STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA WATERWORKS ASSOCIATION, and )

its member companies; and SOUTHERN ) GULF UTILITIES, INC., CENTRAL FLORIDA ) UTILITIES, INC.; MEADOWBROOK UTILITY ) SYSTEMS INC.; KINGSLEY SERVICE COMPANY; ) ORTEGA UTILITY COMPANY; OSCEOLA SERVICE ) COMPANY, INC.; LAKE COUNTY UTILITIES, ) INC.; and LONGWOOD UTILITIES, INC., )

)

Petitioner, )

and ) CASE NO. 82-538RP

) FLORIDA HOME BUILDERS ASSOCIATION, )

)

Intervenor, )

)

vs. )

) FLORIDA PUBLIC SERVICE COMMISSION, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on December 15, 16 and 17, 1982, in Tallahassee, Florida. The issue for determination in this proceeding is whether certain rules relating to service avail ability policies and charges proposed by the Florida Public Service Commission constitute invalid exercises of delegated legislative authority.

APPEARANCES

For Petitioners: Ben E. Girtman

Madigan, Parker, Gatlin, Swedmark & Skelding

Post Office Box 669 Tallahassee, Florida 32302

For Intervenor: Stephen W. Metz

Post Office Box 1259 Tallahassee, Florida 32302

For Respondent: Susan F. Clark

Fletcher Building

101 East Gaines Street Tallahassee, Florida 32301

INTRODUCTION

Petitioners and intervenor challenged the following proposed rules, or portions thereof, as constituting invalid exercises of delegated legislative authority:

1. Rule 25-30.515(3). Definitions (CIAC).

   
   

2. Rule 25-30.54(4). Agreements for service, performance under agreements.

   
   

3. Rules 25-30.53 and 25-30.545 which delete prior language relating to the collection of certain expenses and the recovery of certain costs.

   
   

4. The repeal of Rules 25-10.120 through 25-10.144.

In summary form, the challenged proposed rules provide guidelines to water and sewer utilities for designing service availability policies in terms of minimum and maximum levels of CIAC. If actual amounts of CIAC are not recorded or substantiated by the utility, they are to be imputed. The guidelines and imputation provisions may be waived in cases of unusual hardship or unreasonable difficulty. The proposed rules become applicable to a utility only when it files for a change in its service availability policy or charges or when the PSC initiates a show cause proceeding to require the utility to change its policies or charges. The proposed rules repeal prior rules relating to service availability policies.

In support of their position of invalidity, the petitioners presented the testimony of seven witnesses, each of whom was accepted as an expert witness in the area stated. These witnesses were Jerry Gregg, rate regulation and management and operation of water and sewer systems in Florida; Dr. Robert G. Turner, economics and preparation of economic impact statements and economic data in support of rules; Dr. Elton Scott, finance and statistics; Allen W. Potter, operation and management of water and sewer systems in Florida; Ray O. Avery, financial aspects of management and construction of water and sewer utility systems; Munipali Sambamurthi, water and sewer capital expenditure programs and management of water and sewer systems; and Phillip Heil, management and operation of water and sewer utilities in Florida. Petitioners' Exhibits 1 through 10 were received into evidence.

The intervenor Florida Home Builders Association adopted the testimony presented by the petitioners and also presented the testimony of Myer O. Soforenko, a builder and developer of residential subdivisions and water and sewer companies. Exhibits 1 through 3 were received on behalf of the intervenor.

The respondent Public Service Commission (PSC) presented the testimony of the following five witnesses, each of whom was accepted as an expert witness in the field following his/her name: Martin R. Crowson, utility financing and accounting; Marshall W. Willis, accounting and financial aspects in water and sewer matters; Bill Lowe, water and sewer accounting and finance; Daryl Nall, economist; and John D. Williams, rate design and service availability policies and charges. Respondent's Exhibits 1 through 9 were received into evidence.

Also received into evidence were Joint Exhibits 1 through 12.

