STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
PALM COAST UTILITY CORPORATION, )
)
Petitioner, )
)
vs. ) CASE NO.: 81-1164
) FPSC DOCKET NO.: 800594-WS FLORIDA PUBLIC SERVICE COMMISSION )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated hearing officer, R. L. Caleen, Jr., held a formal evidentiary hearing in this case on June 1 and 2, 1981, in Bunnell, Florida.
APPEARANCES
For Petitioner: B. Kenneth Gatlin, Esquire
Post Office Box 669 Tallahassee, Florida 32302
For Respondent: Michael B. Twomey, Esquire
101 East Gaines Street Tallahassee, Florida 32301
ISSUES PRESENTED
Whether Petitioner should be granted a certificate authorizing it to continue operating a water and sewer utility in Flagler County; and
Whether Petitioner's application to increase its water and sewer rates to its customers should be granted.
BACKGROUND
On July 1, 1980, Petitioner Palm Coast Utility Corporation ("Utility") was brought within the jurisdiction of the Respondent Florida Public Service Commission ("Commission") by operation of Chapter 80-99, Laws of Florida (1980). Consequently, on September 3, 1980, the Utility filed pursuant to Section 367.171, Florida Statutes (1979), an application for a certificate authorizing its continued operation as a water and sewer utility in Flagler County. (FPSC Docket No. 800594-WS.)
Thereafter, on November 3, 1980, the Utility filed a separate application to increase the water and sewer rates it charges its customers. (FPSC Docket No. 800583-WS.) By orders dated October 17 and December 30, 1980, the Commission suspended the increased rates requested by the Utility, ruled that the Utility's application for increased rates would be considered in conjunction with its
application for certification, and closed the rate increase docket as duplicative.
On April 21, 1981, the Commission referred this case to the Division of Administrative Hearings for the conducting of a Section 120.57 hearing. Hearing was thereafter set for June 1-3, 1981.
At final hearing, the Utility called as its witnesses, Robert Kelly, Alan
Potter, Jerry Gregg, and Roy W. Likins; it offered into evidence Petitioner's Exhibit 1/ Nos. 1 through 6.
The Commission called as its witnesses, R. Louie Chastain, Marty Deterding, and Joyce Fabelo; it offered into evidence Respondent's Exhibit 1/ Nos. 1 through 5.
More than 100 customers attended the hearing: 25 of them testified in opposition to the proposed rate increases. In connection with their testimony, Customers' Exhibit 1/ Nos. 1 through 4 were offered into evidence.
The parties' proposed findings of fact were received by July 13, 1981. It was agreed that the 30-day period for submittal of a recommended order would commence on that date.
Based upon the evidence submitted at hearing, the following findings of fact are determined:
FINDINGS OF FACT
I.
The Utility
The Utility, a subsidiary of ITT Community Development Corporation, owns and operates a central water and sewer system serving Palm Coast Community-
-a planned development of approximately 40 square miles located in Flagler County. Although the development has less than 3,000 occupied homesites, more than 40,000 homesites are planned. (Testimony of Potter; P-2, R-4.)
The Water System
The water system includes wells, a treatment plant, storage facilities, and distribution mains. There are 13 water supply wells with a flow capability of 3.40 MGD (million gallons per day); present peak flow is 2.00 MGD. The raw water is piped to a central water treatment plant which utilizes a lime- softening process. Present plant peak flows equal the maximum rated capacity:
2.00 MGD. There are two ground storage reservoirs (with a total capacity of 1,300,000 gallons) and two elevated storage tanks (with a total capacity of 850,000 gallons). The water distribution system consists of an extensive network of mains, valves, fire hydrants, and meters used to convey potable water from the treatment plant to customers throughout Palm Coast Community. Although during the test year ending June 28, 1980, the Utility supplied water to an average of 2,191 residential and 80 general service customers, water distribution mains have been constructed to 22,988 building sites. The total water system, as of June 28, 1980, has been constructed at a cost of
$77,486,433. (Testimony of Potter; P-2, R-4.)
The Sewer System
The sewer system includes a collection system, 57 lift stations, a wastewater treatment plant, and effluent disposal facilities. The wastewater plant utilizes an extended aeration process and has a rated hydraulic capacity of 600,000 gallons per day. Effluent is disposed of by spray irrigation on a 65-acre disposal field. Although during the test year, the Utility supplied sewer service to an average of 1,502 residential and 39 general service customers, sewage collection mains have been constructed to 22,988 building sites. As of June 28, 1980, the sewer system has been constructed at a cost of
$24,850,962. (Testimony of Potter; P-2, R-4.)
The Rate Increase Application
By its application, the Utility seeks authorization to increase water operating revenues by $170,460 and sewer operating revenues by $106,924. If granted, annual gross water revenues would increase (by approximately 40 percent) to $422,211 and gross sewer revenues would increase (by approximately
40 percent) to $267,194. (Testimony of Deterding; P-3, P-4, R-2.)
As grounds, the Utility contends that during the test year ending June 28, 1980, it suffered an operating loss of $225,430 in its water operations, and a loss of $109,909 in its sewer operations; that it is entitled to a 13.08 percent rate of return on its rate base. (Application for Rate Increase, dated November 3, 1980.)
II.
The Elements of Rate-Making
In issuing a certificate and setting rates, the Commission must determine: (1) the rate base; 2/ (2) the cost of providing the utility service, including debt interest, working capital, maintenance, depreciation, tax, and operating expenses; (3) a fair return on the rate base; and (4) the quality of service provided.
At hearing, the Utility presented evidence on each of these rate-making elements. For the most part, the Commission did not oppose the Utility's evidence; those matters which were disputed are separately addressed below.
Rate Base
Rate base represents the Utility's property which provides the services for which rates are charged. There are three issues involving the establishment of rate base: (1) average or year-end rate base; (2) inclusion of cost of a 750,000 gallon water storage tank; and (3) deferral of depreciation on non-used- and-useful plant.
Average or Year-End Rate Base
At hearing, the Utility asserted that it had experienced extraordinary growth, justifying the utilization of year-end rate base. The Commission disputed this claim of extraordinary growth, and urged the use of a 13-month average. On June 22, 1981, the Utility filed a post-hearing "Notice of Change in the Position of the Applicant," by which it receded from its previous position and agreed that, for purposes of this proceeding, an average rate base should be used. The issue is, therefore, moot and utilization of a 13-month average rate base is accepted.
However, the Utility continues to assert that a year-end rate base should he established for "purposes of certification." 3/ Such assertion is rejected as inconsistent with its June 22, 1981, acceptance of average rate base: the acceptance applied to this "proceeding," 4/ and was not limited to rate-making purposes. Moreover, the Utility has not shown why a second rate base, based on year-end figures, should be established. Year-end rate base constitutes a deviation from the standard and preferable method of using a 13- month average; it may only be used under circumstances of unusual or extraordinary growth--circumstances which the Utility no longer claims exist. (Testimony of Deterding; R-2.)
Deferral of Depreciation and Amortization
The Utility requests authority to defer depreciating non-used-and- useful plant and amortizing contributions-in-aid-of-construction ("CIAC") until such time as the plant or contributions become used and useful. The effect would be to preserve the original cost of the property so it may eventually be recovered from future customers benefitting from its use; because original cost would not have been reduced, rate base would be higher for those future customers. The Commission opposes the requested deferral.
Both parties cite language in a previous Commission order (Order No. 7455, Docket No. 760034, In Re: Petition of North Orlando Water and Sewer Corporation) as evidence of existing Commission non-rule policy on deferral of depreciation expense on non-used-and-useful property.
The Commission language in that order lends support to the opposing arguments of each party. Even if the policy was stated unequivocally it could not--without record support--establish Commission policy for purposes of this rate proceeding. 5/
The Utility's request is rejected because of record evidence in this proceeding. The Utility executed a Revenue Agreement with ITT Community Development Corporation on June 27, 1980. Under that agreement, Community Development Corporation, the developer of Palm Coast Community, agreed to pay the Utility--through 1990--an amount sufficient to allow recovery of costs, including depreciation, attributable to utility property installed for unimproved lots. Such utility property is the same non-used-and-useful property for which the utility now seeks to defer depreciation and amortization. Since this revenue agreement allows the Utility to recover from the developer depreciation expenses attributable to non-used-and-useful property, deferral of depreciation--to allow recovery from future customers--is unnecessary. (Testimony of Gregg, Deterding; R-2.)
