STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SEMINOLE UTILITY COMPANY, )
)
Petitioner, )
)
vs. ) CASE NO. 80-1375
) FLORIDA PUBLIC SERVICE COMMISSION )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, R. L. Caleen, Jr., held a formal hearing in this case on September 17 and 18, 1980, in Winter Springs, Florida.
APPEARANCES
For Petitioner: Hal H. Kantor, Esquire
Post Office Box 2809 Orlando, Florida 32802
For Respondent: Samuel H. Lewis, Esquire
Public Service Commission
101 East Gaines Street Tallahassee, Florida 32301
ISSUES
Whether Petitioner's application to increaseits water and sewer rates to its customers in Seminole County should be granted.
CONCLUSIONS AND RECOMMENDATION
The water and sewer rate increases and tariff modifications requested by Petitioner are just, reasonable, not unjustly discriminatory, and should be granted. Although the rates will provide less than a fair return, it has not been shown that Petitioner's service will suffer.
Petitioner's collection of interim rate increases from its customers prior to the effective date of Order No. 9344 violates Section 367.081(1), Florida Statutes (1979); all revenue so collected should be refunded to its customers.
Revised tariff pages should be filed, a letter explaining the rate increases should be sent to Petitioner's customers, and the Petitioner's letter of credit, returned.
BACKGROUND
On March 24, 1980, Petitioner, Seminole Utility Company (hereinafter "UTILITY"), filed with the Respondent, Florida Public Service Commission (hereinafter "COMMISSION"), an application to increase its water and sewer rates to its customers in Seminole County, Florida.
On April 24, 1980, the COMMISSION issued Order No. 9344 which suspended the rate increases proposed by the UTILITY, and granted an interim rate increase under bond.
On July 23, 1980, the COMMISSION forwarded the UTILITY's rate-increase application to the Division of Administrative Hearings for the purpose of conducting a Section 120.57, Florida Statutes (1979), hearing. At that time, the COMMISSION had not yet arrived at a proposed decision on the rate-increase application; consequently, disputes of fact or law between the parties had not yet been identified.
Pursuant to order, the parties filed a prehearing stipulation on September 4, 1980. Through that stipulation, the parties agreed to various adjustments to the UTILITY's application and supporting exhibits. They also identified their respective positions:
". . .[The UTILITY's] position is that its present rates are not just, reasonable, or compensatory and that it suffered total losses in excess of $420,000 during the test year. . . that it is entitled to a rate which would
yield not less than $158,890 for water service and not less than $83,830 for sewer service in rates to be designed and established by the Florida Public Service Commission in accordance with applicable law. Petitioner further alleges that it has requested specific rates which would yield lower than a fair rate of return.
". . .[The COMMISSION's] position is that. . . [the UTILITY] is entitled to an increase in its water and sewer rates from that set forth in its approved tariff, but not to the extent requested. . ."
Final hearing was set for September 3 and 4, 1980. Upon motion of the COMMISSION, hearing was reset for September 17 and 18, 1980, and moved to a location more convenient to the UTILITY's customers. At final hearing, the UTILITY called as its witnesses: Valda J. Robbins, Director of Environmental Health of the Seminole County Health Department; Armand Blair, Vice-President of the UTILITY, Barry Asmus, certified public accountant; and William M. Bostwick, Jr., a professional engineer with the Florida Department of Environmental Regulation. It also offered Petitioner's Exhibits 1/ 1 through 10, inclusive, each of which was received into evidence.
The COMMISSION called as its witnesses the following staff members: Joseph Heiker, an engineer; Bill Lowe, an accountant and public utility analyst; Joyce
Fabelo, a rate analyst. It also called Michael P. DeWitt, Sr., Vice-
President of the UTILITY, and offered into evidence Respondent's Exhibits 1/ 1 through 3, inclusive, each of which was received.
In addition, 19 customers of the UTILITY were allowed to testify as interested members of the public. Generally, these customers opposed, for varying reasons, granting the requested rate increase.
At conclusion of the hearing, both parties requested, and were given the opportunity to submit proposed findings of fact and conclusions of law within 15 days of the filing of the transcript. They stipulated that the 30-day period for submittal of the Recommended Order would begin to run on the date of their filings, and the UTILITY expressly waived its right, under Section 367.081, Florida Statutes (1979), to have its proposed rate increase, in the absence of final COMMISSION action, automatically go into effect eight (8) months from the filing of its application.
The parties subsequently filed their proposed findings of fact and conclusions of law by October 30, 1980.
FINDINGS OF FACT
Based upon the evidence presented at hearing, including consideration of the demeanor and credibility of witnesses, the following facts are determined:
I.
Application and Retroactive Implementation of Interim Rate Increase
By its application, the UTILITY, seeks to increase its water revenue to
$158,890, and its sewer revenue to $83,830, by increasing service rates to its customers in Winter Springs, Seminole County, Florida. During the test year ending September 30, 1979, the UTILITY suffered combined losses from its water and sewer operation of $420,692. This is the first rate increase requested by the UTILITY since its inception in 1973. On April 24, 1980, the COMMISSION issued Order No. 9344 which suspended the UTILITY's proposed rate increases but granted it an interim increase under bond. The UTILITY was directed to file revised tariff pages containing residential and general service rates which would allow it to earn total annual gross revenue for water service of $139,277 and total annual gross revenues for sewer service of $83,830. The Order also stated:
". . .that the rate increase contained herein shall become effective for all bills on or after thirty (30) days after the date of this order. . .