Subsequent to the hearing, counsel for all parties filed proposed findings of fact and proposed conclusions of law, along with memoranda of law. To the extent that the parties' proposed findings of fact are not incorporated in this Order, they are rejected as either not being supported by competent substantial evidence adduced at the hearing, irrelevant or immaterial to the issues in dispute or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, as well as the stipulation of facts contained in the parties' Prehearing Stipulation, the following relevant facts are found:

STANDING

1. The Florida Waterworks Association (FWA) is comprised of fifty water and/or sewer companies, forty-four of which are regulated by the PSC. The subject matter of the challenged rules is within the FWA's general scope of interest and activity on behalf of its members. The eight named petitioners, five of which are FWA members, are all regulated by the PSC. Several of the utility members of the FWA have applications pending before the PSC for changes in rates, service availability and the issuance of new certificates. Statistics compiled from Annual Reports filed with the PSC by members of the FWA and the three non-member petitioners reveal that eight utilities have CIAC in levels exceeding 75 percent and thirty-one have less than 55 percent CIAC, through it was not established whether these companies were operating at designed capacity.

   
   

2. The intervenor Florida Home Builders Association (FHBA) is a statewide organization representing the building industry in Florida. Some 54 percent of residential building in Florida is performed by members of the FHBA. Numerous members of local homebuilder associations are serviced by water and sewer utilities regulated by the PSC, and many members own and operate water and sewer companies regulated by the PSC.

   
   

3. The PSC staff presently reviews the service availability policy and charges for compliance with maximum and minimum CIAC levels in applications for rate increases and for original certificates. If a utility is found to be not in compliance with the minimum and maximum guidelines and declines to voluntarily come within the guidelines, the matter may be referred to the Commissioners for review. The maximum and minimum CIAC requirements have been applied by the PSC to utilities which have not specifically requested a change in service availability charges or policies.

   
   

   CIAC--Definition (Proposed Rule 25-30.513(3))

   (4) CIAC is defined by statute as including 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 property, facilities, or equipment used to provide utility services to the public. Section 367.081(2) Florida Statutes.

   
   

4. The challenged proposed rule utilizes the same definition, but substitutes the words "addition or transfer" for "donation or contribution." Proposed Rule 25-30.513(3).

   
   

5. Within the water and sewer industry, the term "addition" generally means an increase in plant and a "transfer" can be a transfer of property for which a utility itself might pay. On the other hand, the words "contribution or donation" generally mean property, money or services with no liability on the utility's part.

   
   

6. By substituting the words "addition or transfer" for "donation or contribution," it was the intention of the PSC to clarify the latter two words and not to change the statutory definition of CIAC. Inasmuch as the words "donate or contribute" have a connotation of being a gift or something voluntarily given to a charity, the words "addition or transfer" to the capital of a utility, when qualified by the prior words "at no cost to the utility" more clearly characterize CIAC. CIAC is given to obtain service. It is not necessarily voluntarily given.

   
   

   GUIDELINES (Proposed Rule 25-30.58)

   
   

7. The challenged proposed guideline rule (Rule 25-30.58) sets a limit on the amount of CIAC in the amount of 75 percent of the total original cost, net of accumulated depreciation, of the utility's facilities and plant when they are at their designed capacity. While a specific minimum percentage figure for CIAC is not stated in the proposed rule, the minimum amount of CIAC is not to be less than the percentage of the facilities and plant represented by the water transmission and distribution lines and the sewage collection systems. In other words, the percentage of the utility plant represented by the water transmission and distribution system and/or the sewage collection system is the guideline for the minimum percentage of CIAC under the proposed rules. For the average Florida water and sewer company, this minimum CIAC level will be approximately

   55 percent for water systems and approximately 65 percent for sewer systems. A utility may be exempt by the PSC from compliance with these minimum and maximum guidelines in cases of "unusual hardship or unreasonable difficulty" and where it is shown that it is not in the best interests of the customers to require compliance.