Inclusion of Cost of Water Storage Tank
The Utility proposes to include in rate base the used-and-useful portion of a 0.75 million gallon elevated storage tank. It was not completed and placed in service until after the test year. Neither was its construction explicitly ordered by government order. However, from an engineering standpoint, it was needed during this test period to maintain minimum water pressure during peak-flow periods and provide adequate flows for fire protection purposes. It now functions as an integral component of the Utility's water system.
At hearing, the Commission's accountant testified that 100 percent of the cost of the water storage tank should be removed from the plant-in-service component of rate base because it was not in service during the test year. The parties agreed to his submittal of a post-hearing accounting exhibit showing adjustments resulting from his testimony. However, in his late-filed exhibit (R-2), the accountant took a position which contradicted his testimony at hearing:
In this case we feel that consideration of this after test year plant must be given. The utility's used and useful portion of the other
storage facilities will increase substantially.
In addition this item appears to be an integral component of the plant which was operating during the test year and at present. (R-2.) (Emphasis supplied.)
He included proposed schedules which: (1) include the tank as if placed in service during the last month of the test year; (2) include the total cost of the tank including interest capitalized net of the non-used-and-useful portion in calculating average rate base; and (3) show the effect of these adjustments in construction work in progress (CWIP) so that they can be easily identified and not confused with plant that was, in fact, in service by the end of the test year.
Notwithstanding this significant change in its accountant's testimony, the Commission continues to advocate 6/ the accountant's earlier position at hearing--one which he has now abandoned. Thus, the Commission argues that:
[T]he only correct position in calculating an average rate base is to exclude the after test year plant addition and adjust the used and useful percentage. . .as he [its accountant] originally proposed at the hearing. (Commission's Recommended Order, p. 5.)
This contention is rejected as inconsistent with the Commission's own accounting and engineering evidence. 7/ It also overlooks the undisputed fact that the storage tank is now operating as an essential component of the water system, and that it will continue to be used during the period in which the new rates will be in effect.
The Commission's alternative treatment--as proposed by its accountant's post-hearing exhibit (R-2), is accepted as persuasive. The cost of the storage tank is thus included as CWIP, and is calculated as if placed in service during the last month of the test year; the total cost of the tank, including interest capitalized net of the non-used-and-useful portion, is utilized. (Testimony of Gregg, Deterding, Chastain; R-1.)
The sewer system rate base proposed by the Utility is not disputed by the Commission and is accepted. The resulting average rate bases for the water and sewer systems are $2,736,279 and $1,044,165, respectively. They are depicted below.
WATER RATE BASE
(Test Year Ended 6-28-80)
Utility Plant in Service | $12,397,249 |
Plant Held for Future Use | (8,848,497) |
Construction Work in Progress | 39,097 |
Accumulated Depreciation | (216,405) |
Contributions-in-Aid-of-Construction | |
(Net of Amortization) | (687,787) |
Working Capital Allowance | 35,837 |
Materials and Supplies | 7,785 |
Income Tax Lag | -0- |
RATE BASE | 2,736,279 |
SEWER RATE BASE
(Test Year Ended 6-38-80)
Utility Plant in Service | $18,461,055 |
Plant Held for Future Use | (15,787,481) |
Construction Work in Progress | -0- |
Accumulated Depreciation | (109,729) |
Contributions-in-Aid-of-Construction | |
(Net of Amortization) | (1,551,865) |
Working Capital Allowance | 27,186 |
Materials and Supplies | 4,999 |
Income Tax Lag | -0- |
RATE BASE | $ 1,044,165 |
(Late-filed Exhibit, R-2.)
Operating Income
The parties agree that, during the test year, the Utility had a
$130,243 operating loss from its water operations, and a $95,281 operating loss from its sewer operations. The operating statements are depicted below:
WATER OPERATING STATEMENT
(Test Year Ended 6-28-80)
Operating Revenues (Present Rates) Operating Revenue Deductions | $251,751 |
Operation | 286,694 |
Depreciation | 75,314 |
Amortization | 954 |
Taxes Other Than Income | 19,032 |
Income Taxes | -0- |
TOTAL OPERATING EXPENSES | $381,994 |
Operating Income (Loss) | $(130,243) |
SEWER OPERATING STATEMENT
(Test Year Ended 5-28-80)
Operating Revenues (Present Rates) Operating Revenue Deductions | $160,270 |
Operation | 217,487 |
Depreciation | 21,872 |
Amortization | 767 |
Taxes Other Than Income | 15,425 |
Income Taxes | -0- |
TOTAL OPERATING EXPENSES | $255,551 |
Operating Income (Loss) | $(95,281) |
Since during the test year, the Utility operated its water and sewer systems at a loss; it received a negative rate of return on its rate base. (Testimony of Gregg, Deterding; Late-Filed Exhibit R-2, P-3, P-4.)
Cost of Capital and Fair Rate of Return
The only issue between the parties concerning cost of capital to the Utility is whether deferred taxes should be included in its capital structure. At the end of the test year, the Utility's books showed no deferred taxes; however, during the latter half of 1980, it changed its accounting treatment for deferred taxes. Applying its new method, deferred taxes at the end of the test year would be $3,137,000--assuming deferred depreciation on non-used-and-useful property is disallowed.
The Utility failed to establish the impropriety of applying an accounting method which it will continue to follow in the foreseeable future; it is therefore concluded that the deferred taxes should be calculated as
$3,137,000, at zero cost. 8/ The resulting overall cost of capital is 12.29 percent. A reasonable rate of return falls within a range of 11.87 percent to
12.72 percent. It is depicted below:
COST OF CAPITAL
Weighted
Component Amount Weight Cost Cost Common Stock Equity $22,224,497 42.23 15.0 percent 6.33
Long Term Debt | 27,163,003 | 51.62 11.5 | 5.94 |
Customer Deposits | 99,653 | .19 8.0 | .02 |
Deferred Taxes | 3,137,000 | 5.96 -0- | -0- |
(Testimony of Kelly, | $52,624,153 Potter; R-5.) | 100.00 | 12.29 |
D. Proposed Revenue |
The Utility seeks increased water revenues of $170,460 and increased sewer revenues of $106,924. Although the parties agree on a base facility rate design, 9/ the Commission disputes proposed charges for fire hydrants and irrigation meters. 10/
Fire Hydrant Charges
The Utility presently collects, under contract, a fire hydrant charge of $70 per year per hydrant from two fire districts which serve the area. This method is favored by customers and the fire districts; because the fire districts raise their funds through tax assessments, the customers' payments are tax deductible. The Commission argues that the $70 charges do not cover all of the Utility's fire protection costs and that such costs should be recovered through regular service rates.
While the $70 charge was shown to be insufficient to cover fire service costs, no reason was provided why the additional funds could not be recovered by increasing charges to the fire districts. This method of paying for fire protection costs is advantageous to the customers. It is likely that the fire service districts would cooperate with the Utility in negotiating fire service charges which are adequate to cover the costs of the service provided. Consequently, it is concluded that the present method of collecting fire service charges should be retained, although the charges should be increased sufficiently to cover the attendant costs to the Utility. (Testimony of Fabelo, Public Witnesses.)
Irrigation Meter Charges
The Utility proposes a $2.00 base facility charge for irrigation meters, with a $4.50 charge for regular service. The Commission prefers an irrigation meter base facility charge equal to one-half of the base charge of a corresponding regular service meter, assuming both meters are on the same tap to the water main. Since the demand for water that both meters can cumulatively place on the water system is 1.5 times that placed by a regular service meter, the Commission's position is persuasive. 11/
The parties also disputed the base facility customer accounting charges for irrigation meters--the Utility contending that the additional meters impose little additional cost and the Commission asserting that customer accounting charges should be given full weight. The Utility's position is accepted as persuasive. The two meters are usually close together and easily read. Both services are included on one account and one monthly bill covers both. Thus, while the irrigation meter imposes a slight additional accounting cost, it is minimal when compared to the cost imposed by a separate regular service meter. (Testimony of Gregg, Fabelo.)
Rate of Return Allowed by Proposed Revenue
Adding the requested water revenue increase of $165,633 to the adjusted test-year water operating revenues of $251,751 results in total recommended operating revenues of $417,384. Subtracting test-year operating expenses of $381,994 leaves a net operating income of $35,390--a 1.29 percent return on a water rate base of $2,736,279.