(Testimony of Blair, Fabelo; P.E. 1, 2, R.E. 3.)
The UTILITY implemented the interim rate increase, within its normal billing cycle, on the June 2, 1980, water and sewer service bills. However, these bills were based on meter readings taken on May 10, 1980, for service provided from April 10 to May 10, 1980. Thus, the UTILITY increased its rates to its customers fourteen (14) days prior to April 24, 1980, the effective date of the COMMISSION's order authorizing such increase. The UTILITY's action was, however, taken in good faith, and based on a COMMISSION staff member's representation that the interim rates could properly be included in the June
billing. The amount of revenues received from the interim rate increase and collected prior to the effective date of Order No. 9344 is approximately $8,700. (Testimony of Fabelo, Blair; P.E. 1, R.E. 3.)
However innocently imposed, the UTILITY's action constitutes improper retroactive ratemaking. The UTILITY should refund to customers of record during the period in question their pro-rata share of revenues collected by the retroactive rate increase. The amount of each refund will depend on the amount of water consumed and paid for during the period of retroactive rates-- approximately April 10 through April 24, 1980. The UTILITY may minimize costs by distributing the refunds as separately itemized credits on its regular service bills. (Testimony of Fabelo; R.E. 3.)
II.
Factors Relevant to Ratemaking
In determining whether a rate increase is justified, the COMMISSION must consider several factors, including (1) quality of service, (2) rate base,
(3) a fair rate of return on the utility's investment, and (4) operation and maintenance expenses; each is separately addressed below. (Testimony of Asmus, Lowe.)
III.
Quality of Service
During 1979, several customers of the UTILITY experienced occasional low water pressure in their homes. It is likely that these water pressure problems were caused by fluctuating amounts of electricity supplied the UTILITY by Florida Power Corporation. The UTILITY has recently installed an electronic control panel and Florida Power has installed a direct transmission line to the UTILITY in order to prevent this from reoccurring in the future. Several times during 1980, the UTILITY had its water service interrupted due to a cable-TV company cutting its water lines while laying cable; repairs, however, were quickly made. Few customer complaints have been made to regulatory agencies concerning the quality of the water and sewer service provided by the UTILITY: one complaint on water service was made to the Florida Department of Environmental Regulation in 1979, and subsequently determined to he unfounded; no complaints were made to the Department concerning sewer service. Although several customers testified that the water sometimes caused irritation, tests show that the water meets Florida and federal safe drinking water standards. The sewage treatment provided by the UTILITY also complies with state and federal requirements. The water and sewer service is, therefore, determined to he of satisfactory quality. (Testimony of Blair, Bostwick, Customers.)
IV.
Rate Base
A regulated utility is entitled to an opportunity to earn a fair rate of return on its investment in plants and facilities which are used and useful in providing water and sewer service to the public. The utility investment is referred to as "rate base". Here, the average water and sewer rate base for the UTILITY's test year ending September 30, 1979, is calculated as follows:
AVERAGE RATE BASE
WATER SEWER
Utility Plant in Service $847,287 2/ $1,218,363
Utility Plant held for Future | Use | (271,153) | (608,476) |
Accumulated Depreciation | (82,099) | (97,306) |
Contributions in Aid of Construction (183,749) 3/ (178,456) 3/ (CIAC)--Net
Allowance for Working Capital 11,983 4/ 11,851 TOTAL RATE BASE $322,627 $ 354,433
(Testimony of Blair, Asmus, Heiker, Lowe; Respondent's Proposed Findings of Fact and Conclusions of Law, Pg. 3; P.E. 4, R.E. 2.)
V.
Rate of Return
A fair rate of return is the percentage factor that, when multiplied by the rate base, produces revenue that will pay the costs of capital--interest on debt to lenders, and return on equity to stockholders. In this case, after considering the UTILITY's capital structure and that of its parent company, Gulfstream Land and Development Corporation, the parties stipulated that a fair rate of return is determined to be 12.40 percent, and is calculated:
COST OF | CAPITAL | |
Test Year Ending | September 30, 1979 | |
COMPONENT RATIO | COST RATE | WEIGHTED COST |
Common Equity 33.3 percent | 15.50 percent | 5.16 percent |
Long-Term Debt 53.0 | 13.67 | 7.24 |
Cost-Free Capital 13.7 | -0- | -0- |
TOTAL 100.0 percent | Midpoint | 12.40 percent |
(Testimony of Lowe, Asmus; Joint Stipulation of Parties, Joint Exhibit 2; P.E. 10.)
VI.
Operations and Maintenance Expenses
The adjusted operation and maintenance expenses, including depreciation and taxes, of the UTILITY for the test year are set out below:
CONSTRUCTED STATEMENT OF OPERATIONS
Test Year Ending September 30, 1979
WATER | SEWER | ||||
Operating Revenues: | $160,531 | 5/ | $83,830 | 5/ | |
Operating Expenses: | |||||
Operation | 84,275 | 6/ | 90,480 | 7/ | |
Maintenance | 11,586 | 4,324 | |||
Depreciation | 12,219 | 16,014 | |||
Taxes Other than Income | Tax | 7,330 | 8/ | 4,581 | 8/ |
Provision for Income Taxes 9,786 9/ -0-
TOTAL EXPENSES | $125,196 | $115,399 |
Operating Income (Loss): | $35,334 | ($31,569) |
(Testimony of Asmus, Lowe; COMMISSION's Proposed Findings of Fact; P.E. 10, R.E. 1.)
