Findings Of Fact Quality of Service: Twelve customers testified at the hearing in opposition to the proposed rate increase. The major customer objection is the size of the increase sought. Other objections are directed at the utility's rate structure, and the required tie-in to the PWA pipeline. Some customers desire to have separate rates set for the two areas served by J. C. Utilities, Inc., (Timber Oaks and San Clemente East), and one customer objected to the taste and smell of the water being provided. Nevertheless, an engineer from the Florida Public Service Commission presented evidence that the utility is meeting all state standards and is not under citation by the Department of Environmental Regulation. On the basis of the entire record, the evidence supports a finding that the utility's water and sewer service is satisfactory. Used and Useful Plant in Service. The utility contends that 33.72 percent of its sewer plant is not used and useful in the public service, and has deleted this amount from its sewer rate base. The Florida Public Service Commission engineer agrees, based on the actual recorded flows of the sewer plant and the growth of the system. The water plant in service is 100 percent used and useful in the public service. Acquisition Adjustment: The utility calculated an addition to rate base of $17,370 for San Clemente East (net of 1978 amortization) for acquisition costs, and presented evidence to demonstrate that this acquisition is in the public interest. Based on the entire record, the evidence supports a finding that this acquisition benefits the customers of J. C. Utilities, Inc., and is in the public interest. Thus, the adjustment is warranted. Income tax expense: Several questions are raised in the area of income tax expense. These deal with whether to treat the utility as a separate entity or part of a group filing consolidated tax returns, the appropriate computation of state income taxes, and the effect the capital structure of the utility has on taxable income for ratemaking purposes. All of these questions except one address the ultimate dollar amount of tax expense. The exception addresses the appropriateness of the expense. Only if income taxes are determined to be appropriate can the dollar amount of such taxes be considered. When net operating income is equal to or less than interest expense, there is no taxable income. This is generally true whenever a company's capital structure consists largely of debt or of debt only. The capital structure of J. C. Utilities, Inc., is comprised entirely of debt, according to the company's financial statements. The annual report shows capital stock of $10, a deficit in retained earnings of $68,834, and additional paid-in capital of $490. The utility's financial witness verified that J. C. Utilities, Inc. has no externally financed debt and relies for funds on its parent, U.S. Homes Corporation. The application reflects that the company's capital structure consists of customer deposits (debt), and loans and advances from the parent company (debt). This evidence supports a finding that the utility's capital structure is 100 percent debt. Accordingly, there can be no allowance for either state or federal income taxes in making a determination of revenue requirements for this utility. (See Order No. 9256 in Docket No. 790027-W) and all questions relating to the dollar amount of income tax expense are irrelevant. Cost of capital: J. C. Utilities, Inc., is financed totally by its parent company, U.S. Homes Corporation. The application originally requested a rate of return of 11.5 percent. At the hearing, various witnesses for the utility suggested rates ranging from 13.2 percent to 25 percent. However, since the utility has no equity, no return on equity can be provided. In calculating an appropriate rate of return to be granted to the utility, the original cost of debt rate of 11 percent and the recently revised rate of 8 percent on customer deposits can be used. These cost of capital components and rates thereon yield a weighted average cost of capital of 11.32 percent. This rate is supported by the evidence, and should be granted. Depreciation on Contributed Property: Appropriate adjustments have been made to the utility's water rate base and sewer rate base, and operating statements, to reflect the practice of the Florida Public Service Commission to add back accumulated depreciation on contributed property in rate base, and remove these items from operating expense. These adjustments appear on the attached schedules. Rate Base and Operating Statements: The attached schedules 1 through 6 detail the utility's rate base for water, rate base for sewer, and the water and sewer operating statements. Appropriate explanations for the various adjustments also appear in these schedules. Construction water: During the test year, the utility did not bill for construction water in the months of January, February, and March. Starting in April construction water ,and line flushing was metered and billed to the various construction companies connected with the Timber Oaks development. During the final nine months of the year when the construction water was accounted for a total of 28,626,903 gallons were sold which generated $17,590 in water