Adding the requested sewer revenue increase of $111,751 to the adjusted test-year sewer operating revenues of $160,270 results in total recommended operating revenues of $272,021. Subtracting test-year operating expenses of $255,551 leaves a net operating income of $16,470--a 1.58 percent return on a sewer rate base of $1,044,165. (Testimony of Deterding; R-2.)
E. Quality of Service
The quality of the water furnished the Utility's customers depends an their location. Customers residing in the area most heavily populated--north of Highway 100--receive satisfactory water service. Their water is treated by the Utility's central lime-softening plant.
In contrast, the customers residing in the Seminole Woods area have not received water of comparable quality. Seminole Woods lies in the south extremity of the service area; it consists of approximately eight single-family residences and one duplex. Due to the remote location and slow rate of growth of Seminole Woods, the Utility has not found it practical to interconnect with
the central lime-softening plant or build a separate lime-softening plant to serve the area. Instead, the Utility pumps raw water from a nearby well to a temporary facility where it is chlorinated and then conveyed to the residences where it is treated by separate Zeolite or "Culligan" water-softening devices. These devices are furnished customers by the Utility without additional charge.
The residents of Seminole Woods have frequently received water with excessive chlorine or hydrogen sulfide. The Utility's efforts to monitor the chlorine levels and regularly flush the system have not solved the problems. Seminole Woods customers have repeatedly complained about the quality of their water--its excessive chlorine taste, offensive odor (similar to the smell of rotten eggs), and high sodium content. The water quality is so poor that at least three of the residents have found it undrinkable; they buy bottled water at an additional cost of approximately $20 per month.
The Utility's current solution to the problem is to extend mains from the northern area to Seminole Woods. The lines are now under construction and completion is expected "within a year or so." (Tr. 253.)
With the exception of the Seminole Woods area, the quality of sewer and water service provided by the Utility is acceptable and has rarely been the subject of complaints. Occasional problems of power outages have been corrected. Neither the water nor the sewer system has been or is now under any governmental citation for non-sewage or water treatment standards.
Upon completion of the connecting water mains, it is likely that the residents of Seminole Woods will receive water equal in quality to that enjoyed by other residents of Palm Coast Community. (Testimony of Thomas, Sannartano, Creolino, Potter, Likins.)
III.
Certificate of Public Convenience and Necessity
The Utility has filed with the Commission a map of its existing utility systems, a description of the area served, and all information requested by the Commission concerning its rates and charges. Neither the Commission nor the public objected to the granting of a certificate authorizing it to continue providing water and sewer services in the affected area. (Testimony of Chastain, Members of the Public; Prehearing Statement.)
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and parties to this proceeding. Section 120.57(1), Florida Statutes (1979).
The criteria for setting the rates of a regulated public utility are contained in Section 367.081(1), (2), and (3) Florida Statutes (1980 Supp.):
Except as provided in subsection (4), rates and charges being charged and collected by a utility shall be changed only by approval of the commission.
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 public service; and a fair return on the utility's investment in property used and useful in the public service. However, the commission shall not allow the inclusion of contributions-in-aid-of- construction in the rate base of any utility during a rate proceeding; and accumulated depreciation on such contributions-in-aid-of- construction shall not be used to reduce the rate base, nor shall depreciation on such contributed assets be considered a cost of providing utility service. Contributions-in- aid-of-construction shall include any amount
or item of money, services, or property received by a utility, from any person or governmental agency, any portion of which is provided at no cost to the utility, which represents a donation or contribution to the capital of the utility, and which is utilized to offset the acquisition, improvement, or construction costs of the utility's property, facilities, or equipment used to provide utility services to the Public. The commission shall also consider the utility's investment in property required by duly authorized governmental authority to be constructed in the public interest within a reasonable time in the future, not to exceed
24 months.
The commission, in fixing rates, may determine the prudent cost of providing service during the period of time the rates will be in effect following the entry of a final order relating to the utility's rate request and may use such costs to determine the revenue requirements that will allow the utility to earn a fair rate of return on its rate base.
Section 367.171(2) governs the issuance of a certificate authorizing a utility to continue to provide water and sewer service:
On the day this chapter becomes applicable to any county, any utility engaged in the operation or construction of a system shall be entitled to receive a certificate for the area served by such utility on the day this chapter becomes applicable to it if, within 90 days,
the utility will make application by filing with the commission:
A map of its existing system or system
under construction;
A description of the area served by the system; and
A tariff listing all rates and charges and such other financial information as may be required by the commission.
Such application shall be accompanied by a fee as provided by s. 367.141.
Before the commission issues a certificate under paragraph (b), it shall establish the amount of money prudently invested in property of the utility which property is used and
useful in the public service; shall establish other elements of the rate base; and shall set and approve rates pursuant to s. 367.081.
The Utility, provided it furnishes adequate and efficient service, is entitled to rates which produce revenues sufficient to cover its reasonable costs of operation and yield a fair return on its investment. The evidence presented establishes the Utility's entitlement to increased water revenues of
$165,633 and increased sewer revenues of $111,751. It should be authorized to file new rates: (1) consistent with the findings of fact, infra, and paragraph
5 below, and (2) structured on the base facility concept. Such rates should be designed to generate annual gross water revenue of $417,384 and annual gross sewer revenue of $272,021. These revenues are insufficient to allow the Utility a fair return on its investment. However, they are the revenues requested and there has been no showing that they will adversely affect the quality of service provided.
The increased revenues authorized above should be expressly conditioned upon the Utility's prior submission of a specific timetable for completion of water mains to the Seminole Woods area. The quality of water service now provided to the residents of Seminole Woods is unsatisfactory and significantly worse than that enjoyed by other customers of the Utility. Until the promised improvements are completed it would be unfair and discriminatory to require the customers of Seminole Woods to pay higher water rates. Any rate increase to those customers should be deferred until the Utility brings its service into compliance with minimal standards. In Askew v. Bevis, 283 So.2d 337, 342 (Fla. 1973), Justice Ervin, in dissent, approvingly cited the view expressed by Commissioner Mayo:
[I] cannot believe that it is right to tell the ratepayers of this company that they must pay in advance with the hope that someday the company will give the type of service to which they are entitled.
The Utility has established its entitlement to a water and sewer service certificate pursuant to Section 367.171(2).
Proposed findings of fact were submitted by both parties. To the extent the proposed findings have not been adopted herein, they are rejected as unnecessary to resolution of the issues presented or unsupported by the evidence.
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:
That the Utility be granted a certificate to continue operating its water and sewer systems in the areas described, and
That it be authorized to file tariffs, consistent with the provisions of this Recommended Order, designed to generate annual gross water revenues of
$417,384 and annual gross sewer revenues of $272,021.
DONE AND RECOMMENDED this 13th day of August, 1981, in Tallahassee, Florida.
R. L. CALEEN, JR. 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 13th day of August, 1981.
ENDNOTES
1/ Petitioner's, Respondent's, and Customers' Exhibits will be referred to as "P- ," "R- ," and "C- ," respectively.
2/ This constitutes the "amount of money prudently invested in property of the Utility which property is used and useful in the public service. . ." Section 367.171(2)(c), Florida Statutes (1980 Supp.). See also, Section 367.081(2), Florida Statutes (1980 Supp.).
3/ Petitioner's Recommended Order and Findings of Fact, p. 3.
4/ See, "Notice of Change in Petitioner's Position Relative to Year End Rate Base," dated June 22, 1981.
5/ See, Bowling v. Department of Insurance, 394 So.2d 165, 174, n. 16 (Fla. 1st DCA 1981).
6/ Commission's Recommended Order dated July 9, 1981, p. 5.
7/ The Commission engineer did not dispute the correctness of the Utility's used-and-useful calculations--which included the storage tank.
8/ Its argument that the new accounting method should not be applied solely because it was adopted after the test year is inconsistent with its argument concerning the post test-year water storage tank.
9/ This design consists of two elements: (1) a fixed charge based on the customer's share of fixed operating costs; and (2) a charge which relates to the gallonage of water actually used.
10/ Except as to the charges disputed, the parties agree to the rates set forth in P-3, Schedule (2g).