   
   

8. A utility may earn a fair rate of return only on its own investment. Since CIAC is contributed or donated, it is excluded from the rate base of a utility. The utility is not entitled to earn a return on the value of its CIAC, nor is a regulated utility entitled to collect a depreciation expense on CIAC.

   
   

9. CIAC is virtually synonymous with service availability charges. The acceptance of CIAC by a utility is beneficial to both the utility and the customer. It is a cost-free source of capital for the utility and, because it is not included as a part of the utility's rate base, it reduces the long-run monthly or periodic cost of utility service to the customer.

10. Excessive amounts of CIAC can be detrimental to the operation of a utility in two respects. First, since CIAC is not included in rate base, the utility may not earn a return on the amount it receives from CIAC. Thus, if the utility faces an increase in operating and maintenance expenses, and it is heavily financed by CIAC, it may find itself in a cash-flow crisis with no income to cover increased expenses. The absence of a rate of return on rate base leaves the utility more vulnerable to the negative effects of operating attrition. Such a cash-flow problem could affect the utility's ability to provide adequate service and could cause abandonment of the plant. A second negative effect of very high levels of CIAC, and consequently very low levels of owner investment, is that the owners, with no opportunity to earn a return on the system, may lose their incentive and commitment to maintain and operate the system in a quality, cost-efficient manner.

    
    

11. The appropriate maximum level of CIAC, and the consequent appropriate level of owner investment, was the subject of a study and recommendation made by Theodore Barry and Associates, a consulting firm hired by the PSC. Based upon discussions with members of the industry, a review of PSC statistics and records, and a simulation of the effects of a 10 percent increase in unreimbursed costs on a utility, it was recommended that a minimum owner investment level of 20 percent to 25 percent would be appropriate to maintain quality of service and to alleviate the effects of operating attrition.

    
    

12. While there is evidence that very high levels of CIAC may have contributed to the abandonment of two small utilities in Florida, there is no concrete statistical data from existing utilities which conclusively illustrates that a high level of CIAC, by itself, adversely affects owner incentive or quality of service or which supports the direct relationship between higher invested capital and greater efficiency.

    
    

13. There are other methods to prevent operating attrition from diminishing funds necessary for the operation of a water and/or sewer utility. Other means of increasing the cash flow of a utility include indexing adjustments, provisions for the "pass through" of increases in taxes and purchased electricity, water or sewer services, the allowance of depreciation on CIAC and the allowance of a management fee on CIAC.

    
    

14. As noted above, the minimum level of CIAC established as a guideline in the proposed rule is not a stated percentage figure but is, instead, the amount of plant represented by the utility's transmission, distribution and/or collection system. The rationale for a minimum level of CIAC based upon the distribution or collection system is that these systems have a longer useful life than the treatment facilities and that the customer or developer should bear the costs of these systems since they primarily determine the location and consequent costs of the distribution and collection lines.

    
    

15. Numerous factors affect the decision as to the appropriate capital structure and management of water and sewer companies in Florida. These include the geology of the area, the size of the plant, the size and configuration of the service area, usage patterns, population densities, the degree of applicable environmental or governmental regulation, operation and maintenance expenses and the authorized rate of return on investment. Also, levels of investment and CIAC may vary over the life cycle of a single water or sewer utility. For these reasons, a specified numerical CIAC percentage requirement for every regulated water and sewer utility would be unreasonable, and a range is preferable.

16. If every utility were required, without exception, to maintain a maximum level of CIAC in the amount of 75 percent and a minimum level in the amount of 55 percent (water) or 65 percent (sewer), various problems could be encountered. For example, there may be occasions where the minimum required level of CIAC exceeds the authorized maximum level. This could occur if the utility were connected to a regional facility and a portion of its plant is no longer in use. Utilities which have more than 75 percent of their total capital involved in water distribution and sewer collection lines do exist. Another problem could result where the utility already has 25 percent owner investment and additional funds are needed to replace or repair contributed property. If the owner could obtain borrowed money, he would not be permitted to earn a return on this money. Also, if a utility system is 100 percent "built out," its CIAC level will gradually diminish and, if there are no more customers, a small utility would have no means of increasing its level of CIAC.