revenue. In order to estimate the unaccounted for construction water, the nine months billing can be annualized. This amounts to an additional 9,542,301 gallons, which increases test year revenue by $5,725. Rate Structure: In order to structure rates that will be fair to all customers, they must not only generate the approved revenue, but should also assure that all classes of customers share in the cost to provide service. The base facility type of rate structure establishes a monthly minimum service charge, which covers fixed costs such as depreciation, property taxes, and allocated portions of billing, collecting, and customer accounting expenses. Meter size is still used to determine the demand factor. After the base charge is established, a charge per 1,000 gallons is determined. This charge recovers costs related to transmission and treatment, and allocated portions of billing, collections, accounting expense, plant labor, etc. Customers then pay a gallonage charge based on use. This allows each customer some control over the amount paid for service. This form of rate structure should be used in setting rates for J. C. Utilities, Inc. Separate rate structures: J. C. Utilities, Inc. provides water service to the separate, unconnected systems serving San Clemente East and Timber Oaks. An appropriate rate structure should be established to provide separate water rates for San Clemente and Timber Oaks, so that the customers of each system pay rates to cover only the costs associated with these systems. P.W.A. surcharge: Because permanent rates are to be established, the utility should no longer be permitted to make a separate surcharge for PWA water purchased. This expense should be incorporated into the other costs of J. C. Utilities, Inc. Connection charges: In its application, the utility requested an increase in water and sewer connection charges. The company used the current number of customers served by the water system to arrive at the customer hydraulic share. The correct way to establish the hydraulic share is to divide the number of customers that can be served by the system into the cost of the water plant. However, there is other information needed in order to accurately and fairly set connection charges, which was not presented by the utility. Rather than deny the request for an increase in water and sewer connection fees, an investigation docket should be opened for the purpose of determining whether increases are warranted.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of J. C. Utilities, Inc., 2001 Ponderosa Avenue, Port Richey, Florida 33568, be granted in part, and that the utility be authorized to receive gross annual water revenues of $28,731 for San Clemente East, and $203,725 for Timber Oaks, and gross annual sewer revenue of $99,473, by rates to be approved by the Florida Public Service Commission. It is further RECOMMENDED that an acquisition adjustment of $17,370 be allowed for San Clemente East. It is further RECOMMENDED that the utility be required to implement a base facility charge in structuring its rates, in the manner set forth above. It is further RECOMMENDED that a separate investigation docket be opened for the purpose of resolving the matter of the utility's request for increased water and sewer connection charges. THIS RECOMMENDED ORDER entered on this 8th day of July, 1980, in Tallahassee, Florida. WILLIAM B. THOMAS Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER ================================================================= BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION In re: Application of J. C. DOCKET NO. 790399-WS (CR) Utilities, Inc. to amend its ORDER NO. 9808 rates and charges. ISSUED: 2-23-81 / DOAH CASE NO. 80-1184 The following Commissioners participated in the disposition of this matter: JOSEPH P. CRESSE, CHAIRMAN GERALD L. GUNTER JOHN R. MARKS, III KATIE NICHOLS Pursuant to Notice, an administrative hearing was held before William B. Thomas, Hearing Examiner with the Florida Public Service Commission, on May 6, 1980, in Port Richey, Florida, on the application of J. C. Utilities, Inc., for increased rates and charges for water and sewer service provided to its customers in Pasco County, pursuant to Section 367.081, Florida Statutes. On July 1, 1980, the matter was transferred to the Division of Administrative Hearings, but continues to be assigned to William B. Thomas, as DOAH Hearing Officer, for a recommended order. APPEARANCES: Jack H. Geller, Esquire, Suite 200, Clearwater professional Center, 600 Bypass Drive, Clearwater, Florida 33156, for J. C. Utilities, Inc., Petitioner. Samuel H Lewis, Esquire, 101 East Gaines Street, Tallahassee, Florida 32301, for the Florida public Service Commission and the public generally. The Hearing Officer's Recommended Order was filed on July 8, 1980. Timely exceptions to the Hearing Officer's recommended order were filed by the petitioner. Now after consideration of all of the evidence in the record, we enter our order.
