as follows:
That the rates, charges and guaranteed revenues charged by Northwest Utilities to developer customers located in the territory originally granted to WPC Service, Inc. are legally proper and should be allowed. Northwest and WPC applied for Commission approval of a transfer of the WPC water and sewage certificates. Neither utility nor the Commission at the time envisioned a simple transfer of stock, as evidenced by reference in all pleadings and documents in that case (Docket No. 770625-WS) to the application as one seeking the transfer of certificates. The totality of the substantial, competent evidence in the record reveals that the intent was to transfer the certificates, although the language in Order No. 8821 in that docket provided for a transfer of stock only. Accordingly, a corrective order should issue with reference to Order No. 8821 confirming transfer of these certificates. There is an inherent power of the Commission to modify its prior orders if there is a showing of changed circumstances or any demonstrated public need to alter the order. See Austin Tupler Trucking, Inc. v. Hawkins, 377 So.2d 679 (Fla. 1979); People's Gas System, Inc. v. Mason, 187 So.2d 335 (Fla. 1966); Richter v. Florida Power Corp., 366 So.2d 798, 800 (2d Dist. Ct. App. 1979). Northwest has demonstrated by substantial, competent evidence that the intent of the Commission, as well as WPC at the time of the original proceeding was to transfer the certificates rather than the stock, and further that the Commission was on notice that Northwest had become the single utility operating in the pertinent territory and that WPC had ceased operations as a separate entity. The Commission, however, for more than one and a half years took no action to carry out the actual language of Order No. 8821. Thus, since the language in the order does not comport with the demonstrated and proven intent of all parties to the proceeding an order correcting that language to provide for transfer of the certificates should be entered.
Inasmuch as it is concluded that Northwest properly holds the authority to provide utility service in the area formerly served by WPC Services, Inc., then the application of the rates, charges and guaranteed revenue charges of Northwest Utilities is proper and should be allowed.
Contracts between Northwest and York Development and FDV-West Port Properties were filed with the Commission as special contracts pursuant to Rule 25-10.138, Florida Administrative Code. These contracts providing for the charging of guaranteed revenues by Northwest to these developers were filed with the Commission in October of 1978, and the utility never received any response from the Commission regarding any element of disapproval. The Commission thus acquiesced in the implementation of these guaranteed revenue contracts and must be deemed to have tacitly approved them. Neither the guaranteed revenue contracts nor the level of guaranteed revenues provided for therein have been shown by substantial, competent evidence to be in violation of the above statutory criteria or the Commission's rules. Therefore, they should be approved. Northwest should continue to provide service east of the Florida Turnpike (in area "b" on Exhibit 3). The public interest would not be served, as envisioned by the above statutory authority, by duplication of the lines or duplication of payments of contributions-in-aid of construction to the City of Deerfield Beach as an alternative to Northwest providing service to the subject area, nor would it be served by rendering useless a complete water treatment plant which is 50 percent constructed at a substantial cost. Show Cause Order 9324 in Public Service Commission Docket No. 800230-WS (DOAH Case No. 80-1206) should be dismissed and that case closed. The motion filed by Northwest for a corrective order addressing Order No. 8821 in Public Service Commission Docket No.770625-WS (DOAH Case No. 80-1203) should be granted, the final legal transfer of the certificates effected, and that case closed.
The public interest will be most satisfactorily served by a grant of a certificate to Northwest Utilities of Broward County, Inc. That entity has been shown by substantial, competent evidence to be best able in terms of financial, operational and technical capability to provide the required service to the subject territory in the shortest period of time. Service from other sources within geographical proximity to the territory applied for is not presently adequate to meet the reasonable needs of the public in that territory. Other potential sources of service will not be of an adequate capability to provide such service within a reasonable period of time, nor within the time when service is required by those above-named entities requesting it. Northwest Utilities of Broward County, Inc. has been shown to have that capability. Further a grant of such authority will not duplicate, or be in competition with, any other readily available water and sewer utility system. Therefore, the application in Public Service Commission Docket No. 780902-WS (DOAH Case No. 80- 1204) for a certificate to serve the Boca Del Mar II territory in Palm Beach County (identified as "C" on Exhibit 3) should be granted and the case closed.
Approval of the subject loan in this case from Markborough Properties will be in the public interest. The Markborough loan is part of a comprehensive plan by the utility to insure its financial viability, and it has been shown to be the most feasible means of financing the necessary installation and expansion of facilities to provide service to the subject territories. Further, a detailed demonstration in this record establishes the capability of the applicant to repay the principal and interest attributable to the Markborough loan. Finally, should Northwest Utilities ever prove unable to repay the loan such that foreclosure by the mortgagee, Markborough, occurred, such an eventuality would pose no hazard to the quality of water and sewer utility
service provided to the customers. Markborough, which has a high degree of interest in providing quality water and sewer service to its own area, and possesses the necessary technical and managerial expertise to properly do so, would become the owner and operator of the system. The financing application should be approved and Docket No. 800299-WS (DOAH Case No. 80-1207) should be closed.
Northwest Utilities of Broward County, Inc. has not failed to provide service to any person reasonably entitled thereto. The utility has provided service or offered to provide it, to any person or entity making a request heretofore. Further, the utility has taken appropriate steps to provide service to the territory described in that certificate within a reasonable time after the need for such service was established. Thus there is no legal basis upon which the Public Service Commission may cancel the certificate. Show Cause Order No. 9305 should be dismissed and Docket No. 800181-WS (DOAH Case No. 80- 1205) should be closed.
Having considered the substantial, competent evidence in the record, the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the application of Northwest Utilities of Broward County, Inc. to extend water and sewer service to the territory known as Boca Del Mar II, be granted. It is further,
RECOMMENDED that the application of Northwest Utilities of Broward County, Inc. for authority to borrow the principal amount of $2,610,000 from Markborough Properties Ltd. be granted. It is further,
RECOMMENDED that Public Service Commission Show Cause Orders Nos. 9324 and 9305 be dismissed. It is further
RECOMMENDED that the Motion for a Corrective Order addressed to Order No.
8821 in Public Service Commission Docket No 770625-WS filed by Northwest Utilities of Broward County, Inc. be granted.
DONE and ENTERED this 21st day of August, 1980, in Tallahassee, Florida.
P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
David B. Erwin, Esquire Johnston and Erwin
1030 E. Lafayette Street Suite 112 Suite 601
Tallahassee, Florida 32301 Marta Crowley, Esquire
James O. Collier, Class B. Practitioner
Public Service Commission
101 E. Gaines Street Tallahassee, Florida 32301
Peter A. Knocke, Esquire Carlton, Fields, Ward, Emmanuel,
Smith and Cutler, P.A. Post Office Drawer 190 Tallahassee, Florida 32302
William E. Sundstrom, Esquire 1020 E. Lafayette St.
Suite 103
Tallahassee, Florida 32301
Betty Lynn Lee, Esquire Prominski and Lee
800 E. Broward Boulevard
Ft. Lauderdale, Florida 33301
Andrew S. Maurodis, Esquire 4540 N. Federal Highway
Fort Lauderdale, Florida 33308
Burton Harrison, Esquire Bretan and Marks
7200 Bird Road
Miami, Florida 33130
Milton A. Galbraith, Jr. City Attorney
201 W. Palmetto Park Road Boca Raton, Florida 33432
| Issue Date | Proceedings |
|---|---|
| Jun. 15, 1990 | Final Order filed. |
| Aug. 21, 1980 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Nov. 17, 1980 | Agency Final Order | |
| Aug. 21, 1980 | Recommended Order | Grant the Motion for Protective Order. |