11/ If, however, an irrigation meter has a separate tap into the main, then that meter would have a full base charge since the demand it may place on the system is not limited by the presence of another meter.
COPIES FURNISHED:
B. Kenneth Gatlin, Esquire Post Office Box 669 Tallahassee, Florida 32302
Michael B. Twomey, Esquire Public Service Commission
101 East Gaines Street Tallahassee, Florida 32301
Steve Tribble, Commission Clerk Public Service Commission
101 East Gaines Street Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
================================================================= BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION
In Re: Application of Palm Coast ) DOCKET NO. 800594-WS Utility Corporation, for a ) (AP)(MC) certificate to operate a water & ) ORDER NO. 10463 sewer utility in Flagler County, ) ISSUED: 12/18/81
and for increased rates for water ) DOAH CASE NO. 81-1164 & sewer service to its customers )
in Flagler County, Florida. )
)
The following Commissioners participated in the disposition of this matter: JOSEPH P. CRESSE, Chairman
GERALD L. GUNTER JOHN R. MARKS, III KATIE NICHOLS SUSAN W. LEISNER
Pursuant to notice, an administrative hearing was held before R.L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings, on June 1 and 2, 1981, in Bushnell, Florida.
APPEARANCES
For Petitioner: B. Kenneth Gatlin, Esquire
Post Office Box 669 Tallahassee, Florida 32302
For Respondent: Michael B. Twomey, Esquire
101 East Gaines Street Tallahassee, Florida 32301
ORDER
BY THE COMMISSION:
After reviewing the entire record, we now enter our order. The Hearing Officer's recommendation was issued on August 13, 1981. The petitioner filed exceptions to Hearing Officer's Recommended Order on August 28, 1981. The Hearing Officer's recommendation provides as follows:
"Issues Presented
Whether Petitioner should be granted a certificate authorizing it to continue operating a water and sewer utility in Flagler County; and
Whether Petitioner's application to increase its water and sewer rates to its customers should be granted.
Background
On July 1, 1980, Petitioner Palm Coast Utility Corporation ("Utility") was brought within the jurisdiction of the Respondent Florida Public Service Commission ("Commission") by operation of Chapter 80-99, Laws of Florida (1980). Consequently, on September 3, 1980, the Utility filed pursuant to Section 367.171, Florida Statutes (1979), an application for a certificate authorizing its continued operation as a water and sewer utility in Flagler County. (FPSC Docket No. 800594-WS).
Thereafter, on November 3, 1980, the Utility filed a separate application to increase the water and sewer rates it charges its customers. (FPSC Docket No. 800583-WS.) By orders dated October 17 and December 30, 1980, the Commission suspended the increased rates requested by the Utility, ruled that the Utility's application for increased rates would be considered in conjunction with its application for certification, and closed the rate increase docket as duplicative.
On April 21, 1981, the Commission referred this case to the Division of Administrative Hearings for the conducting of a Section 120.57 hearing. Hearing was thereafter set for June 1-3, 1981.
At final hearing, the Utility called as its witnesses, Robert Kelly, Alan
Potter, Jerry Gregg, and Roy W. Likins; it offered into evidence Petitioner's Exhibit 1/ Nos. 1 through 6.
The Commission called as its witnesses, R. Louie Chastain, Marty Deterding, and Joyce Fabelo; it offered into evidence Respondent's Exhibit 1/ Nos. 1 through 5.
More than 100 customers attended the hearing: 25 of them testified in opposition to the proposed rate increases. In connection with their testimony, Customers' Exhibit 1/ Nos. 1 through 4 were offered into evidence.
The parties' proposed findings of fact were received by July 13, 1981. It was agreed that the 30-day period for submittal of a recommended order would commence on that date.
Based upon the evidence submitted at hearing, the following findings of fact are determined:
FINDINGS OF FACT I.
The Utility
The Utility, a subsidiary of ITT Community Development Corporation, owns and operates a central water and sewer system serving Palm Coast Community--a planned development of approximately 40 square miles located in Flagler County. Although the development has less than 3,000 occupied homesites, more than 40,000 homesites are planned. (Testimony of Potter; P-2, R-4.)
The Water System
The water system includes wells, a treatment plant, storage facilities, and distribution mains. There are 13 water supply wells with a flow capability of
3.40 MGD (million gallons per day); present peak flow is 2.00 MGD. The raw water is piped to a central water treatment plant which utilizes a lime- softening process. Present plant peak flows equal the maximum rated capacity:
2.00 MGD. There are two ground storage reservoirs (with a total capacity of 1,300,000 gallons) and two elevated storage tanks (with a total capacity of 850,000 gallons). The water distribution system consists of an extensive network of mains, valves, fire hydrants, and meters used to convey potable water from the treatment plant to customers throughout Palm Coast Community. Although during the test year ending June 28, 1980, the Utility supplied water to an average of 2,191 residential and 80 general service customers, water distribution mains have been constructed to 22,988 building sites. The total water system, as of June 28, 1980, has been constructed at a cost of
$17,486,433. (Testimony of Potter; P-2, R-4.)
The Sewer System
The sewer system includes a collection system, 57 lift stations, a wastewater treatment plant, and effluent disposal facilities. The wastewater plant utilizes an extended aeration process and has a rated hydraulic capacity of 600,000 gallons per day. Effluent is disposed of by spray irrigation on a 65-acre disposal field. Although during the test year, the Utility supplied sewer service to an average of 1,502 residential and 39 general service customers, sewage collection mains have been constructed to 22,988 building sites. As of June 28, 1980, the sewer system has been constructed at a cost of
$24,850,962. (Testimony of Potter; P-2, R-4).
The Rate Increase Application
By its application, the Utility seeks authorization to increase water operating revenues by $170,460 and sewer operating revenues by $106,924. If granted, annual gross water revenues would increase (by approximately 40 percent) to $422,211 and gross sewer revenues would increase (by approximately
40 percent) to $267,194. (Testimony of Deterding; 5-3 P-4, R-2.)
As grounds, the Utility contends that during the test year ending June 28, 1980, it suffered an operating loss of $225,430 in its water operations, and a loss of $109,909 in its sewer operations; that it is entitled to a 13.08 percent rate of return on its rate base. (Application for Rate Increase, dated November 3, 1980).
II.
The Elements of Rate Making
In issuing a certificate and setting rates, the Commission must determine:
the rate base 2/ ; (2) the cost of providing the utility service, including debt interest, working capital, maintenance, depreciation, tax, and operating expenses; (3) a fair return on the rate base; and (4) the quality of service provided.
At hearing, the Utility presented evidence on each of these rate-making elements. For the most part, the Commission did not oppose the Utility's evidence; those matters which were disputed are separately addressed below.
Rate Base
Rate base represents the Utility's property which provides the services for which rates are charged. There are three issues involving the establishment of rate base: (1) average or year-end rate base. (2) inclusion of cost of a 750,000 gallon water storage tank; and (3) deferral of depreciation on non-used- and-useful plant.
Average or Year-End Rate Base
At hearing, the Utility asserted that it had experienced extraordinary growth, justifying the utilization of year-end rate base. The Commission disputed this claim of extraordinary growth, and urged the use of a 13-month average. On June 22, 1981, the Utility filed a post-hearing "Notice of Change in the Position of the Applicant," by which it receded from its previous position and agreed that, for purposes of this proceeding, an average rate base should be used. The issue is, therefore, moot and utilization of a 13-month average rate base is accepted.
However, the Utility continues to assert that a year-end rate base should be established for "purposes of certification." 3/ Such assertion is rejected as inconsistent with its June 22, 1981, acceptance of average rate base: the acceptance applied to this "proceeding," 4/ and was not limited to rate-making purposes. Moreover, the Utility has not shown why a second rate base, based on year-end figures, should be established. Year-end rate base constitutes a deviation from the standard and preferable method of using a 13-month average; it may only be used under circumstances of unusual or extraordinary growth-- circumstances which the Utility no longer claims exist. (Testimony of Deterding; R-2)
Deferral of Depreciation and Amortization
The Utility requests authority to defer depreciating non-used-and-useful plant and amortizing contributions-in-aid-of-construction ("CIAC") until such time as the plant or contributions become used and useful. The effect would be to preserve the original cost of the property so it may eventually be recovered from future customers benefitting from its use; because original cost would not have been reduced, rate base would be higher for those future customers. The Commission opposes the requested deferral.
