STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHERN GULF UTILITIES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 80-1881

) FLORIDA PUBLIC SERVICE COMMISSION )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William E. Williams, held a public hearing in this cause on February 10, 1981, in Jacksonville, Florida.

APPEARANCES

For Petitioner: R. M. C. Rose, Esquire

1020 East Lafayette Street Tallahassee, Florida 32301

For Respondent: M. Robert Christ, Esquire

101 East Gaines Street Tallahassee, Florida 32301

This proceeding involves an application for increased water and sewer rates filed by Southern Gulf Utilities, Inc. ("Petitioner" or "utility") on June 30, 1980, and amended on January 7, 1981. The application filed by Petitioner with the Florida Public Service Commission ("PSC") seeks an increase in water and sewer rates based upon the average number of water and sewer customers served, and their use of these services, for the test year ended December 31, 1979, as adjusted for known changes.

Final hearing was scheduled for February 10, 1981, by amended Notice of Hearing dated January 8, 1981.

At the final hearing, Petitioner called Stanley Cohen and Peter Martin as its witnesses. The Petitioner offered Petitioner's Exhibits Numbers 1 through 5, inclusive, each of which was received into evidence. PSC called Norvell Walker, Arthur Atkisson, Don Bayly and Robert B. Meyers as its witnesses.

Respondent, PSC, offered PSC Exhibits Numbers 1 through 5, inclusive, which were received into evidence. In addition, George Gehres, Geoffrey Bryant Halls and Louis P. Villano testified as members of the general public. Finally, a Prehearing Stipulation entered into between the parties was received into evidence as Hearing Officer Exhibit Number 1.

Prior to, or at the final hearing, Petitioner and PSC stipulated to the following facts:

1. Petitioner provides no water or sewer utility service outside the Consolidated City of Jacksonville, Florida. A copy of the application filed in these proceedings was furnished to the Consolidated City of Jacksonville, Florida.

   
   

2. Water service provided by the Petitioner meets or exceeds all applicable State of Florida regulatory standards, with the exception of Petitioner's Milmar water system, which is the subject of the Amendment to this cause, filed on January 7, 1981, which Petitioner is now working to correct.

   
   

3. Sewer service provided by the Petitioner meets or exceeds all applicable State of Florida regulatory standards.

   
   

4. (a) Water Rate Base.

   
   

   The parties. . .[agreed] that the Petitioner's rate base is calculated as follows:

   (1) Utility Plant in Service.	$ 689,415
   (2) Accumulated Depreciation.	(221,979)
   (3) Contributions-in-aid-of-
   construction.	(328,645)
   (4) Accumulated Depreciation -
   CIAC	95,672
   (5) Working Capital Requirement	$ 14,225
   (6) Income Tax Lag.	(809)
   (7) Total Rate Base (Water).	$ 247,879

   
   

   1. Sewer Rate Base.

      
      

      The parties. . .[agreed] that the Petitioner's sewer rate base is calculated as follows:

      1. Utility Plant in Service. $ 777.091

      2. Accumulated Depreciation. (209,184)

      3. Contributions-in-aid-of-

         construction. (307,985)

      4. Accumulated Depreciation -

         CIAC. 92,602

      5. Working Capital Requirement 13,778

      6. Income Tax Lag. (1,252)

      7. Total Rate Base (Sewer). $ 365,050

         
         

   2. Constructed Statement of Operations (Water, 1979).

      
      

      		$ 172,748
      a. Operation.		$ 83,183
      b. Maintenance		30,613
      Taxes.	Income	9,845 14,224
      e. Provisions for Income Taxes.			4,046
      f. Total Operating Expenses.			140,454
      			32,294 N/A

      1. Operating Revenues.

      2. Operating Expenses.

      1. Depreciation.

      2. Taxes Other Than

      1. Operating Earnings.

      2. Other Income (Deductions).

         1. Other Income.

      1. Interest on long-term debt.(17,502)

      2. Interest to Associated

         Company. N/A

      3. Other expense. N/A

      4. Amortization of Debt

         Discount. N/A

      5. Total of Other Income (Deductions). N/A

      (5) Constructed Net Earnings. N/A

      
      

