STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JACKSONVILLE SUBURBAN UTILITIES ) CORPORATION, SOUTHERN UTILITIES ) COMPANY, and GENERAL WATERWORKS ) CORPORATION d/b/a GENERAL WATER- ) WORKS-CENTRAL FLORIDA DISTRICT, )

)

Petitioners, )

)

vs. ) CASE NO. 79-1653RP

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

) GULFSTREAM UTILITY COMPANY, ) MANDARIN UTILITIES, INC., )

SEACOAST UTILITIES, INC., )

)

Petitioners, )

)

vs. ) CASE NO. 79-1671RP

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

) FLORIDA WATERWORKS ASSOCIATION, )

et. al., )

)

Petitioners, )

)

vs. ) CASE NO. 79-1673RP

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

) GENERAL DEVELOPMENT UTILITIES, ) INC., )

)

Petitioners, )

)

vs. ) CASE NO. 79-1721RP

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William E. Williams, held a public hearing in these consolidated causes on September 24 and 25, 1979, in Tallahassee, Florida.

APPEARANCES

For Petitioners, William A. Van Nortwick, Jr., Jacksonville Suburban Esquire

Utilities Corporation, Post Office Box 59 et al.: Jacksonville, Florida 32201

For Petitioners, Kenneth M. Myers, Esquire Gulfstream Utility 1428 Brickell Avenue Company, et al.: Miami, Florida 33131

For Petitioners, Ben E. Girtman, Esquire Florida Waterworks Post Office Box 669 Association, et al.: Tallahassee, Florida 32301

For Petitioners, Gary P. Sams, Esquire General Development Post Office Box 6526 Utilities, Inc.: Tallahassee, Florida 32301

For Respondent, Leon F. Olmstead, Esquire Florida Public Service Raymond E. Vesterby, Esquire Commission: 101 East Gaines Street

Tallahassee, Florida 32304

For Intervenor, John Roger Howe, Esquire Citizens of the State Room 4, Holland Building

of Florida: Tallahassee, Florida 32301

This proceeding involves four petitions filed pursuant to Section 120.54(4), Florida Statutes, challenging the validity of Rules 25-10.145 and 25- 10.146, Florida Administrative Code ("proposed rules"), proposed for adoption by Respondent, Florida Public Service Commission ("Commission"). The petitions challenging the proposed rules were filed by the Florida Waterworks Association and forty-seven water and sewer utility companies ("Petitioners"), regulated by the Commission. Because the four petitions involved similar issues of law and the same state agency, they were consolidated for purposes of final hearing by Order of the Hearing Officer dated August 15, 1979.

By written stipulation, all of the parties to this proceeding waived the statutory requirement that final hearing in these causes be held within thirty days of the date of assignment of a Hearing Officer from the Division of Administrative Hearings. Thereafter, final hearing was scheduled for September

24 and 25, 1979, by Amended Notice of Hearing dated August 27, 1979. Prior to final hearing, the parties filed a Prehearing Stipulation relating to the issues of fact and law involved in this proceeding ("Stipulation"). After the filing of the Stipulation, the Citizens of the State of Florida, through the Office of Public Counsel filed their Notice of Intervention, and were allowed by oral order of the Hearing Officer at the final hearing to participate as parties to this proceeding.

At the final hearing, Petitioners called Howard C. Osterman, Herbert Gruber, Philip Heil, Stanley L. Cohen and Robert G. Turner as its witnesses. Petitioner offered Petitioner's Exhibits 1 through 11, and 12A, 12B, and 12C, each of which was received into evidence. The Commission called Norman Mears, Gregory R. Follensbee and Joanne Chase as its witnesses. The Commission offered Respondent's Exhibits 1 through 6 and Respondent's Exhibit 9, each of which was received into evidence. Respondent offered Respondent's Exhibits 7 and 8, which were not admitted into evidence. In addition, the parties offered Joint Exhibits 1 through 4, inclusive, each of which was received into evidence.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. By Order No. 8947, dated July 12, 1979, the Commission proposed for adoption Rules 25-10.145 and 25-10.146, to become part of the Florida Administrative Code, if adopted. Rule 25-10.145, as proposed, provides as follows:

   
   

   Contributions, Customers' Beneficial Interest.