Findings Of Fact Although numerous customers were present, four of them testified at the hearing. No service quality problems were described with regard to either water or sewer service. Indeed, several of the customers described water quality as being good or excellent. The primary concern of the customers was the magnitude of the proposed rate increase, although a number of then opined that some increase in rates may he necessary. Expert engineering witnesses presented by both the Comission and the Petitioner established that the Utility has not been cited by any local, state or federal agency for health or environmentally related violations. No corrective orders are in force either by the Department of Environmental Regulation, the Lee County Health Department, or the Public Service Commission. The water and sewer treatment exceeds all governmental quality standards extant. In order to enhance service quality, the company has constructed a one million gallon ground storage tank and has installed an additional high-service pump. All parties agree that the cost of these improvements should be added to the Utility's rate base for purposes of this proceeding. Rate Base The Utility propounded evidence alleging its proper water rate base to be $1,872,470.00 and the appropriate sewer rate base to be $1,917,931.00. In arriving at the Utility's net investment in property used in the public service (rate base), it is necessary to calculate the amount of contributions-in-aid-of-construction, which serve to decrease the Utility's investment. Normally, where there has been a previous rate case for a utility in which the utility's net investment would have been determined by the Commission, the calculation of the utility investment in a current rate case is generally competed by adding additions to plant-in-service and subtracting additional contributions-in-aid-of construction in order to arrive at the current net "return yielding" investment. In the instant proceeding, however, Lehigh has elected to take issue with the amount of contributions-in-aid-of-construction (CIAC) previously determined by the Commission in the last rate case. In that last case (Docket No. R-73384-WS), the amount of CIAC was determined by multiplying water connections by $350.00 and sewer connections by $400.00. (See Exhibits 10, 19 and 20) The Utility in the prior proceeding agreed with that method of calculation and, further, two land sales contracts in evidence show that a charge of $750.00 for "sales price of water and sewer" to purchasers of houses in the service area has been imposed by the Utility or its predecessor, Lehigh Corporation (development company), when the Utility was merely a division of the development company. Notwithstanding that prior position, the Utility in this proceeding has elected to attempt to prove its level of CIAC ab initio and has conducted a "Special CIAC Study" in an attempt to show that the amount of contributions is now substantially less than the amount it and the Commission agreed to be applicable in the last rate proceeding and that which the Commission maintains is germane to this proceeding. The Utility thus is alleging that the appropriate charge per connection for CIAC is $650.00 for a water and sewer connection as opposed to the Commission's contention that the figure should be $750.00 per connection. Although a developer's agreement with an affiliated company shows a water and sewer connection charge of $650.00, the testimony of a senior officer of the Utility establishes that there were a total of 1,308 such contracts indicating a sales price for water and sewer service of $750.00. The Utility contends that only $650.00 of the $750.00 charge in question was actually transferred to the utility company and that, therefore, the $650.00 is the appropriate amount to attribute to CIAC. There is no question, however, that with regard to these 1,308 land sales contracts, that $750.00 was actually collected from the lot purchasers involved as the sales price of water and sewer service. Thus, the actual amount of CIAC paid by those 1,308 customers was $750.00 each, for a total of $981,000.00 for water and sever service and that figure represents in its entirety contributions-in-aid-of-construction. The contracts for which the customers involved paid $750.00 for water and sewer service, were entered into in the latter 1960's and early 1970's. Prior to that time, the same type of contracts carried an amount of $650.00 for water and sewer and following the period of time when the fee was $750.00, the line item in the contract was changed so that there was no longer any separate item providing for "sales price of water and sewer." The water and sewer charge was thereafter included in the amount charged for "sales price of improvements." Thus, contrary to the position of Lehigh, because of the segregation of the items in the purchase price shown in these land sales contracts into separate figures for price and for the sales price of water and sewer service, there have been shown to be definite, proven amounts of contributions-in-aid-of-construction supported by company records. The remaining portion of the contributions attributable to the Utility and not represented by these contracts were contributed in the sum of $650.00 per connection, with which figure both parties agree. An additional issue regarding contributions and the "Special CIAC Study" concerns contributions recorded as income from the inception of the Utility operation until November 30, 1964. As demonstrated