   3. Constructed Statement of Operations (Sewer, 1979).

      
      

      1. Operating Revenues. $ 188,383

      2. Operating Expenses.

         1. Operation. 79,179

         2. Maintenance. 31,048

         3. Depreciation. 10,749

         4. Taxes Other Than Income

            Taxes. 13,585

         5. Provision for Income Taxes. 6,257

         6. Total Operating Expenses. 140,818

      3. Operating Earnings (Loss). 47,565

      4. Other Income (Deductions)

         1. Interest on Long-Term Debt.(25,776)

         2. Amortization of Debt Discount.N/A

         3. Interest on Debt to Associated Company. N/A

         4. Other Expenses. N/A

         5. Total of Other Income (Deductions). N/A

      5. Net Earnings. N/A

         
         

5. Cost of Capital, Rate of Return.

1. Equity Capital

   Total Cost percent Cost Result

   $ 6,159,000 22.17 percent 16.00 percent 3.55 percent

   
   

2. Debt Capital.

   $16,397,000 58.84 percent 12.00 percent 7.06 percent

   
   

3. Preferred Stock.

   $ 5,275,000 18.99 percent 12.75 percent 2.24 percent

   
   

4. Totals.

$27,831,000 100 percent ------ 13.03 percent

FINDINGS OF FACT

1. In light of the aforementioned stipulations entered into by the parties, the parties agreed that the only remaining disputed issue was the quality of service being provided by Petitioner. In this connection, the record establishes that Petitioner operates nine water systems in Duval County, one of which is known as the "Milmar Plant." Water furnished through this plant has, in the past, violated applicable regulatory standards with regard to high iron levels and corrosivity, to such an extent that the system was the subject of a Corrective Order entered by the Duval County Public Health Division of the Department of Health and Rehabilitative Services in 1980. However, as a result

   of Petitioner's agreement to connect to the City of Jacksonville water system, these problems should be alleviated when the switch-over and connection are accomplished. Accordingly, as a condition to approval of the requested rate increase, Petitioner should be required to complete the switch-over and connection to the City of Jacksonville water system prior to the entry of a Final Order granting the requested rate increase.

   
   

   CONCLUSIONS OF LAW

   
   

2. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes.

   
   

3. Petitioner is a water and sewer utility as defined in Section 367.021(3), Florida Statutes, whose water and sewer service rates may be changed by PSC pursuant to Section 367.081(2), (5), and 367.121(1)(a), Florida Statutes. Petitioner is, as a matter of law, entitled to a rate structure and authorized revenues which will afford it an opportunity to earn a reasonable and fair rate of return on the value of its invested capital and property used and useful in its utility operations.

   
   

4. Based upon the record herein, including the stipulations of fact entered into between the parties, Petitioner has demonstrated entitlement to affirmative rate relief and an increase in authorized revenues. Accordingly, it is

RECOMMENDED:

That a Final Order be entered by the State of Florida Public Service Commission:

1. Granting Petitioner's request for a rate increase, in accordance with the stipulations entered into between the parties and the Findings of Fact contained in this Recommended Order, conditioned upon Petitioner completing connection to the City of Jacksonville water system.

   
   

2. Authorizing Petitioner to file and submit tariffs and rate schedules implementing the requested rate increase, consistent with the PSC's applicable rules, regulations and procedures.

DONE AND ENTERED this 8th day of April, 1981, in Tallahassee, Florida.

WILLIAM E. WILLIAMS

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 8th day of April, 1981.

COPIES FURNISHED:

R. M. C. Rose, Esquire 1020 East Lafayette Street

Tallahassee, Florida 32301

M. Robert Christ, Esquire

101 East Gaines Street Tallahassee, Florida 32301

Docket for Case No: 80-001881

Orders for Case No: 80-001881