   
   

   To the extent that customers have directly or indirectly borne the burden of providing capital or facilities used to provide utility services through contributions, they will not lose the benefit of their contributions to the utility, as a result of sale of those facilities.

   
   

   From and after the effective date hereof, as a condition precedent to authority to collect and receive further contributions-in-aid-of- construction, all water and sewer utilities subject to regulation under Chapter 367, Florida Statutes, regardless of whether or not service availability policies and charges have been previously approved by the Commission, will agree and declare that they hold all future contributions in trust for the customers of the utility and will so provide in their tariff.

   
   

   Contributions, as referred to above, include all monies, and/or property, real, personal or mixed, including, but not limited to, sewage collection/water distribution systems, easements, real property interests, water supply and treatment facilities, sewerage treatment and effluent disposal facilities, meters, and meter boxes, fixtures relative thereto, and water and/or sewer service as contributions (without expenditure of funds by or on behalf of the utility, as by a stockholder or affiliate or parent company, which expenditures are not recovered as a cost of doing business by the entity making the same)

2. Rule 25-10.146, as proposed, provides as follows:

   
   

   Contributions and Depreciation, Sale, Customers' Beneficial Interest.

   
   

   To the extent that customers have directly or indirectly borne the burden of providing capital or facilities used to provide utility services through contributions and paid depreciation on utility systems, they will not lose the benefit of their contributions to the system and the depreciation they have paid, through their rates, on the utility system as a result of sale of those facilities.

   
   

   From and after the effective date hereof, as a condition precedent to authority to receive and collect further contributions-in-aid-of- construction, all water and sewer utilities subject to regulation under Chapter 367, Florida Statutes, regardless of whether or not service availability policies and/or charges have been previously approved by this Commission, will agree and declare that they hold all contributions in trust for the customers of the utility system and so provided in their tariff.

   
   

   Contributions, as referred to above, include all monies and/or property, real, personal or mixed; including but not limited to, sewage collection/water distribution systems, easements, real property interests, water supply and treatment facilities, sewerage treatment and effluent disposal facilities, meters and meter boxes, fixtures relative thereto, and water and sewer laterals received by the utility providing water and/or sewer service as contributions (without expenditure of funds by or on behalf of the utility, as by a stockholder or by an affiliate or parent company, which expenditures are not recovered as a cost of business by the entity making the same)

   
   

3. In its order No. 8947 proposing Rules 24-10.145 and 25-10.146 for adoption, the Commission indicated that the purpose of the rules was ". . .to preclude conversion of customers' contributions and accumulated depreciation to investment in the hands of a transferee where there is no concomitant benefit to the customers." The Commission defines contribution-in-aid-of-construction" ("CIAC") in Rule 25-10.121(4), Florida Administrative Code, as:

   
   

   The sum of money and/or the value of property represented by the cost of the water distribution and sewerage collection systems including lift stations and treatment plants by a developer, or owner, of the utility,

   which developer or owner transfers, or agrees to transfer, to Service Utility in order to induce Service Utility to provide utility service to specified property. (CIAC) may include connection charges and main extension charges as herein defined. . .

   
   

4. Pursuant to the provisions of Section 120.54(4), Florida Statutes, Petitioners timely filed their petitions challenging the validity of Respondent's Proposed Rules. The parties hereto stipulated that each utility petitioner is regulated by the Commission pursuant to Chapter 367, Florida Statutes, and is, therefore, substantially affected by the proposed rules. It was further stipulated that each utility petitioner presently owns full legal and beneficial title to certain property treated by the Commission pursuant to its rules as CIAC.