Both parties cite language in a previous Commission order (Order No. 7455, Docket No. 760034, In Re: Petition of North Orlando Water and Sewer Corporation) as evidence of existing Commission non-rule policy on deferral of depreciation expense on non-used-and-useful property.
The Commission language in that order lends support to the opposing arguments of each party. Even if the policy was stated unequivocally it could not--without record support--establish Commission policy for purposes of this rate proceeding.
The Utility's request is rejected because record evidence in this proceeding. The Utility executed a Revenue Agreement with ITT Community Development Corporation on June 27, 1980. Under that agreement, Community Development Corporation, the developer of Palm Coast Community, agreed to pay the Utility--through 1990--an amount sufficient to allow recovery of costs, including depreciation, attributable to utility property installed for unimproved lots. Such utility property is the same non-used-and-useful property for which the utility now seeks to defer depreciation and amortization. Since this revenue agreement allows the Utility to recover from the developer depreciation expenses attributable to non-used-and-useful property, deferral of depreciation--to allow recovery from future customers--is unnecessary. (Testimony of Gregg, Deterding; R2) 5/
Inclusion of Cost of Water Storage Tank
The Utility proposes to include in rate base the use-and-useful portion of a 0.75 million gallon elevated storage tank. It was not completed and placed in service until after the test year. Neither was its construction explicitly ordered by government order. However, from an engineering standpoint, it was needed during this test period to maintain minimum water pressure during peak- flow periods and provide adequate flows for fire protection purposes. It now functions as an integral component of the Utility's water system.
At hearing, the Commission's accountant testified that 100 percent of the cost of the water storage tank should be removed from the plant-in-service component of rate base because it was not in service during the test year. The parties agreed to his submittal of a post-hearing accounting exhibit showing adjustments resulting from his testimony. However, in his late-filed exhibit (R-2), the accountant took a position which contradicted his testimony at hearing:
In this case we feel that consideration of this after test year plant must be given. The utility's used and useful portion of the other
storage facilities will increase substantially. In addition this item appears to be an
integral component of the plant which was operating during the test year and at present. (R-2.) (Emphasis supplied.)
He included proposed schedules which: (1) include the tank as if placed in service during the last month of the test year; (2) include the total cost of the tank including interest capitalized net of the non-used-and-useful portion in calculating average rate base; and (3) show the effect of these adjustments in construction work in progress (CWIP) so that they can be easily identified and not confused with plant that was, in fact, in service by the end of the test year.
Notwithstanding this significant change in its accountant's testimony, the Commission continues to advocate 6/ the accountant's earlier position at hearing--one which he has now abandoned. Thus, the Commission argues that:
[T]he only correct position in calculating an average rate base is to exclude the after test year plant addition and adjust the used and useful percentage. . .as he [its accountant] originally proposed at the hearing. (Commission's Recommended Order, p. 5)
This contention his rejected as inconsistent with the Commission's own accounting and engineering evidence. 7/ It also overlooks the undisputed fact that the storage tank is now operating as an essential component of the water system, and that it will continue to be used during the period in which the new rates will be in effect.
The Commission's alternative treatment--as proposed by its accountant's post-hearing exhibit (R-2), is accepted as persuasive. The cost of the storage tank is thus included as CWIP, and is calculated as if placed in service during the last month of the test year; the total cost of the tank, including interest capitalized net of the non-used-and-useful portion, is utilized (Testimony of Gregg, Deterding, Chastain; R-1.)
The sewer system rate base proposed by the Utility is not disputed by the Commission and is accepted. The resulting average rate bases for the water and sewer systems are $2,736,279 and $1,044,165, respectively. They are depicted below.
WATER RATE BASE
(Test Year Ended 6-28-80)
Utility Plant in Service | $12,397,249 |
Plant Held for Future Use | (8,848,497) |
Construction Work in Progress | 39,097 |
Accumulated Depreciation | (216,405) |
Contribution-in-Aid-of-Construction (Net of Amortization) | (687,787) |
Working Capital Allowance | 35,837 |
Materials and Supplies | 7,785 | |
Income Tax Lag | -0- | |
RATE BASE | $ 2,736,279 | |
SEWER RATE BASE | ||
(Test Year Ended 6-28-80) | ||
Utility Plant in Service | $18,461,055 | |
Plant Held for Future Use | (15,787,481) | |
Construction Work in Progress | -0- | |
Accumulated Depreciation | (109,729) | |
Contributions-in-Aid-of-Construction (Net of Amortization) | (1,551,865) | |
Working Capital Allowance | 27,186 | |
Materials and Supplies | 4,999 | |
Income Tax tag | -0- | |
RATE BASE | $ 1,044,145 | |
(Late-filed Exhibit, R-2.) | ||
B. Operating Income | ||
The parties agree that, during the test | year, the Utility | had a $130,243 |
operating loss from its water operations, and a sewer operations. The operating statements are | $95,281 operating loss from it depicted below: | |
WATER OPERATING STATEMENT | ||
(Test Year Ended 6-28-80) | ||
Operating Revenues (Present Rates) | $251,751 | |
Operating Revenue Deductions | ||
Operation | 286,694 | |
Depreciation | 75,314 | |
Amortization | 954 | |
Taxes Other Than Income | 19,032 | |
Income Taxes | -0- | |
TOTAL OPERATING EXPENSES | $381,994 | |
s
Operating Income (Loss) $(130,243)
SEWER OPERATING STATEMENT
(Test Year Ended 6-28-80) Operating Revenues (Present Rates) $160,270 Operating Revenue Deductions
Operation 217,487
Depreciation 21,872
Amortization 767
Taxes Other Than Income 15,425 Income Taxes -0-
TOTAL OPERATING EXPENSES $255,551
Operating Income (Loss) $(95,281)
Since during the test year, the Utility operated its water and sewer systems at a loss; it received a negative rate of return on its rate base. (Testimony of Gregg, Deterding; Late-Filed Exhibit R-2, P-3, P-4.)
Cost of Capital and Fair Rate of Return
The only issue between the parties concerning cost of capital to the Utility is whether deferred taxes should be included in its capital structure. At the end of the test year, the Utility's books showed no deferred taxes; however, during the later half of 1980, it changed its accounting treatment for deferred taxes. Applying its new method, deferred taxes at the end of the test year would be $3,137,000--assuming deferred depreciation on non-used-and-useful property is disallowed.
The Utility failed to establish the impropriety of applying an accounting method which it will continue to follow in the foreseeable future; it is therefore concluded that the deferred taxes should be calculated as $3,137,000, at zero cost. 8/ The resulting overall cost of capital is 12.29 percent. A reasonable rate of return falls within a range of 11.87 percent to 12.72 percent. It is depicted below:
COST OF CAPITAL
Weighted
Component Common Stock Equity | Amount $22,224,497 | Weight 42.23 | Cost 15.0 | percent | Cost 6.33 |
Long Term Debt | 27,163,003 | 51.62 | 11.5 | 5.94 | |
Customer Deposits | 99,653 | .19 | 8.0 | .02 |
Deferred Taxes | 3,137,000 | 5.96 | -0- | -0- |
$52,624,153 | 100.00 | 12.29 |
(Testimony of Kelly, Potter; R-5.)
proposed Revenue
The Utility seeks increased water revenues of $170,460 and increased sewer revenues of $106,924. Although the parties agree on a base facility rate design, 9/ the Commission disputes proposed charges for fire hydrants and irrigation meters. 10/
Fire Hydrant Charges
The Utility presently collects, under contract, a fire hydrant charge of
$70 per year per hydrant from two fire districts which serve the area. This method is favored by customers and the fire districts; because the fire districts raise their funds through tax assessments, the customers payments are tax deductable. The Commission argues that the $70 charges do not cover all of the Utility's fire protection costs and that such costs should be recovered through regular service rates.
While the $70 charge was shown to be insufficient to cover fire service costs, no reason was provided why the additional funds could not be recovered by increasing charges to the fire districts. This method of paying for fire protection costs is advantageous to the customers. It is likely that the fire service districts would cooperate with the Utility in negotiating fire service charges which are adequate to cover the costs of the service provided.
Consequently, it is concluded that the present method of collecting fire service charges should be retained, although the charges should be increased sufficiently to cover the attendant costs to the Utility. (Testimony of Fabelo, Public Witnesses.)