The depreciation expense indicated above includes an adjustment of
$2,015 (water) and $6,788 (sewer) proposed by the UTILITY as a result of a rate base adjustment which properly reclassified plant balances to their proper month. The UTILITY had inadvertently posted plant additions to a year-end entry, rather than to the months the additions were completed. At hearing, the COMMISSION agreed to the rate base adjustment and agreed, "in principle", to the UTILITY's proposed correlative adjustment to depreciation expense. However, in its posthearing Proposed Findings of Fact, the COMMISSION's counsel disputed the UTILITY's adjustment, and offered a substitute adjustment:
". . .However, in actual calculation, the. . . [COMMISSION] disagrees. The utility's adjustment does not consider used and useful
as applied to the expense. In addition, the. . . [UTILITY's] adjustment includes expense on
pro-forma plant. The. . .[COMMISSION's] calculation considers these adjustments. (Pg. 4, Paragraph D.)
Because factual issues are difficult to resolve by posthearing submittal, evidence should be presented at hearing, where it is subject to cross- examination and rebuttal. At hearing, the COMMISSION did not object to the depreciation expense adjustment presented by the UTILITY; neither did it cross- examine to elicit the method used for its calculation nor move for a continuance based on surprise or inability to adequately verify the UTILITY's figures.
Rather, it chose to defer examination of and rebuttal to the UTILITY's evidence until after the conclusion of hearing. Under such circumstances, the COMMISSION's posthearing submittal is insufficient to overcome the competent evidence adduced by the UTILITY. (Testimony of Asmus, Lowe; Respondent's Proposed Findings of Fact, Pg. 3, 4; P.E. 10.)
VII.
Tariff Modifications
By its application, the UTILITY also requested COMMISSION approval of proposed water and sewer tariff modifications. By stipulation of the parties, the following modifications to the UTILITY's tariffs are warranted:
The initial connection charge and reconnect charge on delinquent accounts is TEN AND NO/100 DOLLARS ($10.00) during working hours and FIFTEEN AND NO/100 DOLLARS ($15.00) after working hours.
Customer deposit shall be FIFTY AND NO/100 DOLLARS ($50.00) for both water and sewer service and TWENTY-FIVE AND NO/100 DOLLARS ($25.00) for either water service alone or sewer service alone.
Customer deposits may be increased to the foregoing sums on delinquent accounts after giving thirty (30) days' written notice, which notice shall be separate and apart from any bill for service.
(Testimony of Fabelo; Prehearing Stipulation; P.E. 1, R.E. 3.)
VIII.
Rates
The UTILITY seeks, and the COMMISSION recommends approval of these specific rates and charges:
WATER RATES
RESIDENTIAL RATES
Base facility charge per month based on meter sizes for zero consumption.
METER SIZE | |
5/8" x 3/4" | $ 5.00 |
1" | 12.50 |
1-1/2" | 25.00 |
2" | 40.00 |
Gallonage Charge-Per 1,000 gallons .75 General Service
Base Facility charge per month based on meter sizes for zero consumption.
METER SIZE | |
5/8" x 3/4" | $ 5.00 |
1" | 12.50 |
1-1/2" | 25.00 |
2" | 40.00 |
3" | 80.00 |
4" | 125.00 |
Gallonage Charge-Per 1,000 gallons .75
SEWER RATES
RESIDENTIAL RATES
Base facility charge per month $ 5.00
First 10,000 gallons-Per 1,000 gallons .75
Over 10,000 gallons-Monthly flat rate 12.50
General Service
Base facility charge per month based on motor size for zero consumption.
METER SIZE | |
5/8" x 3/4" | 5.00 |
1" | 12.50 |
1-1/2" | 25.00 |
2" | 40.00 |
3" | 80.00 |
4" | 125.00 |
Gallonage Charge-Per 1,000 gallons .75
These requested rates are structured using a base facility charge (BFC) rate design. This rate design requires customers to pay: (1) their pro-rata share of the UTILITY's fixed facility costs, and (2) a charge for pumping, treating, and delivering the actual water gallonage consumed, by 1,000 gallon increments; it equally distributes the costs of providing utility service and the COMMISSION encourages its use. (Testimony of Fabelo; Respondent's Proposed Findings of Fact; P.E. 1, P.E. 3.)
These rates proposed by the UTILITY will generate water revenues of
$158,890 and sewer revenues of $58,865, which provide a rate of return on water rate base of 10.52 percent, and a zero return on sewer rate base. Combined water and sewer operations will earn a rate of return of .35 percent, whereas a fair rate of return in this case has been stipulated to be 12.40 percent.
Although the proposed rates will not provide the UTILITY with a fair return, the quality of its present water and sewer service will not suffer, or be decreased in any manner. (Testimony of Blair, Asmus; P.E. 10.)
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57, Florida Statutes (1979).
