STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SOUTH BROWARD UTILITY, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 80-1187

) PSC Docket No. 790946-WS COOPER CITY UTILITIES, INC., and )

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondents. )

)

RECOMMENDED ORDER

PURSUANT TO NOTICE the Division of Administrative Hearings, by its duly designated Hearing Officer, WILLIAM B. THOMAS, held public hearings in this matter on June 18 and 19, 1980, in Cooper City, Florida, and on July 29 and 30, 1980, in Tallahassee, Florida. The parties were represented by:

APPEARANCES

For the Petitioner, JAMES L. ADE and WILLIAM A.VAN South Broward NORTWICK, JR., Esquires Utility, Inc.: 300 Independent Square

Post Office Box 59 Jacksonville, Florida 32202

For Cooper City WILLIAM E. SUNDSTROM, Esquire Utilities, Inc.: 1020 East Lafayette Street

Tallahassee, Florida 32301

For the Florida WILLIAM H. HARROLD, Esquire Public Service Florida Public Service Commission Commission and the 101 East Gaines Street

public generally: Tallahassee, Florida 32301

On November 16, 1979, South Broward Utility, Inc., filed an application for water and sewer certificates authorizing it to provide service to specifically designated territory in Broward County, Florida. The property is encompassed by a proposed development known as "Ivanhoe". The officers of South Broward Utility, Inc., are Ronald E. Corbitt, Jr., President; James S. Sharrock, Vice President; and W. L. Herndon, Jr. Secretary/Treasurer. The sole stockholder of South Broward Utility, Inc. is Hugh F. Culverhouse.

Pursuant to the provisions of Section 367.041(4), Florida Statutes, notice was given to utilities within a ten-mile radius of the territory applied for, and to the county commissioners of the counties affected. As a result, objections were received from property owners in the area, and from Cooper City Utilities, Inc. The matter was set for public hearing, as required by Section

367.051(2), Florida Statutes. None of the objecting property owners appeared to present evidence in opposition to the application.

The quintessential issue presented is whether South Broward possesses the ability to provide water and sewer service to the area known as Ivanhoe, and if so, whether Cooper City Utilities can provide service in a sufficiently more efficient manner than South Broward so that granting certificates to South Broward would not be in the public interest.

FINDINGS OF FACT

1. Ivanhoe is a planned unit development on approximately 864 acres in Broward County extending from Griffin Road on the north, Southeast 148th Avenue on the east, Sheridan Road on the south, and with the westwardly boundary approximately one-fourth mile east of Dyke Road. A planning consultant testified concerning the conceptual site development plan for Ivanhoe prepared pursuant to the Broward County Zoning Code and Land Use Plan. The planned unit development anticipates just less than 2,323 dwelling units (the density limit imposed by the Broward County Land Use Plan), to consist of single family units, townhouses, cluster homes, apartments, and some recreation and commercial land uses. The developers of Ivanhoe will not construct the ultimate dwellings but will develop the land for construction of residences and other buildings by builders. Ivanhoe is to be developed in three phases. The first phase is expected to be platted and ready for ultimate development by 1983, the second phase in 1985, and the third phase in 1988.

   
   

2. South Broward is a Florida corporation formed solely to provide utility service to Ivanhoe, and if necessary, adjacent property. The corporation is not presently funded or in operation, but it has retained consulting engineers and management consultants experienced in planning, designing, and operating water and sewer utility systems in Florida.

   
   

3. One hundred percent of the capital stock of South Broward is owned by Hugh F. Culverhouse. Mr. Culverhouse also owns other water and sewer utilities in Florida regulated by the Commission. The evidence in the record (Exhibit 1 and Exhibit 2) establishes that South Broward's shareholder possesses substantial assets and net worth, and that he has the financial capability to provide whatever capital is needed in order to construct the required utility facilities and to operate a sound utility company. Although South Broward's utility consultant recommended a 50-50 to 60-40 ratio of equity to contributions-in-aid-of-construction, the shareholder is able to invest all of the capital necessary to construct and operate the entire utility system, or whatever ratio of equity to CIAC the Commission may require, should he be willing to do so.

   
   

4. In order to determine alternate means of providing utility service to Ivanhoe, South Broward's consulting engineer prepared a preliminary report setting forth various alternatives and his cost estimates for each. These general engineering plans are sufficiently flexible to meet the changing requirements of the appropriate governmental agencies. However, the preparation of complete, detailed plans is premature until such time as certificates are issued by the Commission.

