STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTHERN STATES UTILITIES, INC. ) (LAKE COUNTY), )

)

Petitioner, )

)

vs. ) CASE NO. 81-311

) PSC DOCKET NO. 800363-W FLORIDA PUBLIC SERVICE COMMISSION )

)

Respondent, )

and )

)

OFFICE OF PUBLIC COUNSEL, )

)

Intervenor, )

and )

) ANNA P. COWEN, ANN MARIE NORMAN, ) MARILYN SMITH, PATTI L. WOLF AND ) PAM ANGELILLO, )

)

Intervenors. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on March 12, 1981, at the Leesburg City Hall, City Commission Chambers, Leesburg, Florida. The broad issue originally raised for determination at the hearing was whether the rates proposed in the petitioner's application for increased rates and charges for water and sewer service in Lake County are just, reasonable, compensatory and not unfairly discriminatory. A Prehearing Stipulation entered into by the petitioner and the respondent, prior to the intervention of the Office of Public Counsel, narrowed the issues for determination at the hearing to certain financial issues and the quality of water and sewer service provided by the petitioner to its customers, with certain other financial issues to be reserved for a later hearing.

APPEARANCES

For Petitioner: R.M.C. Rose

Myers, Kaplan, Levinson, Kenin and Richards Suite 103, 1020 Lafayette Street Tallahassee, Florida

For Respondent: M. Robert Christ, Legal Department

Florida Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

For Intervenor: Jack Shreve, Public Counsel

Room 4, Holland Building Tallahassee, Florida 32301

INTRODUCTION

By application filed with the Florida Public Service Commission on July 23, 1980, petitioner Southern States Utilities, Inc. seeks a rate increase for the water and sewer service it provides in Lake County, Florida. Interim rates were authorized by Florida Public Service Commission Order Number 9562 issued September 22, 1980.

In a Prehearing Stipulation filed prior to the intervention of the Office of Public Counsel, the petitioner and the respondent stipulated to certain financial facts to be included in the petitioner's rate bases and statements of operation. Other financial facts were disputed and were left for determination at the hearing, as was the issue of the quality of water and sewer service provided by the petitioner to its customers. A witness presented by respondent Public Service Commission made certain adjustments to the respondent's position on the disputed figures contained in the Prehearing Stipulation. The petitioner accepted and stipulated to the water rate base figures as adjusted by the respondent. The only other financial facts remaining in dispute between the petitioner utility and the respondent Public Service Commission in this proceeding are the correct amount of working capital to be included in petitioner's sewer rate base and the proper amount of operating revenues and operating earnings to be included in the test year statement of operations for the petitioner's sewer system. More specifically, the financial issue concerns the imputation of operating revenues and earnings (by imputing additional connections) to the Morningview sewer system.

The issues of Petitioner's capital structure, cost of money, rate of return and federal and state income tax treatment were reserved for a later proceeding now pending as Division of Administrative Hearings Case No. 81-974. This reservation of issues was occasioned by the Public Service Commission having remanded another case involving Southern States Utilities (Order No. 9835, PSC Docket Nos. 790760-WS and 790761-WS) for a hearing on the issue of the effect of a loan by petitioner to its parent company. That issue is now pending in consolidated Division of Administrative Hearings Case Nos. 81-970, 81-971, 81- 972, 81-973 and 81-974 and is presently scheduled for final hearing on May 26 and 27, 1981. Thus, the only issues remaining for determination in the instant proceeding are the quality of water and sewer service provided by petitioner to its customers in Lake County, Florida, and the method of setting rates for the Morningview sewer system.

At the commencement of the hearing, five customers submitted letters requesting "to intervene as a party and be represented." Those persons were Anna P. Cowin, Ann Marie Norman, Marilyn Smith, Patti L. Wolf and Pam Angelillo. They elected to be represented by the Office of Public Counsel.

During the hearing, thirteen customers of petitioner testified. One witness's testimony was stricken as he was not a customer of a system for which increased rates and charges are being sought in this proceeding. Petitioner presented the testimony of Charlotte Slaboda, Jerry Wood, Marilyn Jensen, Barry

K. Asmus, who was accepted as an expert in the area of water and sewer accounting and rate construction, Judy Sweat and Charles Sweat, petitioner's vice-president of operations. Respondent presented the testimony of Arthur Atkinson, who was accepted as an expert in the area of rate design, Thomas

Walden and Marshall W. Willis. Received into evidence at the hearing were Hearing Officer's Exhibit 1, with attachments A through G, Petitioner's Exhibit

1 and Office of Public Counsel's Exhibits 1 through 11.