    
    

17. As noted above, the proposed rule which sets guidelines for minimum and maximum CIAC levels also provides an exemption for utilities where it is illustrated that compliance would introduce an unusual hardship or unreasonable difficulty and that compliance would not be in the best interest of the customers of the utility.

    
    

    IMPUTATION (Rule 25-30.57)

    
    

18. Challenged proposed rule 25-30.57 provides for the imputation of CIAC in cases where the actual amount of CIAC has not been recorded on the utility's books and the utility does not submit competent substantial evidence as to the amount of CIAC it has received. In such cases, the amount imputed will be the amount of plant costs charged to the cost of land sales for tax purposes, if available, or the proportion of the cost of the facilities and plant attributable to the water transmission and distribution system and the sewage collection system. Again, the proposed rule provides for the waiver of imputation where there is unusual hardship or unreasonable difficulty and where such imputation would not be in the best interest of the utility's customers.

    
    

19. Water and sewer utilities regulated by the PSC are required to keep records according to the NARUC Uniform Systems of Accounts. The NARUC system requires the recording of CIAC, and records kept according to that system will satisfy the

    requirements of the proposed rule. Also, almost all utilities have records which establish rate base. Since rate base is investment, the remaining plant and facilities would be CIAC. Almost all regulated water and sewer utilities in Florida accept CIAC.

    
    

20. If CIAC were imputed to a utility which previously claimed little or no amounts of CIAC, its rate base and revenues would be reduced. Likewise, if CIAC were the sole source of plant acquisition, the rule would impute investment where there was none.

    
    

    APPLICABILITY (Rule 25-30.51)

    
    

21. The challenged proposed rules become applicable to a utility when the utility files for a change in its service availability policy or charges or when the PSC initiates a show cause proceeding to require the utility to change such policy or charges. The rules are not applicable to policies implemented or contracts entered into prior to the effective date of the rules.

22. All regulated water and sewer utilities are presently required to have their rates, charges and service availability policies on file with the PSC. Absent an approved change in the tariff on file with the PSC, a utility is required to follow what is outlined in the tariff on file.

    
    

    REPEAL OF PRIOR RULES AND DELETION OF CERTAIN

    PROVISIONS (PSC Order No. 11006 and Rule 25-30.53(3)(b) and 25-30.545(3)(b)

    
    

23. The PSC's repeal of prior existing Rules 25-10.120 through 25-10.144, in connection with the wording of the applicability section of the challenged proposed rules, has the effect of leaving those utilities which have not filed for a change in their service availability charges or policy or which have not had a show cause proceeding instituted against them with no rules relating to service availability charges and conditions.

    
    

24. The original draft of the proposed rules authorized the collection of costs of compliance with an ordinance, regulation or other specification of a public authority and the collection of costs of relocating facilities after a determination of final grades of a right-of-way. These provisions were deleted in the final revision to the proposed rules. (Rule 25-30.53 (3)(b) and (e) and Rule 25-30.545(3)(b)) The deletion of these provisions does not necessarily preclude recovery of such costs. Specific areas of recovery were not enumerated in the proposed rules because such an enumeration would carry the inference that other costs associated with compliance with ordinances or regulations, extension of services or relocations of plant could not be collected. To be consistent with the remaining proposed rules, it must be determined whether the customer or the utility bore certain costs and the ratios of investment and CIAC to total plant must be considered. The cause of the cost does not determine the party which initially pays the cost.