Irrigation Meter Charges
The Utility proposes a $2.00 base facility charge for irrigation meters, with a $4.50 charge for regular service. The Commission prefers an irrigation meter base facility charge equal to one-half of the base charge of a corresponding regular service meter, assuming both meters are on the same tap to the water main. Since the demand for water that both meters can cumulatively place on the water system is 1.5 times that placed by a regular service meter, the Commission's position is persuasive. 11/
The parties also disputed the base facility customer accounting charges for irrigation meters--the Utility contending that the additional meters impose little additional costs and the Commission asserting that customer accounting charges should be given full weight. The Utility's position is accepted as persuasive. The two meters are usually close together and easily read. Both services are included on one account and one monthly bill covers both. Thus, while the irrigation meter imposes a slight additional accounting cost, it is minimal when compared to the cost imposed by a separate regular service meter. (Testimony of Gregg, Fabelo.)
Rate of Return Allowed by Proposed Revenue
Adding the requested water revenue increase of $165,633 to the adjusted test-year water operating revenues of $251,751 results in total recommended operating revenues of $417,384. Subtracting test-year operating expenses of
$381,994 leaves a net operating income of $35,390--a 1.29 percent return on a water rate base of $2,736,279.
Adding the requested sewer revenue increase of $111,751 to the adjusted test-year sewer operating revenues of $160,270 results in total recommended operating revenues of $272,021. Subtracting test-year operating expenses of
$255,551 leaves a net operating income of $16,470--a 1.58 percent return on a sewer rate base of $1,044,165. (Testimony of Deterding; R-2)
Quality of Service
The quality of the water furnished the Utility's customers depends on their location. Customers residing in the area most heavily populated--north of Highway 100--receive satisfactory water service. Their water is treated by the Utility's central lime-softening plant.
In contrast, the customers residing in the Seminole Woods area have not received water of comparable quality. Seminole Woods lies in the south extremity of the service area; it consists of approximately eight single-family residences and one duplex. Due to the remote location and slow rate of growth of Seminole Woods, the Utility has not found it practical to interconnect with the central lime-softening plant or build a separate lime-softening plant to serve the area. Instead, the Utility pumps raw water from a nearby well to a temporary facility where it is chlorinated and then conveyed to the residences where it is treated by separate zeolite or "Culligan" water-softening devices. These devices are furnished customers by the Utility without additional charge.
The residents of Seminole Woods have frequently received water with excessive chlorine or hydrogen sulfide. The Utility's efforts to monitor the chlorine levels and regularly flush the system have not solved the problems. Seminole Woods customers have repeatedly complained about the quality of their water--its excessive chlorine taste, offensive odor (similar to the smell of rotten eggs), and high sodium content. The water quality is so poor that at least three of the residents have found it undrinkable; they buy bottled water at an additional cost of approximately $20 per month.
The Utility's current solution to the problem is to extend mains from the northern area to Seminole Woods. The lines are now under construction and completion is expected "within a year or so." (Tr. 253.)
With the exception of the Seminole Woods area, the quality of sewer and water service provided by the Utility is acceptable and has rarely been the subject of complaints. Occasional problems of power outages have been corrected. Neither the water nor the sewer system has been or is now under any governmental citation for non-sewage or water treatment standards.
Upon completion of the connecting water mains, it is likely that the residents of Seminole Woods will receive water equal in quality to that enjoyed by other residents of Palm Coast Community. (Testimony of Thomas, Sannartano, Creolino, Potter, Likins.)
III.
Certificate of Public Convenience and Necessity
The Utility has filed with the Commission a map of its existing utility systems, a description of the area served, and all information requested by the Commission concerning its rates and charges. Neither the Commission nor the public objected to the granting of a certificate authorizing it to continue providing water and sewer services in the affected area. (Testimony of Chastain, Members of the Public; Prehearing Statement.)
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and parties to this proceeding. Section 120.57(1), Florida Statutes (1979).
The criteria for setting the rates of a regulated public utility are contained in Section 367.081(1), (2), and (3), Florida Statutes (1980 Supp.):
Except as provided in subsection (4), rates and charges being charged and collected by a utility shall be changed only by approval of the commission.
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 public service; and a fair return on the utility's investment in property used and useful in the public service. However, the commission shall not allow the inclusion of contributions-in-aid-of- construction in the rate base of any utility during a rate proceeding; and accumulated depreciation on such contributions-in-aid-of- construction shall not be used to reduce the rate base, nor shall depreciation on such contributed assets be considered a cost of providing utility service. Contributions-in- aid-of-construction shall include any amount
or item of money, services, or property received by a utility, from any person or governmental agency, any portion of which is provided at no cost to the utility, which represents a donation or contribution to the capital of the utility, and which is utilized to offset the acquisition, improvement, or construction costs of the utility's property, facilities, or equipment used to provide
utility services to the public. The commission shall also consider the utility's investment in property required by duly authorized governmental authority to be constructed in the public interest within a reasonable time in the future, not to exceed
24 months.
The commission, in fixing rates, may determine the prudent cost of providing service during the period of time the rates will be in effect following the entry of a final order relating to the utility's rate request and may use such costs to determine the revenue requirements that will allow the utility to earn a fair rate of return on its rate base.
Section 367.171(2) governs the issuance of certificate authorizing a utility to continue to provide water and sewer service:
On the day this chapter becomes applicable to any county, any utility engaged in the operation or construction of a system shall be entitled to receive a certificate for the area served by such utility on the day this chapter becomes applicable to it if, within 90 days, the utility will make application by filing with the commission:
A map of its existing system or system under construction;
A description of the area served by the system; and
A tariff listing all rates and charges and such other financial information as may be required by the commission.
Such application shall be accompanied by a fee as provided by s. 367.141.
Before the commission issues a certificate under paragraph (b), it shall establish the amount of money prudently invested in property of the utility which property is used and useful in the public service; shall establish other elements of the rate base; and shall set and approve rates pursuant to s. 367.081.
The Utility, provided it furnishes adequate and efficient service, is entitled to rates which produce revenues sufficient to cover its reasonable costs of operation and yield a fair return on its investment. The evidence presented establishes the Utility's entitlement to increased water revenues of
$165,633 and increased sewer revenues of $111,751. It should be authorized to file new rates: (1) consistent with the findings of fact, infra, and paragraph
5 below, and (2) structured on the base facility concept. Such rates should be designed to generate annual gross water revenue of $417,384 and annual gross sewer revenue of $272,021. These revenues are insufficient to allow the Utility a fair return on its investment. However, they are the revenues requested and there has been no showing that they will adversely affect the quality of service provided.
The increased revenues authorized above should be expressly conditioned upon the Utility's prior submission of a specific timetable for completion of water mains to the Seminole Woods area. The quality of water service now provided to the residents of Seminole Woods is unsatisfactory and significantly worse than that enjoyed by other customers of the Utility. Until the promised improvements are completed it would be unfair and discriminatory to require the customers of Seminole Woods to pay higher water rates. Any rate increase to those customers should be deferred until the Utility brings its service into compliance with minimal standards. In Askew v. Bevis, 283 So.2d 337, 342 (Fla. 1973), Justice Ervin, in dissent, approvingly cited the view expressed by Commissioner Mayo:
cannot believe that it is right to tell the ratepayers of this company that they must pay in advance with the hope that someday the company will give the type of service to which they are entitled.
The Utility has established its entitlement to a water and sewer service certificate pursuant to Section 367.171(2).
Proposed findings of fact were submitted by both parties. To the extent the proposed findings have not been adopted herein, they are rejected as unnecessary to resolution of the issues presented or unsupported by the evidence.
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED:
That the Utility be granted a certificate to continue operating its water and sewer systems in the areas described, and
That it be authorized to file tariffs, consistent with the provisions of this Recommended Order, designed to generate annual gross water revenues of
$417,384 and annual gross sewer revenues of $272,021.
We have reviewed the Hearing Officer's recommendation in this case, as well as the exceptions filed by Palm Coast Utility Corporation, the Petitioner.
First we note that the Petitioner is a wholly-owned subsidiary of the International Telephone and Telegraph Corporation (ITT), rather than of the ITT Community Development Corporation, as stated in the body of the Hearing Officer's recommendation. The Utility had formerly been a subsidiary of ITT Community Development Corporation, but became independent of that organization in January, 1980.