   
   

5. The Petitioners contend generally that the proposed rules are an invalid exercise of delegated legislative authority, in that nothing in the provisions of Sections 367.101 and 367.121, Florida Statutes, which are the statutory provisions asserted by the Commission as authority for adoption of the proposed rules, would authorize the rules' adoption. More specifically, Petitioners contend that:

   
   

   1. the adoption of the proposed rules

      exceeds the statutory authority of the Commission;

   2. the requirements of the proposed rules

      are not appropriate or reasonably related to the ends specified in Chapter 367, Florida Statutes, pursuant to which the Commission is proposing the rules;

   3. there is no rational basis to support the findings in Order No. 8947 on which the proposed rules are based;

   4. the proposed rules exceed the constitutional limitations of the Commission's authority;

   5. the proposed rules are vague and indefinite and are, therefore, unconstitutional; and

   6. the Economic Impact Statement provided by the Commission is wholly inadequate, and the Commission has failed to follow the requirements of Section 120.54(2), Florida Statutes.

      
      

6. In accordance with Section 120.54(1), Florida Statutes, the Commission contends that adoption of the proposed rules is authorized by virtue of the provisions of sections 367.101 and 367.121, Florida Statutes. Section 367.101, Florida Statutes, provides that:

   
   

   Charges and conditions made by a utility shall be just and reasonable. The commission shall, upon request or upon its own motion, investigate agreements or proposals for charges and conditions to be made by a utility for service availability. The commission shall set just and reasonable charges and conditions for service availability.

7. Section 367.121(1), Florida Statutes, insofar as here deemed pertinent, provides that the Commission, in the exercise of its jurisdiction, shall have power:

   
   

   1. To prescribe fair and reasonable rates and charges, classifications, standards of quality and measurements, and service rules and regulations to be observed by each utility;

   2. To prescribe uniform system and classification of accounts for all utilities which, among other things, shall establish adequate, fair, and reasonable depreciation rates and charges. . .

   
   

8. As indicated above, CIAC consists of money paid, or property conveyed, to a utility by a developer or customer in order to induce the utility to provide utility service to specified property. When paid in cash, such payments are also referred to as a service availability charge, a connection charge, or a main extension charge. Since CIAC funds ". . .are collected from customers or developers to defray the expense of extending service to such new customers. .

   .they represent capital outside of the utility's debt and equity capital structure." State v. Hawkins, 364 So.2d 723, 724 (Fla. 1978). Since CIAC represents property acquired from the utility's customers and not from its debt and equity capital structure, CIAC is not included in a utility's rate base, and rates authorized by the Commission do not allow a return on contributed property. In addition, since December 5, 1978, the Commission has prohibited depreciation of contributed property as an operating expense for rate-making purposes. As indicated by the court in State v. Hawkins, supra, a procedure allowing reintroduction of CIAC property into a utility's rate base structure ".

   . .results in a windfall to the utility, which earns a return on property other than its own, and unfairness to the rate payers, who must pay higher rates in spite of their contributed capital." 364 So.2d at 725. (Emphasis added).

   
   

9. When a regulated utility is sold to another regulated utility, the Commission retains jurisdiction over the rates of the transferee, and the treatment of CIAC in the hands of the transferee. Since the Commission retains jurisdiction over rates and treatment of CIAC when a regulated utility is sold to another regulated utility, the proposed rules have no effect on such sales. However, there is a potential for a different result when a regulated utility is either sold to or condemned by a governmental authority. The Commission lacks jurisdiction to regulate utilities ". . .owned, operated, managed or controlled by governmental agencies. . ." Section 367.022, Florida Statutes. In addition, Section 367.071(3)(a), Florida Statutes, requires the Commission to approve the sale or transfer of certificates or facilities to a governmental agency ". . .as a matter of right."

   
   

10. The overall purpose of the proposed rules is to preserve the benefits of CIAC to the system's customers upon the sale of a regulated utility to a governmental authority. The proposed rules seek to preserve this benefit by assuring that when a regulated utility is sold to a governmental authority, the rates of the governmental authority will not reflect the acquisition of property designated as CIAC. The proposed rules purport to accomplish this purpose by requiring regulated utilities, as a condition precedent to accepting future CIAC, to declare that all CIAC, both received in the past and to be acquired in the future, is held in trust for the benefit of the customers of the utility system. The proposed rules do not, however, require any refund, distribution, or other payment on account of CIAC property to customers of a regulated utility

    on sale of the regulated utility to a governmental authority. Accordingly, the proposed rules accomplish their purpose by putting a governmental agency which is negotiating for the purchase of a private utility on notice that certain portions of that utility's assets are beneficially owned by the customers of that utility. Further, the effect of the proposed rules in the event of condemnation of a regulated utility system by a governmental authority is to establish a zero value payable directly to the utility for contributed property.