    
    

    COMPLAINTS AND DEVELOPER'S

    AGREEMENTS (Rules 25-30.54(4) and 25-30.585)

    
    

25. Proposed Rule 25-30.54(4) authorizes an applicant for extension of service to file a complaint with the PSC if it believes that the charges required by a utility are unreasonable. No competent substantial evidence was offered by the petitioners or intervenor in support of the claim in their petition that this proposed rule is discriminatory in favor of developers or an invalid exercise of delegated legislative authority. The PSC is statutorily charged with the responsibility to investigate agreements or proposals for conditions and charges to be made by a utility for service availability. Section 367.101(1), Florida Statutes.

    
    

26. As presently proposed, Rule 25-30.585 makes reference to a Rule 25-

    30.11. No such rule exists. Prior to the renumbering, the rule containing the guidelines for designing service availability policy (Rule 25-30.50) was numbered 25-30.11. Petitioners' complaints regarding the vagueness of the terms "basic principles" and "potential impact" of Rule 25-30.585 were not supported by competent substantial evidence.

    
    

    ECONOMIC IMPACT STATEMENT

    
    

27. The Economic Impact Statement (EIS), as revised, prepared for the challenged proposed rules notes that the

    implementation of the proposed rules will involve the cost of reviewing information to determine compliance with the new CIAC guidelines and the cost of

    show cause proceedings requiring new service availability policies of those companies not compliance. Inasmuch as the PSC presently has the responsibility of reviewing service availability policies and charges, it is anticipated that existing resources of the PSC will be sufficient to implement the proposed rules.

    
    

28. The EIS notes the economic effect upon the water and sewer industry of the proposed rules relating to applicability of the rules and the "grandfather" provision, the reporting of original cost information, the limitations on the minimum and maximum CIAC levels, the imputation of CIAC and further notes that the impact upon the industry will be mitigated by the waiver and/or exemption provisions in cases of undue hardship. The economic effect of the proposed rules upon potential new entrants into the industry are also recognized. The EIS makes reference to the economic costs and benefits of the proposed rules' CIAC requirements upon existing customers and new customers. While specific dollar figures are not provided in the EIS, the Statement notes the overall economic effects of the minimum and maximum CIAC guidelines upon the industry and customers of water and sewer utilities.

    
    

29. The proposed rules' impact on competition and employment is addressed in the EIS. It is estimated that, inasmuch as entry into the industry would be restricted to those companies which can finance at least 25 percent of the required investment, competition in the industry will be decreased. Because of the restrictions upon wells and/or septic tanks in some areas, it is noted that housing development in those areas could be limited if no water and sewer company desires to enter the market. It is further concluded that the smaller utilities may be more financially stable as a result of the rules. The EIS notes that the proposed rules would have "no apparent direct effect on employment."

    
    

30. In preparing the EIS, the PSC relied upon data collected as a part of the Theodore Barry & Associates (TB&A) study of the water and sewer industry in Florida and additional data collected from annual reports on file with the PSC. In its statement of methodology, it was recognized that the data utilized was limited in scope and duration.

    
    

31. The TB&A study does contain several statistical errors and the statistics included therein do not conclusively establish a numerical relationship between the level of CIAC and the viability or efficiency of a utility. Other reasons for problems within the water and sewer industry are noted in the study. The TB&A study, while referenced in the EIS, is not a part of the EIS and is not the EIS.

    
    

32. It is logical to assume that if housing development is limited in certain areas, competition and costs for existing housing may be increased and employment in the housing industry may be affected. These effects are more in the nature of "ripple," rather than "direct," effects of the proposed rules.

    
    

33. No evidence was presented by the petitioners or intervenor to establish that the economic impact upon the PSC or upon persons directly affected by the proposed rules was different than that estimated by the EIS, that the petitioners or intervenor were prejudiced by any alleged omission or inadequacy in the Statement or that the PSC did not fully consider the economic factors and impact of the proposed rules.