The COMMISSION is empowered to fix, and approve utility rates and charges which are just, reasonable, compensatory, and not unjustly discriminatory. Section 367.081(1), (2), Florida Statutes (1979). In discharging this function, the COMMISSION is required to consider, among other things:
". . .the value and quality of the service and the cost of providing the service, which shall include, but not be limited to, debt interest, the utility's requirements for working capital, maintenance, depreciation, tax, and operation 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." Section 367.081(2), Florida
Statutes (1979).
The UTILITY bears the burden of establishing entitlement to the requested rate modification. See Sections 25-10.175(1), 28-6.08(3), Florida Administrative Code.
In this case, the UTILITY has sustained its burden by affirmatively presenting evidence on the matters of statutory concern; the rates, charges, and
tariff revisions which it seeks to implement are just, reasonable, and not unjustly discriminatory: they meet the requirements of Section 367.081(2), Florida Statutes (1979). The UTILITY, by its application consents to rates which are not "compensatory" within the meaning of Section 367.081(2), Florida Statutes (1979): the proposed rates will not provide the UTILITY with an opportunity to earn a fair return. Under such circumstances, once the factors enumerated in Section 367.081(2), Florida Statutes (1979), have been considered-
-as they have been here--the COMMISSION must approve the proposed rates unless it is shown that, under such rates, the UTILITY service would suffer, Utilities Operation Co. v. King, 143 So.2d 854 858 (Fla. 1962). No such showing has been made. Thus, the UTILITY's application for water and sewer rate increases should be granted.
The UTILITY's collection of interim water and sewer rate increases prior to the effective date of COMMISSION Order No. 9344 violated Section 367.081(1), Florida Statutes (1979). All revenue so collected should be refunded to the UTILITY's customers in the manner specified above, or pursuant to an alternate procedure agreed to by the parties.
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:
That the UTILITY's application for approval of the rates specified in Paragraph 11, infra, be granted;
That the UTILITY be required to submit, for COMMISSION approval, revised tariff pages containing the new rates and rate structure;
That the UTILITY be required to send to its customers a letter, approved in form by the COMMISSION, explaining the rate increases and reasons therefore;
That the irrevocable letter of intent drawn on the Pan American Bank, dated May 3, 1980, be returned to the UTILITY and the bank releaned thereafter;
That the tariff modifications contained in Paragraph 10, infra, be approved; and
That the UTILITY be required to expeditiously refund to its customers the interim rate increases collected prior to the effective date of PSC Order No. 9344.
DONE AND ENTERED this 24th day of November, 1980, in Tallahassee, Florida.
R. L. CALEEN, JR. Hearing Officer
Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
ENDNOTES
1/ Petitioner's and Respondent's Exhibits will be referred to as "P.E. " and "R.E. ", respectively.
2/ This figure includes a disputed adjustment of $2,300 for an electronic control panel purchased by the UTILITY to ensure and regulate water pressure. Although unverified, and therefore opposed by the COMMISSION, the evidence established that it has been purchased, and that it will serve a useful purpose in providing service. The COMMISSION did not offer controverting evidence.
Interestingly, the COMMISSION cited evidence of its installation in support of its finding that the UTILITY's quality of service is adequate. See Respondent's Proposed Findings of Fact, Pg. 2.
3/ This figure excludes $358 (water) and $457 (sewer) adjustments proposed by the UTILITY to reverse the COMMISSION's accumulated amortization of CIAC adjustment that was included in rate base. Neither party presented any reasoned analysis or substantial evidence in support of or in opposition to these adjustments: the UTILITY did not try to explain their derivation, (Tr. 103) and the COMMISSION simply registered its disagreement (Tr. 164). However, since the UTILITY must prove its claims by a preponderance of evidence, an equipoise being insufficient, its proposed adjustments must fail.
4/ Pursuant to the COMMISSION's requirements, this represents a calculation of
12.5 percent of the UTILITY's adjusted operation and maintenance expenses.
5/ Includes additional revenue of $88,279 (water) and $60,396 (sewer) reflecting application of proposed water and sewer rates requested in this proceeding.
6/ Includes: (a) rejection of COMMISSION's proposed water loss adjustment of
$2,679; based on recent and more accurate flow meter readings, unaccounted for water was less than the 10 percent ordinarily allowed by the COMMISSION, (b) addition of $710 for increased record-keeping costs associated with treatment of customer deposits per PSC Order No. 9388, and (c) rejection of net adjustment of
$1,381 proposed by the UTILITY (which is now self-insured for workmen's compensation purposes) due to difference between estimated policy premiums ($1,761) and actual expense incurred ($380): since the proposed $1,381 expense was not incurred by the utility and cannot reasonably be anticipated to occur in the future, it should be disallowed.
7/ Includes $710 adjustment for increased record-keeping costs, see Footnote 5(b), supra.
8/ Includes an additional gross receipts tax, $2,207 (water) and $1,510 (sewer), on the additional revenue described in Footnote 5, supra.
9/ Includes an adjustment of $9,786 to provide for payment of income taxes.