    
    

11. When a regulated utility is sold to a governmental authority, the purchase price is not customarily based on an appraisal of the regulated utility system's assets, nor is it based on the book value of those assets. Instead, the purchase price is usually based on net revenues which the utility system can generate. In essence, the sales price of the regulated utility, when based on this "revenue approach". results from a determination of the amount of bonds the revenue stream will support after allowance for operating expenses. For this purchase price the purchasing governmental agency currently obtains all the assets that support the revenue stream. The evidence in this proceeding indicates that although there exist other methods of evaluation in arriving at the purchase price for a regulated utility system, those methods are rarely used. It is, however, clear, that but for the assets provided by CIAC, a regulated utility system would be less valuable upon sale to a governmental agency.

    
    

12. The evidence in this proceeding establishes that when a regulated private utility system is sold to a governmental authority, rates for utility services after sale have historically decreased or remained the same. However, there is no evidence in this proceeding as to what effect, if any, the acquisition of CIAC property has had on rates charged by governmental authorities after purchase. It is, however, clear that when CIAC property constituting a portion of a private utility's assets are transferred to a governmental agency, that agency is free to require that customers of the utility, either through rates or taxes, pay for those assets a second time.

    
    

13. Petitioners have cited no authority to establish that a regulated private utility has a legal right, as a matter of course, to require contributions from developers or customers of the system to provide necessary funds to finance its system. In fact, Sections 367.101 and 367.121, Florida Statutes, evince a clear legislative intent to allow receipt of CIAC only upon terms deemed by the Commission to be "just and reasonable." In light of the Commission's past treatment of CIAC for rate-making purposes-- that is, to exclude CIAC from a utility's rate base to avoid requiring consumers to pay rates based upon the value of facilities for which they themselves have already paid-- and the concurrence in that approach by courts in this and many other states, the proposed rules appear to be a logical, just and reasonable extension of this approach in order to protect the interests of the consuming public upon sale of a regulated private utility to a governmental agency. Accordingly, it is specifically held that the Commission did not exceed statutory authority in promulgating the proposed rules.

    
    

14. Petitioners argue that there is no rational basis to support the findings in Order No. 8947 on which the proposed rules are based. In this connection, Petitioners assert that customers do not invariably pay for CIAC in the purchase price of their homes; that customers do not invariably pay for depreciation expenses of a utility in rates; and that since the purchase price of a private utility by a governmental agency is not affected by the amount of contributed assets, customers of the utility will not have to pay higher rates because of the purchase of CIAC with the other assets of the regulated utility.

    These arguments tend to obfuscate the clear intent of the proposed rules, which is to prevent a regulated private utility from selling CIAC property which was obtained at no cost to the detriment of consumers who contributed, either directly or indirectly, that property under generally prevailing economic conditions. The fact that Petitioners can conceive of a situation in which a customer arguably does not pay his pro rata share of a collection or distribution system in the purchase price of his home, or by way of depreciation, is insufficient to invalidate these proposed rules. Further, as noted previously, Petitioners have failed to establish that rates charged by governmental entities after purchase of the assets of a private utility do not reflect the acquisition of CIAC, the effect of which would be to require utility customers to again pay for property which they have contributed to the utility, either directly or indirectly.

    
    

15. In passing, it should be noted that, although proposed Rule 25-10.146 refers to "paid depreciation" in its first paragraph, there is no provision in that rule which would require that such paid depreciation be held in trust by a regulated utility.