CONCLUSIONS OF LAW

1. The evidence adduced at the hearing clearly establishes that the petitioners, both individually and as an organization, and the intervenor are substantially affected by the challenged proposed rules. These rules affect the capital structure, management, revenues and service availability charges and policies of regulated water and sewer companies. While the rules purport to be inapplicable to service availability policies implemented and contracts entered into prior to the effective date of the proposed rules, any requested change in those policies or charges will trigger an application of the new rules to a utility. It has been demonstrated that several of the petitioners presently have applications pending before the PSC and it is not unreasonable to assume that other applications will follow. Also, the new rules encompass the repeal of prior rules which were applicable to regulated utilities and petitioners and intervenor have standing to challenge the repeal of those rules. The proposed rules are thus potentially applicable to every regulated water and sewer company in Florida. The individual regulated petitioners, the FWA and the intervenor (whose members either directly own water and sewer utilities or enter into service availability contracts with water and sewer companies) have standing to challenge the proposed rules' validity. The manner in which the policies embodied in the challenged rules are currently being applied by the PSC is further evidence of the standing of regulated utilities and those with whom such utilities do business to challenge the proposed rules.

   
   

2. The petitioners and intervenor have challenged the proposed rules on procedural, substantive and constitutional grounds. It is alleged that the provisions of the rules which set minimum and maximum guidelines for CIAC levels and impute CIAC are confiscatory in that they remove an owner's right to invest and earn a return on investment, remove a utility's right to determine the most advantageous financing method and mixture of capital which will best serve its customers and its owners, and require an owner to manage assets upon which he cannot earn a return. It is further argued that the applicability portion of the rules, as well as the exemption and waiver provisions of the rules, are vague, and that the provisions of the rules relating to CIAC levels are unreasonable, arbitrary and capricious inasmuch as there is no established correlation between quality and efficiency of service and the level of CIAC. Petitioners and intervenor contend that the PSC lacks statutory authority to "change" the statutory definition of CIAC and to set maximum and minimum percentages for the level of CIAC which is maintained by a regulated utility. The repeal of existing rules relating to agreements with developers and the deletion of rules authorizing the recovery of certain costs is alleged to be invalid and unconstitutional. Finally, it is argued that the EIS is inadequate and does not comport with the requirements of Section 120.54(2), Florida Statutes.

   
   

3. One who challenges proposed agency rules on substantive grounds has the burden to prove by a preponderance of the evidence that the agency is exceeding its statutory authority, that the requirements of the rule are not appropriate to the ends specified by statute, that the requirements of the rules are not reasonably related to the purpose of the enabling legislation or that the provisions of the rule are arbitrary (not supported by facts or logic) or capricious (action taken without thought or reason) Agrico Chemical Co. v. State, etc., 365 So.2d 757 (Fla. 1st DCA, 1978)

   
   

4. The PSC has the statutory authority to enact rules setting standards for service availability charges and conditions and it is required, by statute, to set just and reasonable conditions for service availability. Section

   367.101(1), Florida Statutes. The same statutory provision requires the PSC, upon request or its own motion, to investigate agreements or proposals for charges and conditions to be made by a utility for service availability. A service availability charge is virtually synonymous with a contribution-in-aid- of-construction inasmuch as it is provided to a utility at no cost to the utility and is utilized to offset the acquisition, improvement or construction costs of utility services to the public. Thus, the PSC has statutory authority to enact rules, standards and conditions for the receipt of CIAC by a utility.

   
   

5. The definition of CIAC contained in proposed Rule 25-30.513 (3) does not change or enlarge the statutory definition contained in Section 367.081(2), Florida Statutes. An agency has the authority to interpret the statutes which it administers. The substitution of the words "addition or transfer" for the words "contribution or donation," when limited by the words "provided at no cost to the utility" should pose no problem or source of confusion to members of the waters and sewer industry, and such substitution of words does not change the statutory definition of CIAC.

