Carpenter, on November 19, 1980. The parties were represented by:
For Petitioner: Arthur I. Jacobs, Esquire
For Respondent: Marta M. Crowley, Esquire
Petitioner (Utility) seeks to increase rates for water service in Nassau County, Florida, under the provisions of Section 367.081, Florida statutes. The proposed rates were suspended by Respondent (Commission) in its Order No. 9409 issued June 3, 1980. Additionally, this order authorized increased rates on an interim basis under bond.
Proposed findings of fact were submitted by the parties. To the extent these proposes findings have not boon adopted or are inconsistent with the findings herein, they have been specifically rejected irrelevant or not supported by the evidence.
Petitioner provides electric, gas and water utility service at various Florida locations. During the 1979 test year, its Fernandina Beach Water Division served an average of 2,500 residential customers, 523 general service customers and nine private fire line customers. In addition, it maintained 210 fire hydrants for the City of Fernandina Beach.
Service
The Utility is providing satisfactory water service. There were no service complaints presented at the public hearing, nor were there any citations or corrective orders outstanding.
Rate Base
The Utility seeks recognition of a $1,332,178 rate base. This amount includes $82,128 for an office building completed in the last month of the test year, a $7,600 chlorinator building completed after the test year (March, 1980)
, and a pumphouse still under construction at an estimated completed cost of
$106,000.
Neither the amounts nor their completion dates are in dispute.
However, the Commission seeks to utilize a 13-month average year rate base which would result in the exclusion of all the above facilities except for the office building investment during the final month of the test year.
Both parties cite Citizens of Florida v. Hawkins, 356 So.2d 254 (Fla. 1978) in support of their positions. Although the Court discusses the various methods of computing a utility rate base, it concludes that unusual or extraordinary growth is a prerequisite to use of a year end rate base. The Utility did not demonstrate unusual or extraordinary growth. Rather, customer growth during the test year was only about two percent, mandating use of an average rate base.
The Utility suggests that construction of the chlorinator was required by the federal government under the provisions of the Safe Drinking Water Act. If so, the Utility would be permitted to include this Investment in its rate base. 1/ However, the Utility was in compliance with the Safe Drinking Water Act prior to construction of the pumphouse and made no showing that it was required to undertake this project by government authority.
Capitalization of interest on the funds used in construction of new facilities should be authorized. However, this amount will not be subject to inclusion in the rate base until the facility itself is included.
The Utility plant was shown to be 100 percent used and useful in the public service. In view of this, and the adjustments discussed above, the Utility's average rate base for the test year is $1,103,201. See Schedule 1 for detail.
Operating Revenues
The Utility seeks a test year revenue authorization of $581,037 based on expenses of $456,184 and a 9.39 percent return on its proposed rate base. It seeks to include an expense item of $2,400 for tank maintenance, basing this amount on the five-year amortization of a projected $12,000 expenditure. Although this procedure is proper, since tank maintenance is periodically required, the $12,000 is the anticipated cost of future maintenance rather than an actual cost. Therefore, this figure must be adjusted to one-fifth of the last actual maintenance cost, or $1,105.
Prior to December, 1979, when its office building was completed, the Utility rented the required space. Since the new building was not recognized for rate making purposes until the final month of the test year, it is proper to
include the rent expense actually involved during the preceding 11 months. Therefore, an upward adjustment in expenses of $1,524 is required.
Authorized expenses should also include $45,281 proposed by the Utility to meet known increases in the cost of purchased electrical power. The limitation on test year expenses is not the same as that on test year investment. Rather, Chapter 367, Florida Statutes, specifically provides for recognition of outside test year increases in electrical power costs. See Section 367.081(4)(b), Florida Statutes (1980).
The Utility supported its proposed rate case expense of $5,100 by late filed exhibit. Neither the amount nor the proposed three-year amortization period were opposed by the Commission and are appropriately included herein.
In view of the above findings and a 9.10 percent return on investment (discussed below) , the Utility is entitled to revise its rates to produce annual revenue of $536,970. See Schedule 2 for detail.
Cost of Capital
The parties agreed that 15 percent is an appropriate return on equity investment. This amount, when weighed against the current cost of debt, supports an overall 9.10 percent rate of return.
Rate Structure
The parties propose adoption of a base facility charge rate structure. This rate design includes a fixed charge to each customer served based on that customer's share of fixed operating costs. The second element of the base facility charge represents -- the variable cost of water actually used. This rate structure provides an equitable method of allocating service costs and is consistent with statutory requirements that rates be just and nondiscriminatory. See Section 307.081(2), Florida Statutes (1980).
The Utility proposes to increase its fire hydrant charge from $8 to
$12 monthly and to include this amount in its regular service rates to all customers rather than as a separate charge to the City of Fernandina Beach. The amount of the increase is consistent with overall revenue needs and was not opposed by the Commission. The procedure to include fire hydrant charges in customer charges was requested by the City Commission of Fernandina Beach and would not discriminate against any customer or group of customers, since all benefit from the fire protection represented by these charges.
CONCLUSIONS OF LAW
Section 307.081(2), ,Florida Statutes (1980), provides in part:
The Commission shall, either upon request or upon Its own motion, fix rates which are just, reasonable, compensatory, and not
unfairly discriminatory. In all such proceed- ings, tie Commission shall consider the value and quality of the service and the cost of providing the service, which shall include, but not be limited to, debt interest, the utility's requirements for working capital, maintenance, depreciation, tax and operating expenses
incurred in the operation of all property used and useful in the public service, and a fair return on the utility's investment in property used and useful in the public service.
The above statute establishes the criteria for setting the rates of a regulated water utility. The Public Service Commission is required to grant revenues which cover reasonable costs of operating the utility and provide a fair return on its investment. The rate base concept is accepted as the mechanism to be utilized in ascertaining such costs.
The Supreme Court of Florida has repeatedly indicated that departure from an average test year rate base determination is not appropriate absent unusual or extraordinary growth. See Citizens of Florida v. Hawkins, supra, and City of Miami v. Florida Public Service Commission, 208 So.2d 249 (Fla. 1968).