    
    

16. Petitioners argue that the adoption of the Proposed Rules by the Commission exceeds constitutional limitations on the Commission's authority for a variety of reasons. First, Petitioners contend that economic reality requires regulated private utilities to receive CIAC in order to continue to function, so that the practical effect of the proposed rules on the great majority of utilities which are dependent upon CIAC as a source of capital is to require them, under duress, to transfer beneficial ownership of much of their property to their customers. In essence, the Petitioners contend that the proposed rules would unconstitutionally take the property of regulated private utilities without due process of law or the payment of full compensation. These arguments are without merit. As indicated previously, regulated private utilities have no vested right to receipt of future CIAC. The legislature has authorized the Commission to set "just and reasonable" conditions to the receipt of future CIAC, one of which conditions is the recognition by the utilities that previously received CIAC, acquired at no cost to the utility, is to be held in trust for the benefit of those customers who provided it in the first instance. The utility's reliance on receipt of CIAC as a method of financing, developed over a period of years, cannot, in and of itself, raise the "privilege" of receiving CIAC to the level of a vested "right".

    
    

17. Petitioners argue that the imposition of a trust on CIAC as a mode of preventing "unjust enrichment" to regulated private utilities upon a sale to a governmental agency is an unconstitutional usurpation of rights reserved to the judicial branch of government. However, in addition to the incidental effect of preventing unjust enrichment, the imposition of the trust proposed in these rules preserves the rights in contributed property to those persons who have directly or indirectly paid for them. The method sought to be adopted by the Commission is clearly within the grant of authority from the legislature in Chapter 367, Florida Statutes, and does not violate the requirements of Article II, Section 3, of the Florida Constitution.

    
    

18. Petitioners next argue that the effect of the proposed rules in establishing a zero value payable to the utility on contributed property in the event of condemnation by a governmental agency is an unconstitutional invasion of the authority of the judiciary in the determination and allowance of just compensation in condemnation proceedings. This argument, too, is without merit in that it ignores the fact that CIAC assets held in trust by the utility pursuant to the proposed rules does not constitute the exclusive property of the

    utility. The proposed rules would, of course, have no effect on previously received CIAC should a regulated utility elect not to file the necessary declaration of trust required as a condition to receipt of future CIAC. In the event of condemnation in a situation where a utility has filed a declaration of trust, just compensation must still be paid for CIAC property, but the customers who provided the property in the first instance will be allowed, by virtue of the proposed rules, to share in the benefits of any compensation award. In effect then, the establishment of a zero value payable to the utility on CIAC is not unconstitutional, in that the utility, by virtue of the definition of CIAC, has no beneficial ownership interest in the property.

    
    

19. Petitioners next contend that the Proposed Rules would unconstitutionally abrogate existing contracts creating liens on real property owned by regulated private utilities, and would further impair the value of existing developer agreements by which utilities have the right to receive from developers full title to future CIAC as a condition to providing services. With respect to receipt of future CIAC, the Commission clearly has authority to grant or withhold permission to receive such contributions. Nothing in contracts between utilities and developers can serve to divest the Commission of its jurisdiction in this regard. In short, utilities have no constitutional right to receipt of future CIAC, notwithstanding the existence of contrary provisions in developer agreements. With respect to existing trust indentures and mortgages which have created liens on real property owned by utilities, the proposed rules, as a matter of law, cannot operate to invalidate preexisting property rights of secured creditors in property pledged as security for debts to them. The proposed rules would, in effect, operate only as between the utility, its customers, and potential governmental agency purchasers, and would serve to put a potential purchaser on notice of the existence of the beneficial interest of utility customers in CIAC property. Accordingly, these arguments advanced by Petitioners for the invalidity of the proposed rules are also without merit.

    
    

20. Petitioners argue that the proposed rules are unconstitutionally vague and indefinite in that they fail to delineate the duties and responsibilities of the trustee or the rights granted to the customers, as beneficiaries, as a result of the declaration of trust required by the proposed rules. This argument is unpersuasive, in that the term "in trust" has a clearly recognized meaning in the law, and the legal niceties of the trust concept contained in the proposed rules may adequately be handled in the declaration of trust, developer's agreement, or special contract filed by the utility with the Commission pursuant to the requirements of Chapter 25-10, Florida Administrative Code. In this fashion, the Commission's policy, as evidenced by the proposed rules, may be refined on a case-by-case basis. See, McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1 DCA 1977).