   
   

6. The prime purpose for the enactment of rules setting forth guidelines for CIAC levels is to lend greater stability to the water and sewer industry in Florida and to improve the quality and efficiency of water and sewer service. In the promulgation of standards and "just and reasonable charges and conditions," Section 367.101(1), Florida Statutes, an agency's discretion must be reasoned and based upon competent and substantial evidence. Agrico Chemical Co. v. State, etc., supra.

   
   

7. The evidence presented at the hearing establishes that regulated water and sewer utilities in Florida, particularly the smaller companies, experience difficulties with meeting increased expenses of operation. These problems result from a variety of causes, including the level of CIAC maintained by a utility. The fact that the PSC has chosen, in the exercise of its discretion, to confront one source of the difficulty as opposed to other sources does not, in itself, indicate arbitrary and capricious action. While other methods of providing greater cash flow to a utility may be available, the petitioners and intervenor have not adequately demonstrated that the CIAC level guidelines proposed by the PSC are without any rational basis.

   
   

8. It has been established that a certain level of CIAC is beneficial to both the utility and the customer. The determination of an appropriate level is a matter within the discretion of the PSC. It has not been demonstrated that the levels proposed are not within reason or are not supported by facts or logic. There was evidence that a 10 percent increase in unreimbursed costs would consume the net income component attributable to a return on rate base for a utility with a small amount of owner investment. Given the rate of inflation during recent years, it is not unreasonable to utilize a 10 percent figure when considering cost increases. It is also reasonable to assume that a utility owner who has no prospect of earning any return on his investment or efforts will not have the same incentive as an owner who has a 25 percent investment to operate the utility in an efficient manner. Requiring utility owners to invest

   25 percent in their company has not been demonstrated to be an unreasonable, arbitrary or capricious requirement.

   
   

9. Turning now to the minimum CIAC guideline, it was established, as pointed out above, that some level of CIAC is desirable. To require the customer (or developer) to pay for the distribution or collection system is not unreasonable, and to utilize the percentage in which those systems relate to total plant as the minimum allowable figure is supported by logic and reason.

   It should also be noted that no evidence was offered by the challengers to the proposed rules that another figure or method of computing appropriate levels of CIAC would be more rational or reasonable than the guidelines set forth in the proposed rules.

   
   

10. The proposed imputation rule (Rule 25-30.57) simply addresses the issue of the amount of plant which will be attributed to CIAC when the utility fails to maintain adequate records or otherwise support its actual amount of CIAC by competent substantial evidence. A regulated utility has always been required to substantiate the amount it claims as rate base, upon which it is entitled to earn a fair rate of return. In doing so, it must exclude CIAC and therefore must determine the amount of CIAC. Regulated utilities are also required to maintain records in accordance with the NARUC system, which requires the recording of CIAC. Thus, the imputation rule is simply a rule of practice which sets forth the PSC's method of determining a utility's CIAC amount when that utility has failed to maintain required records. The utilization of tax records would be indicative of whether the customer or the utility paid for a certain portion of the plant. Absent tax records, it is reasonable to assume that the utility, to which the proposed guideline rule is applicable, followed those guidelines in establishing its service availability policy and charges. The imputation rule is thus supported by logic and reason. The risk of having CIAC imputed to a utility comes not from the challenged rule, but from a utility's failure to maintain adequate records.

    
    

11. Much of the petitioners' evidence related to situations where compliance with guidelines or the prospect of imputation would present a hardship upon the utility. The rules themselves provide for a waiver on imputation and an exemption from the guidelines in cases of undue hardship or unreasonable difficulty and when the application of these rules would not be in the best interest of the customer. While the terms "undue hardship," "unreasonable difficulty" and "best interest of the customers" have not been defined in the challenged rule, it is clear that incipient agency policy may be developed on a case-by-case basis which is subject to the procedural safeguards afforded by Chapter 120, Florida Statutes. The very inclusion of waiver and exemption provisions in the proposed rules is evidence that the PSC recognizes that the guidelines and imputation rules may not be arbitrarily applied to all regulated utilities.