COPIES FURNISHED:
Hal H. Kantor, Esquire Post Office Box 2809 Orlando, Florida 32802
Samuel H. Lewis, Esquire Public Service Commission
101 East Gaines Street Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
================================================================= BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION
In re: Application of Seminole CASE NO. 80-1375 Utility co. to increase its water DOCKET NO. 791039-WS(CR) and sewer rates in Seminole County, ORDER NO. 9771
Florida. ISSUED: 1-28-81
/
The following Commissioners participated in the disposition of this matter: JOSEPH P. CRESSE, Chairman
JOHN R. MARKS, III KATIE NICHOLS
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, R. L. Caleen, Jr., held a formal hearing in this case on September 17 and 18, 1980, in Winter Springs, Florida.
APPEARANCES: Hal H. Kantor, Esquire
Post Office Box 2809 Orlando, Florida 32802
On behalf of Seminole Utility Company.
Samuel H. Lewis, Esquire Public Service Commission
101 East Gaines Street Tallahassee, Florida 32301
On behalf of the Florida Public Service Commission and the public generally.
The Hearing Officer's Recommended Order was filed on November 24, 1980. No exceptions have been taken to the recommendations of the Hearing Officer. Now after consideration of all of the evidence in the record, we enter our Order.
O R D E R
BY THE COMMISSION:
The Hearing Officer's Recommended Order is as follows:
Background
On March 24, 1980, Petitioner, Seminole Utility Company (hereinafter "UTILITY"), filed with the Respondent, Florida Public Service Commission (hereinafter "COMMISSION"), an application to increase its water and sewer rates to its customers in Seminole County, Florida.
On April 24, 1980, the Commission issued Order No. 9344 which suspended the rate increases proposed by the UTILITY, and granted an interim rate increase under bond.
On July 23, 1980, the COMMISSION forwarded the UTILITY's rate-increase application to the Division of Administrative Hearings for the purpose of conducting a Section 120.57, Florida Statutes (1979), hearing. At that time, the COMMISSION had not yet arrived at a proposed decision on the rate-increase application; consequently, disputes of fact or law between the parties had not yet been identified.
Pursuant to order, the parties filed a prehearing stipulation on September 4, 1980. Through that stipulation, the parties agreed to various adjustments to the UTILITY's application and supporting exhibits. They also identified their respective positions:
"...[The UTILITY's] position is that its present rates are not just, reasonable, or compensatory and that it suffered total losses in excess of
$420,000 during the test year....that it is entitled to a rate which would yield not less than $158,890 for water service and not less than $83,830 for sewer service in rates to be designed and established by the Florida Public Service Commission in accordance with applicable law. Petitioner further alleges that it has requested specific rates which would yield lower than a fair rate of return.
* * *
"...[The COMMISSION's] position is that...[the UTILITY] is entitled to an increase in its water and sewer rates from that set forth in its
approved tariff, but not to the extent requested..."
Final hearing was set for September 3 and 4, 1980. Upon motion of the COMMISSION, hearing was reset for September 17 and 18, 1980, and moved to a location more convenient to the UTILITY's customers. At final hearing, the UTILITY called as its witnesses: Valda J. Robbins, Director of Environmental Health of the Seminole County Health Department; Armand Blair, Vice-President of the UTILITY, Barry Asmus, certified public accountant; and William M. Bostwick, Jr., a professional engineer with the Florida Department of Environmental Regulation. It also offered Petitioner's Exhibits 1/ through 10, inclusive, each of which was received into evidence.
The COMMISSION called as its witnesses the following staff members: Joseph Heiker, an engineer; Bill Lowe, an accountant and public utility analyst; Joyce
Fabelo, a rate analyst. It also called Michael P. DeWitt, Sr., Vice- President of the UTILITY, and offered into evidence Respondent's Exhibits 1/ 1 through 3, inclusive, each of which was received.
In addition, 19 customers of the UTILITY were allowed to testify as interested members of the public. Generally, these customers opposed, for varying reasons, granting the requested rate increase.
At conclusion of the hearing, both parties requested, and were given the opportunity to submit proposed findings of fact and conclusions of law within 15 days of the filing of the transcript. They stipulated that the 30-day period for submittal of the Recommended Order would begin to run on the date of their filings, and the UTILITY expressly waived its right, under Section 367.081, Florida Statutes (1979), to have its proposed rate increase, in the absence of final Commission action, automatically to go into effect eight (8) months from the filing of its application.
The parties subsequently filed their proposed findings of fact and conclusions of law by October 30, 1980.
FINDINGS OF FACT
Based upon the evidence presented at hearing including consideration of the demeanor and credibility of witnesses, the following facts are determined:
I.
