STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA PUBLIC SERVICE COMMISSION, )

)

Petitioner, )

)

vs. ) CASE NO. 80-1199

)

VALMONT, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before DONALD R. ALEXANDER, Hearing Officer for the Division of Administrative Hearings, on November 4, 1980, in New Port Richey, Florida, on the investigation of the rates charged by Valmont, Inc. for water service in Pasco County, Florida.

APPEARANCES

For Petitioner: Marta M. Crowley, Esquire

101 East Gaines Street Tallahassee, Florida 32301

For Respondent: R. M. C. Rose and

William E. Sundstrom, Esquires

1020 East Lafayette Street, Suite 103

Tallahassee, Florida 32301

On January 19, 1979, the Public Service Commission issued Order No. 8672 in Docket No. 790032-W, which instituted an investigation of the current level of rates then charged by Valmont, Inc. for water service rendered its customers in Pasco County, Florida. It also directed Valmont to file certain data prescribed by Rule 25-10.176, Florida Administrative Code, so that an evaluation of the adequacy of its rates could be made. The issues to be determined herein are (1) Whether the utility's water service meets all relevant quality standards, and

1. what amount of revenue is just, reasonable, compensatory and not unfairly discriminatory, in accordance with Section 367.081(2), Florida Statutes. Proposed findings of fact and conclusions of law were filed by the parties on December 1, 1980, and have been considered by the Hearing Officer in the preparation of this order.

   
   

   FINDINGS OF FACT

   
   

   Service

   
   

   1. At the end of the test year (calendar year 1978), the utility provided water service to approximately 203 customers located in the Country Estates Subdivision in Holiday, Pasco County, Florida. The system was connected to the Pasco Water Authority (PWA) in June, 1977, and approximately 80 percent of the

      water sold to its customers is derived from that source. The utility has no further growth potential inasmuch as it is presently operating at full capacity.

      
      

   2. Two customers testified at the hearing. One was dissatisfied with the requirement that Valmont be connected to the PWA, and complained of a sulfur- type odor emanating from the system. The other complained of excess water pressure and salt water intrusion in the water, both of which began after the connection of the system to the PWA pipeline. Notwithstanding the above complaints, the utility is now meeting all State Standards for water quality, quantity and pressure. The few complaints previously lodged with regulatory agencies have been expeditiously resolved.

      
      

      Rate Base

      
      

   3. The utility has proposed an average water rate base in the amount of

      $20,295 (Exhibit No. 6). This figure is derived by taking the balance in plant in service as reflected on the books of the utility, subtracting accumulated depreciation and contributions in aid of construction, and adding a working capital allowance. The following schedule portrays the appropriate rate base to be used herein.

      
      

      Valmont, Inc.

      Average Water Rate Base Year Ending December 31, 1978

      
      

      Utility Plant in Service	$42,385
      Accumulated Depreciation	(11,534)
      CIAC (Net of amortization)	(14,215)
      Working Capital Allowance	3,767
      Rate Base	$20,295

      
      

      Operating Income

      
      

   4. The utility reflects a per books operating loss for the test year of

      $3,156 (Exhibit No. 7). After including changes in the level of various expenses and the additional revenues sought herein ($10,305), the utility's proposed adjusted operating income is $2,638. The Commission agrees with the computations presented by the utility, and this amount should be accepted. The following schedule depicts the pro forma operating income of the utility for calendar year 1978.

      
      

      Valmont, Inc. Operating Income

      Year Ended December 31,	1978
      Operating Revenues	$34,911
      Operating Expenses: Operation	29,397
      Maintenance	736
      Depreciation	516
      Misc. Taxes	1,084
      Income Taxes	540
      Total Expenses	32,283
      Operating Income	$ 2,638

      Cost of Capital

      
      

   5. The capital structure of the utility is composed of 100 percent common equity. The Commission advocates a cost rate of 13 percent be assigned to equity based upon a regression analysis of interest rates since 1946. The utility agrees this is an appropriate cost of capital, and it should be used in determining the revenue requirements of the utility.

      
      

      Revenue Requirements

      
      

   6. Based upon a 13 percent overall cost of capital, the utility should be entitled to increase its water revenues by $10,305 on an annual basis in order to achieve that return.

      
      

      Rate Design

      
      

   7. The utility presently has three customer classifications for water service: residential, general service and commercial. However, it has no customers receiving service under the general service category. The billing structure for each of the three classifications is based upon a minimum charge, depending on the size of the motor, and an excess charge for each 1000 gallons used thereafter.

      
      

   8. The base facilities charge advocated by the Commission is superior to the rate design presently used. Under this type of structure, a minimum charge will be assessed to recover the fixed or base costs of providing service, such as depreciation, taxes, insurance and a portion of billing and collecting expenses. Thereafter, a variable charge will be made for the gallons actually consumed. Because this type of rate structure offers greater control to the customer as to the amount of his bill, and allocates costs in a more equitable manner, it should be adopted.

      
      

      CONCLUSIONS OF LAW

      
      

   9. Section 367.081(2), Florida Statutes, provides in pertinent part:

      
      

      (2) 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 proceedings, the 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.

      
      

   10. Respondent has established by competent substantial evidence that the quality of service being rendered the public is satisfactory and in compliance with all applicable standards. The evidence also shows that after giving consideration to all legitimate and necessary costs for providing water service, the utility should be authorized to increase its water rates by $10,305 on an

annual basis. The use of a base facilities charge type rate structure to generate these revenues results in rates that are just, reasonable, compensatory and not unfairly discriminatory.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent Valmont, Inc. be authorized to file new tariffs

to be approved by the Public Service Commission that will generate $10,305 in

additional annual gross revenues for its water operations. It is further

RECOMMENDED that the utility file appropriate tariff sheets in conformity with the Rate Design portion of this Order.

This Recommended Order entered on this 9th day of December, 1980, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings

101 Collins Building Tallahassee, Florida 32301 (904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 1980.

COPIES FURNISHED:

Marta M. Crowley, Esquire

101 East Gaines Street Tallahassee, Florida 32301

William E. Sundstrom, Esquire

Suite 103, 1020 East Lafayette Street

Tallahassee, Florida 32301

Docket for Case No: 80-001199

Orders for Case No: 80-001199