STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SUGAR MILL UTILITY COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 80-1520

) FLORIDA PUBLIC SERVICE COMMISSION )

)

Respondent. )

)

RECOMMENDED ORDER

This matter came on for hearing in New Smyrna Beach, Florida before the Division of Administrative Hearings and its duly appointed fearing Officer, R.

1. Carpenter, on October 7, 1980. The parties were represented by: APPEARANCES

   For Petitioner: James B. Barnes, Esquire and

   Ross Workman, Esquire Post Office Box 44

   Winter Park, Florida 32790

   
   

   For Respondent: M. Robert Christ, Esquire

   101 East Gaines Street Tallahassee, Florida 32301

   
   

   Petitioner (Utility) seeks to increase rates for its water and sewer service in Volusia County, Florida under the provisions of Section 367.081, Florida Statutes. The proposed rates were suspended by the Respondent (Commission) in its Order No. 9392. Additionally, this order authorized increased rates on an interim basis under bond.

   
   

   Proposed findings of fact were submitted by the Petitioner. To the extent these proposed findings have not been adopted or are inconsistent with the findings herein, they have been specifically rejected as irrelevant or not supported by the evidence.

   
   

   FINDINGS OF FACT

   
   

   1. The Petitioner is a wholly owned subsidiary of Florida Land Company which is, in turn, a wholly owned subsidiary of the Continental Group, Inc., a New York corporation. The parent developer companies are providing and will continue to provide the required financial backing. The Utility served 421 primarily residential customers at the end of 1979, the test year agreed to by the parties. This was the first rate proceeding involving the Utility since it was established in 1975.

      Service

      
      

   2. The Utility is providing satisfactory water and sewer service. There were no service complaints presented at the public hearing by the customers, nor were there any citations or corrective orders outstanding.

      
      

      Rate Base

      
      

   3. The Utility experienced rapid growth during the 1976 - 1979 period, increasing the number of customers served from 62 to 421. Therefore, year end rate base rather than average rate base should be utilized. 1/

      
      

   4. The water and sewer rate bases are $155,920 and $179,360 respectively. These amounts are based on the computations detailed below and incorporate proposed Commission adjustments to which the utility stipulated. In addition, reductions to plant in service and construction work in progress (CWIP) were made by the Utility to reflect excess plant capacity which is of no benefit to current customers.

      
      

   5. The Utility replaced its reverse osmosis water treatment plant with a lime softening system in 1979. The new facility will be somewhat more expensive to operate but will improve water quality and fire flow (pressure). Because of the reverse osmosis water treatment plant retirement, the $3,615 in building and

      $34,541 in treatment plant assets remaining on the Utility books should be removed. This is a total adjustment to Utility Plant in Service of $38,156.

      
      

   6. A further reduction in both water and sewer rate base is needed to adjust the working capital allowance to the standard authorization, which is one-eighth of operation and maintenance expenses. The proper amounts to he authorized in these accounts are $5,338 water and $2,931 sewer.

      
      

      TEST YEAR PER	UTILITY UTILITY ADJ. TEST ADJ. TO YEAR PER		COMM. ADJ. & CORRECT. TO UTILITY	ADJ.
      UTILITY	TEST YEAR	EXHIBIT	BALANCE	TEST YEAR
      $820376.	$-551059.	$269317.	$-38156.	$231161.
      57866.	-57866.	0.	0.	0.
      -18841.	17155.	-1686.	0.	-1686.
      -238419.	159526.	-78893.	0.	-78893.

      Water Rate Base

      
      

      Plant in Svc.

      C.W.I.P.

      Accum. Depr.

      C.I.A.C. Net of Amort.

      Working Capital

      Allowance 4755.		1421.	6176.	-838.	5338.
      Income Tax Lag	0.	0.	0.	0.	0.
      Rate Base	$625737.	$-430823.	$194914.	$-38994.	$155920.
      		Sewer Rate	Base

      
      

      UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT.

      YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR

      
      

      Plant in Svc. $591945.	$-205690.	$386255.	$0.	$386255.
      C.W.I.P. 77919.	-77919.	0.	0.	0.

      Accum. Depr.	-2815.	2551.	-264.	0.	-264.
      C.I.A.C. Net
      of Amort.	-321611.	112049.	-209562.	0.	-209562.
      Working Capital
      Allowance	2558.	401.	2959.	-28.	2931.
      Income Tax Lag	0.	0.	0.	0.	0.
      Rate Base	$347996.	$-168608.	$179388.	$-28.	$179360.

      
      

      Operating Revenues

      
      

   7. The Utility is seeking water revenue of $41,429 and sewer revenue of

      $35,550. Computations and adjustments in support of these amounts along with test year expenses are detailed below.

      
      

   8. Because of the extraordinary expenses associated with replacement of the water treatment plant, it would not be appropriate to utilize test year data to determine operating costs. Therefore, a projected or pro forma operating expense of $42,789 removing replacement expenses is proper. A further adjustment to water operations is required to eliminate $1,987 of depreciation expense on contributed property as not authorized by current law. 2/ In addition, the useful life of various items of equipment should be increased to periods of 20 to 40 years. These extended depreciation periods are based on an engineering study which the Utility does not challenge. Finally, the requested revenue increase of $27,432 and the associated gross receipts tax of $686 are reversed to show test year operating results.