Palm Coast has taken exception to the Hearing Officer's recommendation that the average rate base used for setting rates in the case also be used for the purpose of certification pursuant to Section 367.171, (1)(c), Florida Statutes (Supp. 1980), which states:
"(c) Before the commission issues a certificate under paragraph (b), it shall establish the amount of money prudently invested in property of the utility which property is used and useful in the public service; shall establish other elements of the rate base; and shall set and approve rates pursuant to s. 367.081."
Section 367.171, Florida Statutes (Supp. 1980) provides that existing utilities in counties "opting-in" pursuant to Section 367.171(1), Florida Statutes (Supp. 1980) shall, within 90 days of the day Chapter 367, Florida Statutes becomes applicable to the county, make application to the Commission for a certificate. In this case, application for a certificate was made and rates were set utilizing (with the consent of Palm Coast) an average rate base. Because the establishment of a "second," year-end rate base would serve no useful purpose, we concur with the Hearing Officer's recommendation that such a year-end rate base not be established.
In his recommendation, the Hearing Officer proposed the partial inclusion into the water system rate base of a 750,000 gallon, elevated water storage tank, which was not completed and placed in service until after the the test year. Our policy is to exclude from rate base post-test year plant additions. See Application of Florida Public Utilities Company, Order No. 9757 issued in Docket No. 800059-W on January 20, 1981. However, removing the post-test year plant is not necessary in this case because the utility has requested specific gross revenues, which will not provide it with compensatory rates, and to remove the elevated tank will have no effect on the rates approved.
Palm Coast has taken exception to the Hearing Officer's recommendation that the utility's request to defer depreciating non-used-and-useful plant and amortizing contributions-in-aid-of-construction until such time as the plant or contributions become used and useful be rejected. We find that there is competent and substantial evidence to support the Hearing Officer's finding that the utility executed a Revenue Agreement with ITT Community Development Corporation (CDC) by which CDC agreed to pay the utility, through 1990, an amount sufficient to allow recovery of costs, including depreciation, attributable to utility property installed for unimproved lots, and adopt his recommendation on the point.
As noted by the Hearing Officer:
"The residents of Seminole Woods have frequently received water with excessive chlorine or hydrogen sulfide. The Utility's efforts to monitor the chlorine levels and regularly flush the system have not solved the problems. Seminole Woods customers have repeatedly complained about the quality of their water--its excessive chlorine taste, offensive odor (similar to the smell of rotten eggs), and a high sodium content. The water
quality is so poor that at least three of the residents have found it undrinkable; they buy bottled water at an additional cost of approximately $20 per month.
The difference in water quality results from Seminole Woods receiving its water from a temporary treatment system, while the main body of Palm Coast residents receive water treated at a central, lime-softening water treatment plant. The Hearing Officer has recommended that the increased gross revenues requested by the utility not be granted until the utility has submitted a specific timetable for completion of water mains to the Seminole Woods area. We will not delay the implementation of the rate increase until such a timetable is received, however, we will order the utility to provide the Commission with a specific timetable for extending its water mains from its central water treatment plant to the Seminole Woods area within 90 days of the date of this order.
The Hearing Officer recommended that the residents of Seminole woods not receive a water rate increase until such time as the water they receive meets minimal standards. We note that the record contains undisputed expert testimony that the water received by Seminole Woods meets all applicable minimum standards. Notwithstanding this fact, it is undisputed that the Seminole Woods water is of a lesser quality than that received by the main body of customers in Palm Coast, especially when the factors of taste and odor are considered.
Section 367.081(2), Florida Statutes (Supp. 1980) provides that the Commission in setting rates shall, among other things, consider the value and quality of service. Until such time as the residents of Seminole Woods are receiving water from the utility's central treatment plant that is the same quality as the other residents of Palm Coast, the water rates to the Seminole Woods customers shall remain unchanged. In determining that the water quality is the same, the utility should place particular emphasis on sodium and hydrogen sulfide levels. Prior to implementing the new water rates to the residents of Seminole Woods, the utility shall submit to the Commission a certified laboratory report comparing the Seminole Woods water and that at the central treatment plant. This report shall state the results of each of the standards contained in the State's primary and secondary water quality standards.
We affirm and adopt the Hearing Officer's recommendation as our own, except as has been noted above. It is, therefore,
ORDERED by the Florida Public Service Commission that Palm Coast Utility Corporation, be authorized to increase its rates in order to generate gross operating revenues of $417,384 and its gross sewer operating revenues of
$272,021. It is further
ORDERED that the authorized rates, based upon the base facility charge concept are as follows:
WATER
Residential:
BFC 5/8" x 3/4" meter $ 3.54/month
Gallonage charge $ 1.29/M G
General Service:
BFC 5/8" x 3/4" meter $ 3.54/month
1" | $ 8.85 | |
2" | $ 28.32 | |
3" | $ 56.64 | |
4" | $ 88.50 | |
6" Gallonage | charge | $177.00 $ 1.29/M G |
Irrigation | Service: |
BFC 5/8" x 3/4" meter $ 1.77/month 1" $ 8.85
2" $ 28.32
6" $177.00
Residential | ||
BFC | $ 5.58 | |
Charge per MG up to 10 | MG | $ 1.30 |
General Service BFC 5/8" x 3/4" meter | $ 5.58 | |
1" | $ 13.95 | |
2" | $ 44.65 | |
3" | $ 89.25 | |
4" | $139.50 | |
6" | $279.00 | |
Gallonage charge/MG | $ 1.30 | |
Gallonage charge $ 1.29/M G SEWER
Service Availability Charges
All customers initially connecting into the utility's water and/or sewer system will be required to pay the following service availability charges:
Water: Plant capacity charge Meter Installation Fee | $200.00 Per $ 84.00 | ERC | |
Tap Fee: 1" | $145.00 | ||
2" | $513.00 | ||
3" and above | Actual Cost | ||
Sewer: | |||
Plant capacity charge | $190.00 | Per | ERC |
Off-site facility charge | $274.00 | Per | ERC |
On-site facility charge | $878.00 | Per | ERC |
It is further | |||
ORDERED that Palm Coast Utility Corporation shall, within 90 days of the date of this Order, file with this Commission a specific timetable of its schedule for extending its water mains from its central water treatment plant to the Seminole Woods area. It is further
ORDERED that the Utility shall not increase its water rates to its customers in Seminole Woods until it has improved the quality of water provided to those customers as outlined in the body of this Order. It is further
ORDERED that the increased rates for water and sewer service shall be effective for meters read on or after 30 days from the date of this Order. It is further
ORDERED that the rate schedules will not become effective until revised tariff pages are filed and approved. It is further
ORDERED that the utility shall notify each customer of the increase authorized herein, and explain the reason for said increase, the letter of explanation to be submitted to the Commission for prior approval. It is further
ORDERED that Palm Coast Utility Corporation is granted Certificate Nos. 302-S and 344-W authorizing it to provide water and sewer service in Flagler County, in the service area described in Appendix A to this Order.
By ORDER of the Florida Public Service Commission, this 18th day of December 1981.
Steve Tribble COMMISSION CLERK
ENDNOTES
1/ Petitioner's Respondent's, and Customers' Exhibits will be referred to as "P- ," "R- ," and "C- ," respectively.
2/ This constitutes the "amount of money prudently invested in property of the Utility which property is used and useful in the public service. . ." Section 367.171(2)(c), Florida Statutes (1980 Supp.). See also, Section 367.081(2), Florida Statutes (1980 Supp.).
3/ Petitioner's Recommended Order and Findings of Fact, p. 3.
4/ See, "Notice of Change in Petitioner's Position Relative to Year End Rate Base," dated June 22, 1981.
5/ See, Bowling v. Department of Insurance, 394 So.2d 165, 174, n. 16 (Fla. 1st DCA 1981).
6/ Commission's Recommended Order dated July 9, 1981, p. 5.
7/ The Commission engineer did not dispute the correctness of the Utility's used-and-useful calculations--which included the storage tank.
8/ Its argument that the new accounting method should not be applied solely because it was adopted after the test year is inconsistent with its argument concerning the post test-year water storage tank.
9/ This design consists of two elements: (1) a fixed charge based on the customer's share of fixed operating costs; and (2) a charge which relates to the gallonage of water actually used.
10/ Except as to the charges disputed, the parties agree to the rates set forth in P-3, Schedule (2g).