    
    

21. Finally, Petitioners contend that the proposed rules are invalid because the Commission failed to provide an adequate economic impact statement as required by Section 120.54 (2)(a), Florida Statutes. That statute requires that:

    
    

    Each agency, prior to the adoption, amendment, or repeal of any rule, shall provide information on its proposed action by

    preparing a detailed economic impact statement. The economic impact statement shall include:

    1. An estimate of the cost to the agency of the implementation of the proposed action,

       including the estimated amount of paperwork;

    2. An estimate of the cost or the economic benefit to all persons directly affected by the proposed action;

    3. An estimate of the impact of the proposed action on competition and the open market for employment, if applicable; and

    4. A detailed statement of the data and method used in making each of the above estimates.

       
       

22. In response to this requirement, the Commission filed a Statement of Economic Impact, consisting of four paragraphs on one page, which contained the following:

    
    

    1. The cost of the Florida Public Service Commission to implement the proposed rules is limited to the adoption thereof. The paperwork likewise is so limited.

    2. There will be no cost to the utilities presently owning the water and/or sewer systems, except in the event of sale, a loss of an unjustified windfall profit resulting from conversion of the accumulated depreciation and contributions directly or indirectly made to the capital of the utility into investment in the hands of the transferee utility would occur.

       The economic benefit to the customers will be substantial by forestalling the above referenced conversion of depreciation and contributions into investment, thus, retaining to the customers the benefits they obtained through their direct or indirect contributions to the cost of the facilities used to provide utility service. It is impossible to quantify the benefits in dollars, because of the many variables, such as the amount of contributions, the amount of accumulated depreciation, the cost of equity and/or debt used to buy the utility system.

    3. The proposed rules will not affect competition or open market for employment.

    4. The above estimates are based on a review of present practices in the water and sewer utility industry in Florida. The facts of the cases cited in the order proposing the rule

       are by this reference incorporated herein and made a part hereof as if fully set forth.

       
       

23. The evidence in this proceeding clearly establishes that there are three sources of capital available to regulated private utilities. These are equity contributed by the utility or its shareholders, debt arranged through borrowings from financial institutions, and CIAC received from developers or customers of the utility. Of these sources, CIAC is the least expensive to the utility and, since CIAC is excluded from a utility's rate base, results in lower utility rates to the consumer. Equity and debt financing are more expensive

    than CIAC and, should a utility elect not to accept future CIAC, one of two results will follow. Either future expansion of utility service will have to be financed through debt or equity, thereby increasing rates paid by customers; or, if those sources of capital are unavailable, the utility will stop expanding, thereby making utility service more difficult to obtain and possibly adversedly impacting presently unserved potential customers. Although not addressed in the Economic Impact Statement, the Commission, in an order issued September 19, 1979, a copy of which was received into evidence in this proceeding as Respondent's Exhibit No. 5, specifically recognized ". . .that deletion or elimination of contributions will undoubtedly cause increases in rates to be paid by the customers." Respondent's Exhibit No. 5, at page 5. Further, the evidence in this proceeding established that any increase in rates of private water and sewer utilities might potentially affect the competitive balance between businesses served by those private utilities and businesses served by utilities owned by governmental authorities.

    
    

24. At least one-half of the water and sewer utilities in Florida regulated by the Commission earn gross revenues of less than $25,000 annually, and at least 75 percent of these utilities earn less than $100,000 annually. Because most water and sewer utilities are relatively small, many traditional sources of debt and equity are not available to them. Nevertheless, the water and sewer industry is capital intensive and requires access to relatively large amounts of capital. As a result of these economic circumstances, regulated utilities are largely dependent upon CIAC to provide funds for necessary utility construction, improvement and expansion.

