Pollock, a Hearing Officer with the Division of Administrative Hearings, in Jacksonville, Florida, on January 8, 1985. The issue for consideration herein was whether Respondent, KEYSTONE WATER COMPANY, is in violation of the Florida Safe Drinking Water Act and, if so, what corrective or disciplinary action is appropriate.
For the Petitioner: Debra A. Swim, Esquire
Assistant General Counsel Twin Towers Office Building 2600 Blair Stone Road Tallahassee, Florida 32301
On July 19, 1984, Respondent, VIRGINIA W. DEY, President of Respondent, KEYSTONE WATER COMPANY (KWC), was furnished a notice of violation and order for corrective action by the Petitioner, Department of Environmental Regulation (DER), outlining several deficiencies and discrepancies in the operation of Respondent, KWC's water system serving residential and business customers in Keystone Heights, Clay County, Florida. Thereafter, on August 9, 1984, Respondents Dey and KWC submitted their response to the notice of violation wherein they also requested a formal hearing of all issues in the notice.
At the hearing, Petitioner introduced the testimony of Glenn M. Dykes, administrator of DER's drinking water section, Michael D. Newell, formerly a drinking water engineer with DER, and, in rebuttal, Bill Lowe, an employee of the water and sewer division of the Florida Public Service Commission.
Petitioner also introduced Petitioner's Exhibits 1 through 5. Respondent Dey
testified in her own behalf as President, stockholder, and member of the board of directors of KWC and presented the testimony of Arthur W. Cross, manager of KWC, and M. Vincent Protheroe, a consulting engineer. Respondent also introduced Respondent's Exhibits A through C. With the concurrence of both parties, the Hearing Officer took official recognition of Chapter 403, Florida Statutes, 1983, Chapter 17-16 and Chapter 17-22, Florida Administrative Code.
The parties have submitted post-hearing findings of fact pursuant to Section 120.57(1)(b)4, Florida Statutes. A ruling on each proposed finding of fact has been made either directly or indirectly in this Recommended Order, except where such proposed findings of fact have been rejected as subordinate, cumulative, immaterial, or unnecessary.
The parties stipulated, and it is so found, that Petitioner, DER, has jurisdiction over both the issues and the Respondents Dey and KWC.
KWC owns and operates a water system which supplies water to both residential and commercial customers in the City of Keystone Heights, Florida. Virginia Key is the President of KWC, a member of the Board of Directors of the corporation, and one of the five stockholders. The other stockholders are her sisters. The five sisters are the daughters of the late G. E Wiggins, and inherited the company from him at his death in 1969. Mr. Wiggins developed the water company in the 1920's and operated it until his death.
KWC came under the jurisdiction of the Florida Public Service Commission (PSC) just prior to Mr. Wiggins' death. At that time, pursuant to a PSC requirement, it was assessed and valued at a sum in excess of $250,000.00 by a consultant firm hired for the purpose.
As of late November, 1984, KWC served approximately 752 residential customers which, when multiplied by an average 2.5 persons per family factor, results in a total of approximately 1,880 residential inhabitants served by the water system. In addition, the system serves 105 commercial customers. It is impossible to estimate with any reasonable degree of accuracy the number of individuals involved in the commercial service. The system consists of three wells drilled in 1940, 1946, and 1960 to a depth of 350, 450, and 492 feet respectively. Total yield from the three wells is normally 1,350 gallons per minute. The wells are generally well protected against surface water infusion, are normally not subject to inundation, and have had no salt water infiltration problems in the past. At the present time, well number 2, drilled in 1946, with a 350 gpm yield is out of service. The water, when pumped from the ground, is stored in two tanks-one with a 60,000 gallon capacity and the other with a capacity of 800 gallons. Both tanks are steel. Chlorine is added to the water in each storage situation by a hyper-chlori- nation system before the water is sent to the storage tank.
The distribution system is made up of 6" and 2" diameter pipe.