Application and Retroactive Implementation of Interim Rate Increase
By its application, the UTILITY, seeks to increase its water revenue to
$158,890, and its sewer revenue to $83,830, by increasing service rates to its customers, in Winter Springs, Seminole County, Florida. During the test year ending September 30, 1979, the UTILITY suffered combined losses from its water and sewer operation of $420,692. This is the first rate increase requested by the UTILITY since its inception in 1973. On April 24, 1980, the COMMISSION issued Order No. 9344 which suspended the UTILITY's proposed rate increases but granted it an interim increase under bond. The UTILITY was directed to file revised tariff pages containing residential and general service rates which would allow it to earn total annual gross revenue for water service of $139,277 and total annual gross revenues for sewer service of $83,830. The Order also stated:
"...that the rate increase contained herein shall become effective for all bills on or after thirty
(30) days after the date of this order..." (Testimony of Blair, Fabelo; P.E. 1, 2, R.E. 3)
The UTILITY implemented the interim rate increase, within its normal billing cycle, on the June 2, 1980, water and sewer service bills. However, these bills were based on meter readings taken on May 10, 1980, for service provided from April 10 to May 10, 1980. thus the UTILITY increased its rates to its customers fourteen (14) days prior to April 24, 1980, the effective date of the COMMISSION's order authorizing such increase. The UTILITY's action was, however, taken in good faith, and based on a Commission staff member's representation that the interim rates could properly be included in the June billing. The amount of revenues received from the interim rate increase and collected prior to the effective date of Order No. 9344 is approximately $8,700. (Testimony of Fabelo, Blair, P. E. 1, R.E. 3)
However innocently imposed, the UTILITY's action constitutes improper retroactive ratemaking. The UTILITY should refund to customers of record during the period in question their pro-rata share of revenues collected by the retroactive rate increase. The amount of each refund will depend on the amount of water consumed and paid for during the period of retroactive rates-- approximately April 10 through April 24, 1980. The UTILITY may minimize costs by distributing the refunds as separately itemized credits on its regular service bills. (Testimony of Fabelo; R.E. 3)
II.
Factors Relevant to Ratemaking
In determining whether a rate increase is justified, the COMMISSION must consider several factors, including (1) quality of service, (2) rate base,
(3) a fair rate of return on the utility's investment, and (4) operation and maintenance expenses; each is separately addressed below. (Testimony of Asmus, Lowe.)
III.
Qualify of Service
During 1979, several customers of the UTILITY experienced occasional low water pressure in their homes. It is likely that these water pressure problems. were caused by fluctuating amounts of electricity supplied the UTILITY by Florida Power Corporation. The UTILITY has recently installed an electronic control panel and Florida Power has installed a direct transmission line to the UTILITY in order to prevent this from reoccurring in the future. Several times during 1980, the UTILITY had its water service interrupted due to a cable-TB company cutting its water lines while laying cable; repairs, however, were quickly made. Few customer complaints have been made to regulatory agencies concerning the quality of the water and sewer service provided by the UTILITY: one complaint on water service was made to the Florida Department of Environmental Regulation in 1979, and subsequently determined to be unfounded; no complaints were made to the Department concerning sewer service. Although several customers testified that the water sometimes caused irritation, tests show that the water meets Florida and federal safe drinking water standards.
The sewage treatment provided the UTILITY also complies with state and federal requirements. The water and sewer service is, therefore, determined to be of satisfactory quality. (Testimony of Blair, Bostwick, Customers.)
IV.
Rate Base
A regulated utility is entitled to an opportunity to earn a fair rate of return on its investment in plants and facilities which are used and useful in providing water and sewer service to the public. The utility investment is referred to as "rate base". Here, the average water and sewer rate base for the UTILITY's test year ending September 30, 1979, is calculated as [indicated in the Appendix attached hereto].
(Testimony of Blair, Asmus, Heiker, Lowe; Respondent's Proposed Findings of Fact and Conclusions of Law, pg. 3; P.E. 4, R.E. 2.)
V.
Rate of Return
A fair rate of return is the percentage factor that, when multiplied by the rate base, produces revenue that will pay the costs of capital--interest on debt to lenders, and return on equity to stockholders. In this case, after considering the UTILITY's capital structure and that of its parent company, Gulfstream Land and Development Corporation the parties stipulated that a fair rate of return is determined to be 12.40 percent, and is calculated.
COST OF CAPITAL
Test Year Ending September 30, 1979
COMPONENT | RATIO | COST RATE | WEIGHTED COST |
Common Equity | 33.3 percent | 15.50 percent | 5.16 percent |
Long-Term Debt | 53.0 | 13.67 | 7.24 |
Cost-Free Capital | 13.7 | -0- | -0- |
TOTAL | 100.0 percent | Midpoint | 12.40 percent |
(Testimony of Lowe, Asmus; Joint Stipulation of Parties, Joint exhibit 2; P.E. 10.)
VI.
Operations and Maintenance Expenses
The adjusted operation and maintenance expenses, including depreciation and taxes, of the UTILITY for the test year are [shown in the Appendix attached hereto].
(Testimony of Asmus, Lowe; COMMISSION's Proposed Findings of Fact; P.E. 10, R.E. 1.)
The depreciation expense indicated above includes an adjustment of
$2,015 (water) and $6,788 (sewer) proposed by the UTILITY as a result of a rate base adjustment which properly reclassified plant balances to their proper month. The UTILITY had inadvertently posted plant additions to a year-end entry, rather than to the months the additions were completed. At hearing, the COMMISSION agreed to the rate base adjustment and agreed, "in principle", to the UTILITY's proposed correlative adjustment to depreciation expense. However, in its posthearing Proposed Findings of Fact, the COMMISSION's counsel disputed the UTILITY's adjustment, and offered a substitute adjustment:
"...However, in actual calculation, the ... [COMMISSION] disagrees. The utility's adjustment does not consider used and useful as applied to the expense. In addition, the ... [UTILITY's] adjustment includes expense on pro-forma plant.
The...[COMMISSION's] calculation considers these adjustments. (Pg. 4, Paragraph D.)