   
   

5. At the present time, neither South Broward nor Cooper City Utilities possesses any permits from regulatory agencies relating to the facilities necessary to serve Ivanhoe. A representative from the Department of Environmental Regulation testified relative to licensing. There is nothing in

   South Broward's preliminary engineering report that would not allow the required permits to be issued. A representative from the Broward County Health Department, which agency reviews and approves engineering plans for potable water facilities in Broward County, also testified concerning licensing. The plans described in South Broward's preliminary report would be approved if they met all of the appropriate criteria when submitted. From this evidence, therefore, if detailed engineering plans are submitted by South Broward consistent with the general plans contained in the preliminary report, South Broward will be granted the necessary construction and operating permits for its proposed water and sewer systems. Ultimately, South Broward plans to utilize the Broward County regional wastewater treatment facility, to be constructed pursuant to Public Law 92-500 under what is known as a "201 Plan", to provide sewage treatment service to Ivanhoe.

   
   

6. South Broward's management consultant presented evidence relative to the company's proposed capital structure, rates, the projected operating budget and manner of operation. South Broward's proposed rates would be in keeping with the rates of other utilities in the area, including Cooper City Utilities, even though South Broward would levy no plant contribution charge and would maintain at least 50-50 ratio of CIAC and invested plant. The past operational experience of South Broward's consultants and its sole stockholder demonstrate that South Broward will be operated in an efficient and sufficient manner.

   
   

7. The evidence presented establishes that South Broward possesses the engineering and operational capability to construct and operate the necessary facilities to provide service to Ivanhoe. However, there remains to be established the willingness of South Broward's shareholder to commit sufficient funds to the company for this purpose. There is no competent, direct evidence in the record to demonstrate this point, although the capability of Mr. Culverhouse to make available the necessary funding was not challenged at the hearing, and is found as a fact. South Broward being otherwise able to provide utility service to Ivanhoe, the willingness of its shareholder to provide adequate funding may be demonstrated ex-parte, if the evidence presented by Cooper City Utilities fails to establish that it can provide the service required by Ivanhoe more economically or efficiently than South Broward. In this circumstance, the protest should be dismissed; and the application then being unprotested, may be considered further without another hearing. Section 367.051(1), Florida Statutes.

   
   

8. The service area of Cooper City Utilities is located within the municipal boundaries of Cooper City, Florida, with its nearest boundary approximately 2 miles from the closest boundary of Ivanhoe. This utility contends that the Commission should deny South Broward's application for certificates because it is more capable of providing service, and because granting a certificate to South Broward will encourage the proliferation of small water and sewage treatment plants, contrary to the public interest. In order to determine the merits of this protest, it is necessary to evaluate the financial ability of Cooper City Utilities, the capacity of its utility plant to serve the Ivanhoe development, and the feasibility of the plan of service proposed by this utility.

   
   

9. For the year 1979, Cooper City Utilities sustained a combined loss in its water and sewer operations of approximately $390,000. As of December 31, 1979, it had a negative net worth or deficit of $952,000. In addition, Cooper City Utilities has filed a petition with the Commission seeking authority to borrow $450,000 for the purpose of meeting existing obligations -- to make refunds to developers, to make refunds of customer deposits, and to fund

   construction of future improvements to the existing utility plant. (Commission Docket No. 800562-WS). Further, the Supreme Court of Florida has recently denied certiorari to review Commission Order No. 8964 requiring Cooper City Utilities far to refund to its customers an additional amount of approximately

   $400,000. (Supreme Court Case No. 58,047, Order dated September 12, 1980). As a result, the utility consultant to Ivanhoe has recommended that Ivanhoe not consider connecting to Cooper City Utilities as a source of water and sewer service because of the financial instability of this utility. In summary, this utility is not presently capable of making a financial investment in the amount necessary to provide services to Ivanhoe.

   
   

10. The only means by which Cooper City Utilities could construct the facilities necessary to serve Ivanhoe is for the developers to provide all of the funds to construct the facilities in the form of contributions-in-aid-of- construction. Under this utility's proposal, Ivanhoe would provide the funds for off-site facilities in the amount of approximately $575,000 a contribution to plant in the amount of approximately $467,500, and a contribution to the hydraulic share cost of existing off-site facilities of $297,500 ($175 per ERC for 1700 ERCs).

    
    

11. The deputy clerk of the City of Cooper City, Florida testified concerning the zoning and land use of the remaining area within the service area of Cooper City Utilities. Based on the present development, zoning, platting, and land use, when the existing service area of this utility is fully developed, the customers will require approximately 1,256,000 gallons per day (based on an average daily flow) of the capacity of the utility's water and sewage treatment plants. This demand will utilize the entire capacity of the sewage treatment plant, which has a design capacity of 1.25 mgd. In addition, the maximum day throughput demand of the service area on the utility's water facilities will be approximately 2.826 mgd, which will utilize substantially all of the capacity of the water treatment plant, which has a throughput design capacity of 3.0 mgd. Thus, if Cooper City Utilities were to serve its existing certificated area and Ivanhoe, it would be required to build additional water and sewage treatment facilities.

    
    

12. However, Cooper City Utilities does not have sufficient land at its treatment plant site to construct an expansion to its existing facilities, and it does not presently own or have access to enough land to construct the necessary 20 acres of evapopercolation ponds to provide an effluent disposal at its existing plant.