In March, 1984, two different inspections of the water system, done by, in one case, an environmental specialist and in the other, an Engineer I with DER, revealed several deficiencies in the maintenance and operation of the system all of which constitute violations of DER rules. Specifically, these include (1) failure to provide an auxiliary power source in the event the main pumping capability of the system is lost, (Rule 17-22.106 (3)(a); (2) failure to utilize for the system an operator certi- fied by the state with a Class C
license, (Rule 17-22.107(3)(b); (3) failure to maintain a free chlorine residual in the water of at least 0.2 ppm in the system, (Rule 17-22.106(3)(c); (4) failure to maintain a minimum pressure of 20 ppi in the distribution system, (Rule 17-22.106(3)(f); (5) failure to have a gas chlorination facility, (Rule
17-22.106(3)(d); and (6) failure to obtain proper permits to expand the distribution system, (Rule 17-22.108 (1)(b)
Rule 17-22, F.A.C., sets up requirements for safe drinking water and was designed to establish guidelines and standards for facilities and water and to bring water into compliance with the Federal Act.
Twenty ppi of pressure in the system was adopted as a standard minimum for residual pressure to protect against outside contaminants getting into the water system. Such contaminants could come from ground water, leaks, and water in storage tanks attached to the system such as toilet tanks, being aspirated into the system. Also a certain amount of pressure is required to operate appliances. Normally minimum pressure is found in areas at the edge of the system and in those areas where inadequate chlorination is located. They interact and both pressure and chlorinization are required. Chlorine can be injected into the system generally in two ways: the first is through gas chlori- nation and the second, through hyper-chlorinization as is used in the instant system. The effectiveness of hyper-chlorinization is limited, however, by the size of the system. Basically, hyper- chlorinization is effective when the demand in the system for pressure is no more than 10 ppi. Above this, gas chlorinization is necessary.
As late as January 4, 1985, Mr. Dykes went to Keystone Heights to test the system. His tests showed that 11.9 ppi is the average daily flow per 24 hours for the last 12 months. Since this figure is above 10 ppi, in his opinion, a gas chlorinization system would be needed.
Chlorine is used to purify water because it has been shown, through long use, to prevent disease. The requirement for a residual chlorine level in water, therefore, is consistent with that concept to insure chlorine is always in the water in sufficient quantity to prevent disease.
Respondent's plant has less than the 0.2 residual that is required under the rule. This insufficiency is caused by the inadequate chlorinization system which has insufficient capacity to provide the appropriate amount of chlorine. At the current level, it is providing only approximately 60 percent of the needed chlorine.
To correct this deficiency Mr. Dykes recommends installation of a gas chlorinization system. In addition, the pneumatic tank storing the water from the number 3 well does not give sufficient detention time to allow for appropriate reaction of the chlorine contained in the water before the water is released into the distribution system.
Another factor relating to the lack of adequate pressure in the system is the fact that, in Mr. Dykes' opinion, too much of the system is made up of 2" diameter water line. A line of this small diameter prevents the maintenance of adequate pressure especially in light of the fact that there are numerous old lines in the system some with corrosion and scale in them which tends to reduce pressure. This latter factor would be prevalent even in the 6" lines.
The current plant manager, Mr. Cross, who has been with Respondent for approximately 4 years is, with the exception of one part time employee, the only
operations individual associated with the plant. As such, he repairs the meters and the lines, checks the pumps, the chlorinator, and checks and refills the chlorine reservoir on a seven day a week basis. Be learned the operation of the plant from his precedessor, Mr. Johnson, an unlicensed operator who was with the company for 10 years. Mr. Cross has a "D" license which he secured last year after being notified by DER that a license was required. It was necessary for him to get the "D" license before getting the required "C" license. At the present time, he is enrolled to take courses leading toward the "C" license. At the present time, however, he is not, nor is anyone else associated with KWC, holding a license as required.
The rule regarding auxiliary power provides that all community systems serving 350 or more persons shall have standby pumping capability or auxiliary power to allow operation of the water treatment unit and pumping capability of approximately one-half the maximum daily system demand. Respondent has admitted that the system is not equipped with an auxiliary power source and it has already been established that more than 350 persons are served by the system.