    
    

25. Lenders furnishing debt financing to utility systems ordinarily seek and obtain mortgages on all utility assets, including CIAC property. In addition, lenders also look to CIAC in the form of service availability charges as a major source of cash flow for repayment of outstanding loans. Many utility companies have outstanding borrowings which could be placed in technical default if they continue to accept CIAC under the proposed rules and were consequently required to declare that all past contributions are to be held in trust for the benefit of customers. Although, as previously indicated, the declaration of trust could not operate to divest a lender of a preexisting perfected security interest, the mere act of the utility in declaring such a trust to exist may constitute a technical default under some existing loan agreements. More importantly, if the proposed rules are adopted, and the utility elects to continue to accept CIAC, the requirement that it hold all past and future contributions in trust might impair its future borrowing power since lenders could no longer obtain as security full title to the assets they have been accustomed to receiving. Therefore, if debt market financing is restricted or impaired, utilities might be required to further rely on equity capital, if available, which might increase the utility's cost of capital and consequently increase the rates charged to customers.

    
    

26. The Commission submitted no competent evidence at the final hearing in this cause to confirm either the conclusions reached or the methodologies utilized in formulating its Economic Impact Statement. The evidence in this proceeding establishes that in preparing its Economic Impact Statement, the Commission failed to take into account, or to even consider, the potential economic impact of the proposed rules on the regulated utilities' ability to finance future construction or expansion; on the utilities' existing debt structure; and on the customers of those utilities in the form of increased rates should the utilities resort to debt or equity financing, or in the form of service availability should the regulated utilities choose to cease further expansion. In short, contrary to the Commission's conclusion in its Economic

    Impact Statement, adoption of the proposed rules may, in fact, have economic ramifications far beyond the sale of a privately owned utility system to a governmental agency.

    
    

27. The provisions of Section 120.54(2), Florida Statutes, mandating the preparation of an economic impact statement by an agency in the course of rulemaking proceedings was clearly intended to insure that an agency has carefully considered the economic impact of rule adoption on all persons directly affected by the proposed action. There is no evidence in the record of this proceeding to establish that the Commission has complied with either the letter or spirit of Section 120.54(2), Florida Statutes. It is clear that the preparation and submission of an erroneous or defective economic impact statement constitutes an invalid exercise of delegated legislative authority in the context of a Section 120.54, Florida Statutes, rulemaking proceeding. Department of Environmental Regulation v. Leon County, 344 So.2d 297, 299 (Fla.

1 DCA 1977). In the context of this proceeding, the failure of the Commission to submit a valid economic impact statement strikes at the heart of the purpose of the proposed rules, and cannot be considered "harmless error" as in Polk v. School Board of Polk County, 373 So.2d 960 (2d DCA Fla. 1979).

In summary, Petitioners have failed to demonstrate that the proposed rules exceed the statutory authority of the Commission or that the contents of the proposed rules are arbitrary, capricious or unconstitutionally vague. However, the absence of a properly prepared economic impact statement renders proposed rules 25-10.145 and 25-10.146 an invalid exercise of delegated legislative authority.

The parties have submitted proposed findings of fact in this proceeding. To the extent that such findings of fact are not adopted in this Final Order,

they have been specifically rejected as being either irrelevant to the issues in this cause, or as not having been supported by the evidence.

DONE AND ORDERED this 25th day of October, 1979, in Tallahassee, Florida.

WILLIAM E. WILLIAMS

Hearing Officer

Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

William A. Van Nortwick, Jr., Esquire Post Office Box 59

Jacksonville, Florida 32201

Kenneth M. Myers, Esquire 1428 Brickell Avenue

Miami, Florida 33131

Ben E. Girtman, Esquire Post Office Box 669 Tallahassee, Florida 32301

Gary P. Sams, Esquire Post Office Box 6526

Tallahassee, Florida 32301

Leon F. Olmstead, Esquire and

Raymond E. Vesterby, Esquire

101 East Gaines Street Tallahassee, Florida 32304

John Roger Howe, Esquire Room 4, Holland Building Tallahassee, Florida 32301

Docket for Case No: 79-001653RP

Orders for Case No: 79-001653RP