    
    

12. With regard to both the repealed rules and the deletions from the original proposed rules, petitioners and intervenor have again failed to demonstrate that the PSC exceeded its statutory authority or otherwise invalidly exercised its delegated legislative authority. A person regulated by an agency has no vested right to the continued existence of any particular rule. Absent specific rules on a particular subject, a regulated utility continues to have the benefit of statutory guidance, its approved tariffs on file with the PSC and the opportunity to seek redress from agency action in the process provided by the Administrative Procedure Act.

    
    

13. The applicability section of the proposed rules (Rule 25-30.51) emphasizes the intent of the PSC to apply the new guidelines only to new or changed service availability policies or charges. While the wording of the proposed rule is not precise as to those instances when the PSC may issue a show cause proceeding to require the utility to change its service availability policy or charges, the last sentence of the applicability rule makes it clear that the rule is to be applied only prospectively. Each regulated utility has, or will have, a service availability policy in force at the time the new rules become effective, and the new rules are not applicable to implemented policies

    or existing contracts. Further, it should be noted that the guideline rule itself (Rule 25-30.58) refers to guidelines for "designing service availability policy." If a policy or contract has already been "designed" and approved by the PSC prior to enactment of the proposed rules, the "grandfather" provision of the proposed rule should prevent application of the rules to the previously implemented policy and executed contracts. Any application of the rules in a manner not authorized by the rules can be corrected through administrative proceedings.

    
    

14. Finally petitioners and intervenor have failed to sufficiently demonstrate that the Economic Impact Statement prepared by the PSC for the proposed rules was inadequate, inaccurate, misleading or that the rules had a direct impact different than that set forth in the EIS. No prejudice by any alleged omission in the Statement has been illustrated.

    
    

15. The undersigned has fully considered the allegations of vagueness of certain terms and confiscation of property and finds them to be without merit. The proposed rules do not result in the automatic removal of owner investment. The only method provided by the rules for utilities to change their level of CIAC is through the collection or non-collection of service availability charges. If this method results in an undue hard-ship or unreasonable difficulty and compliance with the guide-lines would not be in the customer's best interest, the rules authorize a waiver and/or exemption. Again, the procedural remedies guaranteed by Chapter 120, Florida Statutes, are sufficient to protect a utility from unconstitutional action on the part of the PSC.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, it is concluded that the petitioners and intervenor have failed to demonstrate that the challenged proposed rules constitute an invalid exercise of delegated legislative authority. A correction should, however, be made to proposed Rule 20-30.585 which incorrectly makes reference to Rule 25-30.11.

Accordingly, it is ORDERED that the petitions challenging the validity of the PSC's proposed rules 24-30.51, 25-30.57, 25-30.58, 25-30.585, 25-30.515(3),

25-30.54(4), 25-30.53, 25-30.545, and the PSC's repeal of existing Rules 25-

10.120 through 25-10.144 are DISMISSED.

ORDERED and ENTERED this 22nd day of April, 1983, in Tallahassee, Florida.

DIANE D. TREMOR

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 22nd DAY OF APRIL, 1983.

COPIES FURNISHED:

Ben E. Girtman, Esquire Madigan, Parker, Gatlin, Swedmark & Skelding Post Office Box 669

Tallahassee, Florida 32302

Steven W. Metz, Esquire Post Office Box 1259 Tallahassee, Florida 32302

Susan F. Clark, Esquire Fletcher Building

101 East Gaines Street Tallahassee, Florida 32301

Steve Tribble, Clerk

Florida Public Service Commission

101 East Gaines Street Tallahassee, Florida 32301

Liz Cloud, Bureau Chief Administrative Code Section Department of State

1802 The Capitol

Tallahassee, Florida 32301

Carroll Webb Executive Director

Administrative Procedure Committee

120 Holland Building Tallahassee, Florida 32301

Docket for Case No: 82-000538RP

Orders for Case No: 82-000538RP