Because factual issues are difficult to resolve by posthearing submittal, evidence should be presented at hearing, where it is subject to cross- examination and rebuttal. At hearing, the COMMISSION did not object to the
depreciation expense adjustment presented by the UTILITY; neither did it cross- examine to elicit the method used for its calculation nor move for a continuance based on surprise or inability to adequately verify the UTILITY's figures.
Rather, it chose to defer examination of and rebuttal to the UTILITY's evidence until after the conclusion of hearing. Under such circumstances, the COMMISSION's posthearing submittal is insufficient to overcome the competent evidence adduced by the UTILITY. (Testimony of Asmus, Lowe; Respondent's Proposed Findings of Fact, Pg. 3, 4; P.E. 10.)
VII.
Tariff Modifications
By its application, the UTILITY also requested COMMISSION approval of proposed water and sewer tariff modifications. By stipulation of the parties, the following modifications to the UTILITY's tariffs are warranted:
The initial connection charge and reconnect charge on delinquent accounts is TEN AND NO/100 DOLLARS ($10.00) during working hours and FIFTEEN AND NO/100 DOLLARS ($15.00) after working hours.
Customer deposit shall be FIFTY AND NO/100 DOLLARS($50.00) for both water and sewer service and TWENTY-FIVE AND NO/100 DOLLARS ($25.00) for either water service alone or sewer alone or sewer service alone.
Customer deposits may be increased to the foregoing sums on delinquent accounts after giving thirty (30) days' written notice, which notice shall be separate and apart from any bill for service.
(Testimony of Fabelo; Prehearing Stipulation; P.E. 1, R.E. 3.)
VIII.
Rates
The UTILITY seeks, and the COMMISSION recommends approval of these specific rates and charges:
WATER RATES
RESIDENTIAL RATES
Base facility charge per month based on meter sizes for zero consumption.
METER SIZE
5/8" x 3/4" $ 5.00
1" 12.50
1-1/2" 25.00
2" 40.00
Gallonage Charge-Per 1,000 gallons .75
GENERAL SERVICE
Base facility charge per month based on meter sizes for zero consumption.
METER SIZE 5/8" x 3/4" | $ 5.00 | |
1" | 12.50 | |
1-1/2" | 25.00 | |
2" | 40.00 | |
3" | 80.00 | |
4" | 125.00 | |
(b) Gallonage Charge-Per | 1,000 gallons | .75 |
SEWER RATES | ||
RESIDENTIAL (a) Base facility charge | per month | RATES $ 5.00 |
First 10,000 gallons-per 1,000 gallons .75
Over 10,000 gallons-Monthly flat rate 12.50
GENERAL SERVICE
Base facility charge per month based on meter size for zero consumption METER SIZE
5/8" x 3/4" 5.00
1" 12.50
1-1/2" 25.00
2" 40.00
3" 80.00
4" 125.00
Gallonage Charge-Per 1,000 gallons .75
These requested rates are structured using a base facility charge (BFC) rate design. This rate design requires customers to pay: (1) their pro-rata share of the UTILITY's fixed facility costs, and (2) a charge for pumping, treating, and delivering the actual water gallonage consumed, by 1,000 gallon increments; it equally distributes the costs of providing utility service and the COMMISSION encourages its use. (Testimony of Fabelo; Respondent's proposed Findings of Fact; P.E. 1, P.E. 3.)
These rates proposed by the UTILITY will generate water revenues of
$158,890 and sewer revenues of $58,865, which provide a rate of return on water rate base of 10,52 percent, and a zero return on sewer rate base. Combined water and sewer operations will earn a rate of return of .35 percent, whereas a fair rate of return in this case has been stipulated to be 12.40 percent.
Although the proposed rates will not provide the UTILITY with a fair return, the quality of its present water and sewer service will not suffer, or be decreased in any manner. (Testimony of Blair, Asmus; P.E. 10.)
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57, Florida Statutes (1979).
The COMMISSION is empowered to fix, and approve utility rates and charges which are just, reasonable, compensatory, and not unjustly discriminatory. Section 367.081(1), (2), Florida Statutes (1979_). In discharging this function, the COMMISSION is required to consider, among other things:
"...the value and quality of the service and the cost of providing the service, which shall include, but not be limited to, debt interest, the utility's requirements for working capital, maintenance, depreciation, tax, and operation 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." Section 367.081(2), Florida Statutes (1979).
The UTILITY bears the burden of establishing entitlement to the requested rate modification. See Sections 25-10.175(1), 28-6.08(3), Florida Administrative Code.
In this case, the UTILITY has sustained its burden by affirmatively presenting evidence on the matters of statutory concern; the rates, charges, and tariff revisions which it seeks to implement are just reasonable, and not unjustly discriminatory: they meet the requirements of Section 367.081(2), Florida Statutes (1979). The UTILITY, by its application consents to rates which are not "compensatory" within the meaning of Section 367.081(2), Florida Statutes (1979): the proposed rates will not provide the UTILITY with an opportunity to earn a fair return. Under such circumstances, once the factors enumerated in Section 367.081(2), Florida Statutes (1979), have been considered-
-as they have been here--the COMMISSION that, under such rates, the UTILITY service would suffer, Utilities Operation Co. v. King, 143 So. 2d 854, 858 (Fla. 1962). No such showing has been made. Thus, the UTILITY's application for water and sewer rate increases should be granted.