At the conclusion of the hearing, it was announced that the parties would have ten days from the date of receipt of the transcript within which to file proposed findings fact, proposed conclusions of law and a proposed recommendation. The transcript was received by the Division of Administrative Hearings on March 25, 1981. Proposed recommended orders were filed by all counsel on April 14, 1981. To the extent that the parties' proposed findings of fact are not incorporated in this Recommended Order, they are rejected as being either irrelevant or immaterial to the issues for determination, not supported by competent, substantial evidence adduced at the hearing, or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following facts relevant to the issues presented for determination are found:

Quality of Service

1. The prime concern and complaint of the customers who testified at the hearing was the quality of water they receive in their homes. The water was described as containing high levels of chlorine, to the extent that it smells of chlorine and, on occasion, fades or bleaches colored clothing when washed. At times, the water is cloudy or rusty in appearance and contains debris, such as sand, dirt or pebbles. One witness testified that clothing had been stained by rust in the wash water. Samples of water received into evidence illustrate the muddy appearance of the water, with debris visible. At times, the water is colored with algae, resulting in greenish-colored ice cubes. Broken appliances are attributed by several customers to have resulted from the debris contained in the water.

   
   

2. Customers have experienced low water pressure in their homes and water outages for up to ten hours without prior notice from the petitioner. It was not established whether such water outages were the result of routine maintenance or emergency repairs.

   
   

3. Several witnesses found it difficult to contact petitioner regarding billing errors and that slow or no responses to their inquiries were received. The billing errors included mailing the bill to the wrong address and the amounts of the bill. One such latter complaint is presently before the consumer affairs division of the Public Service Commission.

   
   

4. The only complaints regarding sewer service were that there is often an unacceptable odor and that "there was sewage boiling out on my street two days in a row." (T.51)

   
   

5. Notice of the hearing in this cause was mailed to all customers on February 25, 1981. The rate case documents were delivered by an employee of petitioner to the Clerk's office of the Lake County County Commission in the Lake County Courthouse on February 17, 1981.

6. Water samples are taken on a monthly basis from each of the petitioner's plants. These samples are then analyzed for water quality in a state-controlled laboratory and the results are then sent to the Florida Department of Environmental Regulation and the local Health Department. Personnel from these regulatory bodies occasionally visit the plants and make independent tests. None of the petitioner's water systems or its sewer system are presently under citation from any regulatory body. A citation existing prior to the petitioner's acquisition of the Palms Mobile Home Park water system has been removed.

   
   

7. Prior to the hearing, Petitioner's vice-president of operations, Charles Sweat, had not received any complaints from customers regarding the level of water pressure in their homes. With regard to notification of customers of water outages, it is the petitioner's policy to give a twenty-four hour written notice to all customers for planned, scheduled maintenance which would require the water to be off for any length of time. When accidents or emergencies occur, petitioner devotes its concentration to the restoration of service and advance notice is not possible.

   
   

8. The Department of Environmental Regulation has minimum requirements relating to the amount of chlorine which must be added to a water system. There are no maximum requirements.

   
   

9. One of the Fern Terrace water samples received into evidence at the hearing was very brown in appearance. On the day upon which that sample was taken, the system had experienced a malfunction of the air compressor, causing all the water to go out of the system. The brown-colored water was the result of debris and rust that had built up in the bottom of the tank. The inside of the tanks are cleaned on a periodic basis, and that particular tank had been cleaned approximately six months ago. Petitioner does have a main flushing program, and each system is flushed on a regular basis, the frequency of which is dependent upon the type of pipeline used and the quality of the water in the system. A flushing report is maintained to record the appearance of the water at the beginning and at the end of the flushing, the chlorine residual in the water, the amount of time taken and the estimated gallons flushed out of the line. No explanation was provided for another muddy water sample received into evidence.

   
   

   Rate Setting for the Morningview Sewer System

   
   

10. The Morningview sewer system is capable of supporting a maximum of forty-two (42) residential connections. At the end of the 1979 test year, the system had only twenty-six (26) connections. The respondent, Public Service Commission seeks to impute sewer revenues from the unsold lots in the Morningview subdivision so as to recognize the plant capacity of 42 connections. It was undisputed that the sewer plant was 100 percent used and useful and no adjustment was made to this figure.

    
    

11. Since petitioner's acquisition of the Morningview sewer system, it has experienced an average annual growth rate of 13.16 percent. During the last year and one-quarter, the growth rate has been approximately 25 percent. The number of connections has increased from 19 in 1976 to the present 30. Eleven connections have been added in a little over four years.

12. The revenues from the imputed connections were obviously not collected during the test year, nor were they collected in 1980. It would take approximately three years to collect the imputed revenues at the current rate of growth.

    
    

13. The Public Service Commission has not adopted a rule allowing this imputation method of ratesetting. The pro forma approach has been used in setting rates for a new utility or development, and has been described as an "innovative" method of adjusting used and useful plant. Expenses in addition to increased costs for electrical power and chlorine necessitated by the increased number of connections were not considered by the Public Service Commission to be material. Additional connections to the sewer system would involve some additional billing and service costs, though the difference in fixed costs for serving 42 connections and 26 connections is minimal.

    
    

    CONCLUSIONS OF LAW

    
    

14. The majority of disputed financial and attendant legal issues having either been stipulated, resolved or reserved by the parties for a future hearing, the only issues presently before the Hearing Officer concern the quality of the water and sewer services which the petitioner provides to its customers in Lake County, Florida, and the method of setting rates for the Morningview sewer system.