      
      

   9. The requested sewer revenue increase of $19,413 and gross receipts tax of $485 are also reversed on the sewer operating statement to show test year operating results. As with the water plant, depreciation on contributed sewer plant is disallowed, reducing depreciation by $5,261.

      
      

      Water Operating Statement

      
      

      		UTILITY	COMM. ADJ.
      TEST	UTILITY	ADJ. TEST	& CORRECT.
      YEAR PER	ADJ. TO	YEAR PER	TO UTILITY	ADJ.

      UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR

      
      

      $ 14006.	$ 27423.	$ 41429.	$-27423.	$ 14006.
      38039.	11368.	49407.	-6678.	42789.
      0.	0.	0.	0.	0.
      6325.	3762.	10087.	-5525.	4562.
      0.	0.	0.	0.	0.
      1979.	500.	2479.	-686.	1793.
      0.	0.	0.	0.	0.
      0.	0.	0.	0.	0.

      Oper.

      Revenues Oper. Expenses Operation Maintenance Depreciation Amortization Taxes Other

      Than Income Other Expenses Income Taxes

      
      

      			UTILITY	COMM. ADJ.
      TEST		UTILITY	ADJ. TEST	& CORRECT.
      YEAR	PER	ADJ. TO	YEAR PER	TO UTILITY	ADJ.

      UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR

      
      

      Total Operating
      Expenses	$46343.	$15630.	$61975.	$-12889	$49084.

      Oper. Income -32337. 11793. -20544. -14534. -35078.

      Rate Base $ 825737. $ 194914. $ 155920.

      Rate of Return -5.17 pct. -16.54 pct. -22.50 pct.

      
      

      
      

      Oper.

      
      

      Sewer Operating Statement

      
      

      UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT.

      YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR

      Revenues $16137.	$19413.	$35550.	$-19413.	$16137.
      Oper. Expenses Operation 20462.	3208.	23670.	-233.	23437.
      Maintenance 0.	0.	0.	0.	0.
      Depreciation 619.	9060.	9679.	-5261.	4418.
      Amortization 0.	0.	0.	0.	0.
      Taxes Other Than Income 1747.	630.	2377.	-485.	1892.
      Other Expenses 0.	0.	0.	0.	0.
      Income Taxes 0. 0.		0.	0.	0.
      Total Operating Expenses $22828.	$12898.	$35726.	$-5979.	$29747.
      Oper. Income $-6691.	$6515.	$-176.	$-13434.	$-13610.
      Rate Base $847996.		$179388.		$179360.

      Rate of Return -1.92 pct. -10. pct. -7.59 pct.

      
      

      Capitalization

      
      

      Debt	$ 555,624.	60.96	percent
      Customer Deposits	6,195.	.68

      The capitalization of the Utility is as follows: Amount Percent to Total

      Common Equity 349,627. 38.36

      $ 911,446. 100.00 percent Rate Design

   10. Both parties seek adoption of a base facility charge rate structure. This rate design provides a fixed charge to each customer served computed on that customer's share of fixed operating costs. The second element of the base facility charge represents the variable cost of water actually used. This rate design provides an equitable method of allocating service costs and has been adopted in virtually all recent water and sewer rate proceedings.

       
       

   11. The base facility charge should also be utilized where there is a temporary discontinuance of service. The Commission proposes a tariff revision incorporating a monthly standby charge equal to the base facility charge. Again, this method allocates the Utility's readiness to serve costs equitably among both active and temporarily inactive customers.

       CONCLUSIONS OF LAW

       
       

   12. Section 367.081(2), Florida Statutes (1980), provides in part:

       
       

       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. . .

       
       

   13. The proposed rates would result in the equitable distribution of operating costs among Utility customers and are therefore just and non- discriminatory. To the extent that revenues are not compensatory to the Utility, they are clearly reasonable from the standpoint of the customer.

       
       

   14. The above statute requires that the Utility be authorized compensatory rates to include a fair return on its investment. However, where the Utility does not seek compensatory rates and demonstrates that future service to the public is not jeopardized, the Commission may authorize the requested rates. Utilities Operating Co. v. King, 143 So.2d 854 (Fla. 1962). Here, the Utility has demonstrated, through the financial support of its parent companies, that it is able to render adequate service without compensatory rates.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the petition of Sugar Mill Utility Company be granted in

part, and that Petitioner be authorized to file new rates structured on the base

facility charge concept, designed to generate gross water revenue of $41,429 annually, and gross sewer revenue of $35,550 annually, based on the number of customers served at the end of the test year. It is further

RECOMMENDED that the Petitioner be permitted to retain interim revenues collected pursuant to Respondent's Order No. 9392, and that tie rate refunding bond requirement of said order be cancelled.

DONE and ENTERED this 20th day of November, 1980, in Tallahassee, Leon County, Florida.

R. T. CARPENTER, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

ENDNOTES

1/ A year rate base has been held to be appropriate where a utility has experienced extraordinary or unusual growth. Citizens of Florida v. Hawkins, 356 So.2d 254, 258 (Fla. 1978).

2/ Section 367.081(2), Florida Statutes (1980).

COPIES FURNISHED:

James B. Barnes, Esquire Ross Workman, Esquire

Continental Resources Company Post Office Box 44

Winter Park, Florida 32790

M. Robert Christ, Esquire Legal Department

Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Robert T. Mann, Chairman

Steve Tribble, Commission Clerk Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Docket for Case No: 80-001520

Orders for Case No: 80-001520