The UTILITY's collection of interim water and sewer rate increases prior to the effective date of COMMISSION Order No. 9344 violated Section 367.081(1), Florida Statutes (1979). All revenue so collected should be refunded to the UTILITY's customers in the manner specified above, or pursuant to an alternate procedure agreed to by the parties.
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:
That the UTILITY's application for approval of the rates specified in Paragraph 11, infra, be granted;
That the UTILITY be required to submit, for COMMISSION approval, revised tariff pages containing the new rates and rate structure;
That the UTILITY be required to send to its customers a letter, approved in form by the COMMISSION, explaining the rate increases and reasons therefore;
That the irrevocable letter of intent drawn on the Pan American Bank, dated May 3, 1980, be returned to the UTILITY and the bank released thereafter;
That the tariff modifications contained in Paragraph 10, infra, be approved; and
That the UTILITY be required to expeditiously refund to its customers the interim rate increases collected prior to the effective date of PSC Order No. 9344."
We are inclined to adopt the Hearing Officer's Recommendation with the following exceptions: (1) the Recommended Order does not contain a provision for income tax lag; (2) the Recommended Order contains unsupported (not documented) plant; and (3) the Recommended Order contains depreciation expenses on pro forma plant. Although our treatment of these items does not effect the ultimate revenue requirements recommended by the Hearing Officer, we feel constraint to dispose of these items in a manner contrary to the Hearing Officer. To do otherwise may lead readers of this Order in the wrong regulatory direction. The Hearing Officer failed to include an appropriate income tax lag as presented by the staff witness in this case. When a working capital allowance has been calculated using the formula of 12.5 percent of Operation and Maintenance Expenses, we feel it is inappropriate and inconsistent to not also deduct a lag for income taxes. The Hearing Officer recommended including in the rate base a piece of equipment (electronic control panel) which we consider to be undocumented. We, therefore, find that such plant will not be allowed in the rate base. The Hearing Officer's Recommended Order also contains a provision to allow depreciation expenses on plant included subsequent to the test year. By doing this he has ignored the past practices of this Commission. This expense, if allowed will cause a mismatch between revenues, expenses and investment. The rate base, in this case, is stated using an average and revenues and expenses are also calculated using an average. The allowance of such an expense after the end of the test period, is inconsistent with the use of an average. Due to mathematical miscalculation of rate base, we are substituting the attached schedules for those prepared by the Hearing Officer.
With the exceptions noted, after review of the evidence, 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 Seminole Utility Company, 861 Douglas Avenue, Longwood, Florida, for increased water and sewer rates in Seminole County, Florida, be granted and authority is hereby given for the utility to file revised tariff pages containing rates designed to produce annual gross water revenues of $158,890 and annual gross sewer revenues of $58,865. It is further
ORDERED that the monthly rates for water and sewer service shall be based upon a base facility charge concept. It is further
ORDERED that the revised tariff pages shall not become effective until filed and approved. It is further
ORDERED that the increased rates for water and sewer service shall be effective for meters read on or after 30 days from the date of this order. It is further
ORDERED that the utility be required to notify each customer of the rate increases authorized herein, explaining the reasons for said increases. The letter of explanation is to be submitted to this Commission for prior approval. It is further
ORDERED that the Company refund the improperly implemented interim rates outlined in the body of this order.
By ORDER of the Florida Public Service Commission, this 28th day of January 1981.
Steve Tribble COMMISSION CLERK
ENDNOTE
1/ Petitioner's and Respondent's Exhibits will be referred to as "P.E. " and "R.E. ", respectively.
(S E A L) MRC
Appendix*
*NOTE: The following Attachments to this Agency Final Order are not a part of this ACCESS Document but are available for review in the Division's Clerk's Office.
Schedule 1: Seminole Utility Company
Adjustments to Water Rate Base Test Year Ended 9/30/79
Schedule 2: Seminole Utility Company
Adjustments to Sewer Rate Base Test Year Ended 9/30/79
Schedule 3: Seminole Utility Company
Adjustments to Water Operating Statement Test Year Ended 9/30/79
Schedule 4: Seminole Utility Company
Adjustments to Sewer Operating Statement Test Year Ended 9/30/79
| Issue Date | Proceedings |
|---|---|
| Jun. 15, 1990 | Final Order filed. |
| Nov. 24, 1980 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jan. 28, 1981 | Agency Final Order | |
| Nov. 24, 1980 | Recommended Order | Petitioner entitled to increase rates, even though it will not provide fair return, but Petitioner must refund interim increase money to customers. |
MANGONIA PARK UTILITY COMPANY, INC. vs. PUBLIC SERVICE COMMISSION, 80-001375 (1980)
SOUTHERN GULF UTILITIES, INC. vs. PUBLIC SERVICE COMMISSION, 80-001375 (1980)
BUCCANEER SERVICE COMPANY vs. PUBLIC SERVICE COMMISSION, 80-001375 (1980)
GULFSTREAM UTILITY COMPANY vs. PUBLIC SERVICE COMMISSION, 80-001375 (1980)
UTILITIES, INC., OF FLORIDA vs. PUBLIC SERVICE COMMISSION, 80-001375 (1980)