    
    

15. Among the considerations which the Florida Public Service Commission must take into account when it fixes water and sewer rates which are just, reasonable, compensatory and not unfairly discriminatory are the value and the quality of the service provided. Florida Statutes, Section 367.081(2). While "value" and "quality" of service have not been specifically defined by the Legislature or by the Public Service Commission in its rules, it must be concluded that these terms would include the quality of the water delivered to the customer. Section 367.111(2), Fla. Stats. (1980 Supp.), provides as follows:

    
    

    "Each utility shall provide to each person reasonably entitled thereto such safe, efficient, and sufficient service as is prescribed by the Florida Safe Drinking Water Act and the Florida Air and Water Pollution Control Act, or rules adopted pursuant thereto, or, if applicable, chapter 17-22, Florida Administrative Code; but such service shall

    not be less safe, less efficient, or less sufficient than is consistent with the approved engineering design of the system and the reasonable and proper operation of the utility in the public interest."

    
    

16. The evidence adduced at the hearing illustrates that petitioner's water and sewer systems in Lake County are not presently under citation by any local or state agency. It must therefore be presumed that petitioner's water and sewer operations are in compliance with local and state regulatory standards with regard to water quality and sewage treatment.

17. The odor of chlorination of the water was a common complaint of the customers who testified at the hearing. However, there was no competent, substantial evidence as to either the level of chlorine commonly found in the water or whether the odor resulted from an amount of chlorine in excess of the minimum requirements of the Department of Environmental Regulation. Without such evidence, it cannot be found that the petitioner is responsible for this dissatisfaction of its customers.

    
    

18. The amount of debris and discoloration in the water supplied to customers is a matter for concern. The frequency of such occurrences was not established at the hearing. It appears from the testimony of petitioner's vice- president for operations that petitioner's flushing programs are designed to eliminate such problems. Further investigation into the problem of debris in the petitioner's water is warranted.

    
    

19. The customer testimony regarding interruptions in service without prior notice to customers was not specific as to the frequency or the causes of such an occurrence. There was testimony that petitioner's policy is to give advance, written notice to customers for planned maintenance causing interruptions in service. It must therefore be presumed, absent contrary evidence, that the unnotified occurrences of interruptions in service are the result of accidents or emergency situations. The remaining dissatisfactions of the customers relating to insufficient water pressure, sewage odors, possible billing errors and inadequate and/or untimely responses to their billing questions were not supported by competent, substantial evidence.

    
    

20. Taken as a whole, the evidence adduced at the hearing with regard to the quality of water and sewer service provided by petitioner to its customers was not sufficiently competent or substantial to justify the imposition of adverse consequences upon petitioner in its application for rate increases. None of the witnesses who testified presented sufficient or special qualifications to establish their competency to testify regarding water quality and the complaints of the customers might be better and more adequately addressed in another forum.

    
    

21. A utility is permitted to earn a return on property which is used and useful in providing service to its customers. The evidence in this case is that petitioner's Morningside sewer Plant is 100 percent used and useful. Given this undisputed fact, the undersigned concludes that it would not be fair to impute revenues from additional connections to the system. Insufficient evidence was presented to illustrate that petitioner would indeed have 42 connections at the end of a three-year period. When actual figures of utilization are available, it would appear to be mere just and equitable to make an adjustment to used and useful plant and compute rates on actual revenues and expenses collected and expended. The rate of growth in actual numbers of this sewer system does not justify the imputation of revenues and expenses.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that no adverse consequences be imposed upon the petitioner in its application for rate increases as a result of the quality of water and sewer service provided to its customers in Lake County, Florida. It is further RECOMMENDED that revenues not be imputed for 42 connections to the Morningview sewer system.

Respectfully submitted and entered this 24th day of April, 1981, in Tallahassee, Florida.

DIANE D. TREMOR, 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 24th day of April, 1981.

COPIES FURNISHED:

R.M.C. Rose

Myers, Kaplan, Levinson, Kenin and Richards

Suite 103, 1020 Lafayette Street

Tallahassee, Florida 32301

M. Robert Christ Legal Department

Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Jack Shreve Public Counsel

Room 4 - Holland Building Tallahassee, Florida 32301

Steve Tribble, Clerk Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Joe Cresse, Chairman Public Service Commission The Fletcher Building

101 East Gaines Street Tallahassee, Florida 32301

Anna Marie Norman 1219 LaSalida Way

Leesburg, Florida 32748

Marilyn Smith

2924 North Porto Bello Avenue Leesburg, Florida 32748

Patti L. Wolf 2922 Alta Street

Leesburg, Florida 32748

Anna P. Cowin

2913 North Porto Bello Avenue Leesburg, Florida 32748

Pam Angelillo 2922 Cocovia Way

Leesburg, Florida 32748

Docket for Case No: 81-000311

Orders for Case No: 81-000311