Respondent also admits that subsequent to November 9, 1977, it constructed main water lines for the system which required the obtaining of a permit from either the Petitioner or the county health unit. Respondent admits that it did not obtain or possess a permit to do the additional construction referenced above from either DER or the Clay County Health Department prior to the construction of the water lines referenced.
The inspections referenced above, which identified the problems discussed herein, were accomplished by employees of Petitioner, DER, at a stipulated cost of $898.10.
Respondent contends, and there is no evidence to the contrary, that there have been no complaints of contaminated water and that the monthly water samples which Mr. Cross forwards to the Clay County Health Department have been satisfactory. Mr. Cross also indicates that a September, 1983 DER analysis of water samples taken from the system was satisfactory. However, bacteriological analysis reports on water collected from Respondent's system on July 11 and 27, 1983, reflect unsatisfactory levels of either coliform or non-coliform bacteria in the water requiring resubmission of test samples.
Respondent also contends that no one has ever gotten sick or died from the water furnished by the system and there is, in fact, no evidence to show this is not true. Even though so far as is known, no one has ever been made sick from the water in the system, in Mr. Dykes' opinion, the risk is there. As a result of the defects identified in this system, insufficient chlorine is going into the system to meet reasonable health standards. Though this does not mean that the water is now bad, it does mean that at any time, given a leak or the infusion of some contaminant, the water could become bad quickly, and the standard established by rule is preventive, designed to insure that even in the case of contamination, the water will remain safe and potable.
Respondent does not deny that it is and has been in violation of the rules as set out by the Petitioner. It claims, however, that it does not have sufficient funds available to comply with the rules as promulgated by DER. Respondent has recently filed a request for variance under Section 403.854, Florida Statutes, setting forth as the basis for its request that it does not have the present financial ability to comply with any of the suggested or recommended corrective actions to bring its operation into compliance with the rules.
Mr. Protheroe, the consulting engineer who testified for Respondent has not evaluated the system personally. His familiarity with it is a result of his perusal of the records of the company and the Petitioner.
Based on his limited familiarity with the system, he cannot say with any certainty if it can be brought into compliance with, for example, the 20 ppi requirement. There are too many unknowns. If, however, the central system was found to be in, reasonably good shape, in his opinion, it would take in excess of $100,000.00 to bring it within pressure standards. To do so would require replacement of the 2" lines, looping the lines, and cleaning and replacing some central system lines as well. In his opinion, it would take three months to do a complete and competent analysis of the system's repair needs. Once that was done, he feels it would take an additional three months to bring the plant into compliance with DER requirements. Other repairs, such as those to the lines outside the plant, would take longer because some are located in the downtown area and have interfaced with other utilities. This could take from three to four months if the money were available to start immediately. Here, however, it has been shown that it is not. Consequently, to do the study and then, if possible, procure the funds required, could take well in excess of six months or so.
Mr. Protheroe contends, and there is little if any evidence to indicate to the contrary, that to replace the current system with a new one entirely as it is currently constituted would cost at least $250,000.00. However, in his opinion, no one would ever put in a new system similar to the one currently there. He cannot say how much it would cost to buy the system and make the necessary corrections to it to rectify the deficiencies. His familiarity with the system is not sufficiently complete to do this. He cannot say exactly how much the system is worth in its current state, but he is satisfied that it is worth more than $65,000.00. In that regard, Mrs. Dey indicated that in her opinion, the fair market value of the system is currently at $250,000.00. At the present time, there are current outstanding loans in excess of $9,000.00 at 16 percent interest. This current loan basis has been reduced from a higher figure. In 1977, the company borrowed $15,000.00 at 9 percent. In 1981, it borrowed $5,000.00 more at 18 percent. In 1982, the loans were consolidated at an increased rate of 16 percent and the officers have been advised by their current creditors that they cannot borrow any more money for the system in its current state. They would sell the system if a reasonable price could be realized. However, any inquiries on prospective purchases have been chilled by a low rate base assigned by the PSC. In that regard, the City of Keystone Heights offered to purchase the system for $59,000.00. This offer was declined as being unreasonable. Nonetheless, in light of the low rate base assigned by the PSC in its order issued on December 21, 1981 of slightly over
$53,000.00 the offer by the city of $59,000.00 is not completely out of line.