11/ If, however, an irrigation meter has a separate tap into the main, then that meter would have a full base charge since the demand it may place on the system is not limited by the presence of another meter.
APPENDIX "A"
Being a portion of Flagler County, Florida, lying within Range 30 East, Range 31 East, Township 10 South, Township 11 South and Township 12 South, all being in Flagler County, Florida and being more particularly described as follows:
From a POINT OF BEGINNING being the intersection of the west line of Section 7, with the Flagler County-St. Johns County line at Pellicer Creek, Township 10 South, Range 30 East; thence south along the west line of Sections 7, 18, 19, 30, and 31 to the southwest corner of the northwest 1/4 of Section 31, Township 10 South, Range 30 East; thence east 1/4 mile; thence south 1/2 mile; thence west 1/4 mile to the southwest corner of Section 31, Township 10 South, Range 30 East; thence south along the west line of Sections 6 and 7 to the southwest corner of Section 7, Township 11 South, Range 30 East; thence east 1/2 mile along the south line of Section 7; thence north 1/4 mile; thence east 1/4 mile; thence south 1/4 mile, thence east 1/4 mile to the southeast corner of
Section 7, Township 11 south, Range 20 East; thence south 1/4 mile; thence east 1/4 mile; thence south 1/4 mile; thence east 1/4 mile; thence south 1/4 mile; thence east 1/4 mile; thence south 1/4 mile; thence east 1/4 mile to the northwest corner of Section 21, Township 11 South, Range 30 East; thence south along the west line of Section 21 to the southwest corner of Section 21, Township 11 South, Range 30 East; thence east along the south line of Section 21 to the southeast corner of said Section 21; thence south 1/2 mile; thence west 1/4 mile; thence south 990+ feet; thence west 1/4 mile; thence north 990+; thence west 1/4 mile; thence south 1/4 mile; thence west 1/4 mile; thence south 1/4 mile to the southwest corner of Section 28, Township 11 South, Range 30 East; thence west 1/4 mile; thence south 1/4 mile; thence west 1/4 mile; thence south 1/4 mile; thence east 1/4 mile; thence south 1/4 mile; thence west 1/4 mile; thence south 1/4 mile to the southwest corner of the southeast 1/4 of Section 32; thence east along the south line of Sections 32, 33, 34 and 35 to the southeast corner of the southwest 1/4 of Section 35; thence south along the center of Section 2 Township 12 South, Range 30 East, to the southwest corner of the southeast 1/2 of Section 12; thence east 1/2 mile to the northwest corner of Section 12; thence south 1/4 mile; thence east one mile to the southeast corner of the northeast 1/4 of the northeast 1/4 of said Section 12; thence south 1980+ feet; thence west 1/4 mile; thence south 660+ feet; thence west 3960+ feet to the west line of said Section 12 at the northwest corner of the southwest 1/4 of the southwest 1/4 of said Section 12; thence south along the west line of Sections 12, 13, and 24, to U.S. Highway No. 1 (State Road 5); thence southeasterly along the right-of-way line of U.S. Highway No. 1 to a point 460+ feet northwesterly of the east line of Section 31 Township 12 South Range 31 East; thence east 660+ feet; thence north 1/4 mile; thence east 330+ feet; thence north 1/4 mile:; thence east 1/4 mile; thence south 1/4 mile; thence east 600+ feet to the center point of Section 32, Township 12 South, Range 31 East; thence north 990+ feet; thence east 660+ feet; thence north 990 feet; thence east 660+ feet; thence south 1/4 mile; thence east 1/4 mile to the east line of said Section 32; thence south 660+ feet; thence east 660+ feet; thence south 660+ feet; thence west 660 feet to the said east line of said Section 32; thence south 660+; thence east 1/4 mile; thence north 660+ feet; thence east 1/4 mile; thence north 660+ feet; thence east 1/4 mile; thence south 660+ feet to the southeast corner of the northwest 1/4 of the southeast 1/4 of Section 33; thence east along the south line of north 1/2 of south 1/2 of Sections 33 and 34 to the southeast corner of northeast 1/4 of southeast 1/4 of Section 34; thence north along the east line of said Section 34 to the Korona Canal; thence northwest along the Korona Canal to the east right-of-way line of Interstate Highway I-95 (State Road 9); thence northwest 1420+ feet along the said east right-of-way line to a drainage canal; thence northeast along the drainage canal a distance of 1458+ feet; thence northwesterly along said drainage canal a distance of 990+ feet; thence continuing east along the drainage canal to Old Kings Road; thence northwesterly along Old Kings Road to the south line of lot 2 of Bulow Grant; thence northeasterly 8811+ feet to John Anderson Highway (State Road 201); thence northeasterly 738+ feet along said John Anderson Highway; thence northeasterly 2574+ feet along a line parallel and 700 feet north of the south line of lot 2 Bulow Grant to a point on the west right-of-way of the Florida Intracoastal Waterway; thence north along the said right-of-way line a distance of 5517+ feet to the corporate limits of Flagler Beach, Florida; thence westerly along the southern boundary of Flagler Beach Corporate limits a distance of 4500 feet more or less to the westerly corporate limits of Flagler Beach; thence along the westerly limits of the City of Flagler Beach, Florida to the most northwesterly corner of the city limits of Flagler Beach, Florida; (above mentioned city limits of Flagler Beach, Florida, being the limits as of December 16, 1970, as shown on the map of Flagler Beach as prepared by Phillips, Wine and Associates, approved on December 23, 1965 and revised January 1969); thence
easterly along the northerly corporate limits of Flagler Beach 3075 feet more or less to the shoreline of the Florida Intracoastal Waterway; thence leaving the limits of the City of Flagler Beach and running north along the Florida Intracoastal Waterway to its intersection with the Old Florida East Coast Canal (Abandoned); thence north along said Old Florida East Coast Canal to its intersection with the east-west quarter line of Section 15, Township 11 South, Range 31 East; thence east to the Atlantic Ocean; thence north along the Atlantic Ocean to the northeast corner of Deauville Beach subdivision as shown in Plat Book 5, Page 73, Flagler County Records; thence following the northerly and westerly limits of said Deauville Beach subdivision to the southwest corner of said subdivision; thence south along State Road A1A to the northwest corner of the Second Addition to Johnson Beach subdivision as shown in Plat Book 5 Page 69, Flagler County Records; thence northeasterly to the northwest corner of Johnson Beach subdivision as shown in Plat Book 5, page 9, Flagler County Records; thence south along the west line of said subdivision to Malacompra Road; thence west along Malacompra Road to State Road A1A; thence south along A1A to the north lot line of Lot 49, of the Plat of Jose Park, Unit No. 2, as shown in Plat Book 3, Page 33, Flagler County Records; thence 672+ feet to the Intracoastal Waterway; thence north approximately 2.1 miles along the Intracoastal Waterway to the southwest corner of lands of Sioux Investment Corporation as recorded in the Official Record Book 30, Page 270-272, Flagler County Records; thence east 3559+ feet to the southeast corner of said property at the Atlantic Ocean; thence north 276+ feet along the Atlantic Ocean; thence west 3491 feet to the Intracoastal Waterway; thence north along said lntracoastal Waterway to the Flagler-St. Johns County line; thence run in a westerly direction along the said Flagler County line, portions of which also runs along the centerline of Pellicer Creek to the POINT OF BEGINNING.
| Issue Date | Proceedings |
|---|---|
| Jun. 15, 1990 | Final Order filed. |
| Aug. 13, 1981 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Dec. 18, 1981 | Agency Final Order | |
| Aug. 13, 1981 | Recommended Order | Grant Petitioner's certificate to continue operating its water and sewer systems in areas described and should be granted rate increase. |
SEMINOLE UTILITY COMPANY vs. PUBLIC SERVICE COMMISSION, 81-001164 (1981)
BUCCANEER SERVICE COMPANY vs. PUBLIC SERVICE COMMISSION, 81-001164 (1981)
GULFSTREAM UTILITY COMPANY vs. PUBLIC SERVICE COMMISSION, 81-001164 (1981)
MANGONIA PARK UTILITY COMPANY, INC. vs. PUBLIC SERVICE COMMISSION, 81-001164 (1981)
GREENWOOD LAKES UTILITY COMPANY, INC. vs. PUBLIC SERVICE COMMISSION, 81-001164 (1981)