    
    

13. South Broward contends that Cooper City Utilities is not a reliable source of utility service for Ivanhoe because the utility has been negotiating to sell its water and sewer systems to a municipal government in the area. Representatives of Cooper City Utilities have met with representatives of the cities of Sunrise, Cooper City, and Davie concerning the possible acquisition of the utility by these cities. Although there is not sufficient evidence in the record to permit a finding to be made on the matter of a sale of Cooper City Utilities to a municipality, the subject of such a possible sale is relevant to the issue of whether it is in the public interest to grant a certificate to South Broward pursuant to its application. If such a sale were consummated, Ivanhoe and the future residents of the development would be dependent for water and sewer services upon a municipality, the officials of which are not elected by them and who do not represent them.

    
    

14. Cooper City Utilities also contends that certification of South Broward as a water and sewer utility would violate the policy of regulatory

    agencies to encourage the growth and expansion of existing community utility systems, and to discourage the proliferation of small water and sewage treatment facilities. However, the representatives of the regulatory agencies will approve the detailed engineering plans which South Broward submits if the same are in conformity with Chapter 17-22, Florida Administrative Code. Thus, this contention is not persuasive in disposing of the issues herein.

    
    

15. The evidence fails to establish that Cooper City Utilities can make an economically feasible extension of its systems to serve the Ivanhoe development, or that it is more capable than South Broward of providing water and sewer service to Ivanhoe, or that it can provide such service more economically or efficiently than South Broward. Although this utility has never failed to provide adequate service, and Possesses sufficient treatment capacity to serve Ivanhoe at the present time, it will be required to expand its facilities in order to serve both its existing certificated territory, and also the Ivanhoe development. Its financial condition is such that it would not be able to finance this necessary expansion of its facilities. In addition, the possible sale of Cooper City Utilities to a municipal government makes it uncertain whether the utility is a reliable source of service. Therefore, this utility's protest is not sufficiently meritorious to warrant a denial of the application of South Broward.

    
    

    CONCLUSIONS OF LAW

    
    

16. This proceeding is governed by the provisions of Sections 367.041 and 367.051, Florida Statutes, and Sections 25-10.01 through 25-10.03, Florida Administrative Code. Although the amendments to Chapter 367, Florida Statutes, made in Chapter 80-99, Laws of Florida, included amendments to the procedures utilized under Sections 367.041 and 367.051, Florida Statutes, the standards for issuing certificates were not substantially modified.

    
    

17. There is only one application for a certificate before the Commission, the application filed by South Broward. Section 367.051, Florida Statutes, provides, in pertinent part, that "the commission may grant a certificate, in whole or in part or with modifications in the public interest, or deny a certificate." Thus, in this proceeding the Commission may either grant or deny South Broward's application. It may not grant a certificate for the Ivanhoe territory to any other utility.

    
    

18. Sections 367.041 and 367.051, Florida Statutes, set forth standards from which the Commission can determine whether the application is in the public interest. The Commission is empowered to inquire into:

    
    

    1. "... the ability of an applicant to provide service ..." (Section 367.041(1), Florida Statutes),

    2. "... the territory and facilities involved ..." Id.,

    3. "... the existence or nonexistence of service from other sources within geogra- phical proximity to the territory applied for ..." Id.,

    4. Whether the proposed system "will be in competition with, or duplication of, any

       other system ..." (Section 367.051(3), Florida Statutes).

       Because the Ivanhoe territory is not now served by a water and sewer utility system, the issue of competition or duplication of other utility systems is not an issue.

       
       

19. The evidence in this proceeding establishes that the public interest requires the issuance of certificates to provide water and sewer service to the Ivanhoe development, and that this public interest is best served by the granting of such a certificate to South Broward. The unresolved matter of the willingness of South Broward's sole stockholder to provide the funding needed to convert this corporation from a mere shell to a fully financed utility, may be determined ex-parte by the Commission's staff. When the public interest requires certification in order to provide utility service to a territory which is without such service, and this issue has been otherwise resolved in favor of an applicant for certificates, the fact that the corporation has not been funded with large sums of capital pending certification should not defeat its application.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of South Broward Utility, Inc., be granted

conditionally, subject to a determination by the staff of the Commission that the company's sole shareholder is willing to commit adequate financing to the company to enable it to provide water and sewer service to Ivanhoe as proposed. It is further

RECOMMENDED that the protest filed by the Cooper City Utilities, Inc. be dismissed.

THIS RECOMMENDED ORDER entered on this 30th day of October, 1980.

WILLIAM B. THOMAS

Hearing Officer

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

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 30th day of October, 1980.

COPIES FURNISHED:

James L. Ade, Esquire and

William A. Van Nortwick, Jr., Esquire

300 Independent Square Post Office Box 59

Jacksonville, Florida 32202

William E. Sundstrom, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301

William H. Harrold, Esquire Florida Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Docket for Case No: 80-001187

Orders for Case No: 80-001187