A certified public accountant, in KWC's December 31, 1983 financial report assigned a valuation of approximately $62,000.00, again a figure only slightly higher than that offered by the city, but substantially less than the
$175,000.00 price asked of the city by Respondent Dey and her sisters. Mrs. Dey indicated that to the best of her knowledge the PSC denied rate increases for the purposes of improvements. In the presentation before the commission, respondents relied exclusively on the services of their attorney and accountant. Evidence from Mr. Lowe, of the PSC, however, indicates that KWC has never requested a rate increase to finance any of the improvements called for here.
In the PSC order referred to above, Respondent was awarded a 12.25 percent rate of return on its rate base. This figure was an amalgam of a more than 13
percent rate on equity and a lesser figure for cost of doing business, including debt. At the time of that hearing, however, the debt cost was based on a 9 percent interest figure. The 16 percent interest figure came afterwards and no hearing has been requested based on the higher interest rate and it is so found.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings. There is little legitimate contest of the allegations of non-compliance laid against Respondents here. In fact, Respondent admits that most, if not all, of the deficiencies cited by DER exist. Respondent bases its defense to the proposed disciplinary action on the fact that no one has yet been made ill or in any way harmed by drinking the water supplied by Respondent and therefore the water is safe; that it is financially incapable of bringing the system into compliance with the DER and federal standards and should thereby be granted a variance for one year to allow time to sell the system to some buyer who will be able to make the necessary corrections; that DER and the PSC have, by their actions, created a situation for Respondent where its property is assigned an unreasonably low value and the authorized return on capital is therefore insufficient to permit it to make the required corrections; and that the City of Keystone Heights is taking advantage of Respondents' difficulties to purchase the system from its present owners at an "unconscionable" price.
There is no doubt that Respondents' operation is in violation of the drinking water standards set out in DER's rules as alleged in the Administrative Complaint. It is true, as Respondents allege, that the Florida Safe Drinking Water Act provides for variances and exemptions from the regulations governing drinking water in Florida provided the exemptions and variances are based on standards no less stringent that provided for similar exemptions and variances under the federal act.
Section 403.854(2)(a), Florida Statutes, requires DER to exempt public water systems from maximum contaminant level or treatment technique requirements when:
Due to compelling factors (which may include economic factors), the public water system is unable to comply with such contaminant level or treatment technique requirement;
so long as the granting of the exemption will not result in an unreasonable risk to health. On the basis of this statute, it is clear that Petitioner's contention that there is no statutory basis for a defense of financial inability is in error. There is. However, it is equally clear that such exemption or variance should be approved only when there is no unreasonable risk to the public's health by doing So. In that regard, the fact that no one has yet been harmed by drinking the water from this system is not persuasive. The potential is there and it is great.
Here Respondent has failed to establish that it is unable to comply with the standards as it claims. No evidence was established to indicate that it had gone back to the PSC to plead for either an adjustment of its base or for a higher return on equity. Likewise, it has failed to show efforts made to secure financing outside the corporate structure.
To be sure, the City of Keystone Heights offered to purchase the system at a price which the owners consider "unconscionable." It must be noted that the figure offered was, however, slightly higher than that assigned as equity by both the PSC and the Respondent's own accountants. This figure is substantially below that valuation gratuitously assigned the system by Mrs. Dey and well below Respondent's asking price to the city. This evidence of value is not justified by Respondents' experts' testimony regarding the cost of replacing the system. To replace the system would be to provide a completely new system that would be in compliance with the requirements imposed. To pay Respondents' asking price for a system that would need as much again to bring it into compliance would be, itself, unconscionable. There is, also, no evidence that granting a one year variance would bring the owners any closer to effecting a sale for anywhere near their asking price or accomplish any more than continuing for one more year the operation of a substandard and potentially hazardous system.