by Exhibit 12, the amount of contributions recorded as income equals $756,656.00. The Utility's own "Special CIAC Study" refers to contributions recorded as income and Lehigh received sums of money for the availability of water and sewer service in the early 1960's which it treated as income. During the early 1960's when the Utility was regulated by Lee County, the Lee County regulatory board allowed it and other water and sewer utilities to receive and record service availability fees as revenue. This was done in order to enhance the apparent financial posture of the utilities and therefore improve their credit status as an aid to financing improvements. There is no question that those fees during this time period were paid into the Utility or its predecessor for water and sewer service availability and hence should properly be accounted for as CIAC. It might be argued, as the Utility does, that if Lehigh declared the contributions it received to be revenues with the Internal Revenue Service, then the benefit of those contributions or the amount of revenue they represent to the Utility would be reduced by the amount of the resulting income tax, and that if they are now determined to be contributions instead of revenue that an additional detriment to the Utility would occur by the reduction by that amount of its rate base and, therefore, its dollar return. It should be pointed out, however, that because of the tax advantages of the Utility's demonstrated operating loss carry-overs and investment tax credits, as well as accelerated depreciation, all of which tax advantages this Utility has been able to employ, no actual income tax has been paid on such "revenue." Further, Lehigh is depreciating this $756,655.00 in assets in its returns to the Internal Revenue Service and is thereby recovering the costs of the assets. If the Utility is permitted to treat them for regulatory rate-making purposes as revenue instead of CIAC, then the effect would be to maintain rate base and return at a correspondingly higher level than if these amounts are determined to be CIAC, which would reduce rate base and thereby the net investment upon which a return could be earned for regulatory purposes. Thus, the appropriate amount of contributions-in-aid-of-construction for the water system as of the closing date of March 31, 1979, equals $1,057,000.00. The amount of contributions-in-aid-of-construction attributable to the sewer system as of that date equals $1,389,977.00. (Net of amortization). The detailed calculations and adjustments supportive of the above findings with regard to rate base are attached hereto and incorporated by reference herein as Schedules I, II and II. The first issue to be concerned with in calculating the operating expense basis for the revenue requirement is the cost of the above-referenced CIAC study. The Utility prepared this special CIAC study because of its fear that, in view of the Commission's decision in Tamarac Utilities, Inc. v. Hawkins, 354 So.2d 437, that it would not otherwise be able to meet its burden of proof on the issue of contributions and therefore would suffer a dismissal of the petition. In the Tamarac case, the Public Service Commission auditors encountered numerous problems resulting from a lack of primary data supporting the amount of contributions and the Commission issued an order allowing the Utility to provide clarifying evidence. When the Utility failed to satisfactorily perform this task, it ultimately suffered a dismissal of its petition and a refund of monies collected under interim rates. In this case, however, it has been demonstrated that there is no dearth of primary data or books and record supportive of the level of CIAC; nor has an order been issued requiring this Utility to provide such clarification or a "study" of its CIAC. Moreover, in the case of this utility, a previous rate case has been finalized wherein it was found by the Commission that there was a definite, specific level of contributions which were also consistent with those alleged by the petitioner in that proceeding. Thus, there is adequate primary data upon which a determination of CIAC can be computed in this proceeding without resort to a "Special CIAC Study" and the additional increment of rate case expense it represents. It should be further noted that even if the instant case involved a "Tamarac situation" where financial books and records were not adequate to properly document contributions-in-aid-of-construction that, in that event, if a CIAC study were made, then the proper rate-making treatment would be to amortize tile cost of that study over several years, since it is a large, nonrecurring expense in the Utility's operation, as opposed to allowing the entire expense to be written off (and charged to the customers through rates) based upon one year. The Utility has alleged that certain additional pro-forma adjustments to various expense items should be accomplished in order to arrive at the appropriate revenue which will support an adequate rate of return. Thus, the increased costs alleged for purchases of lime, chlorine and gasoline, depicted in the attached schedules incorporated herein, were undisputed, agreed to, are reasonable and therefore should be accepted. The alleged pro-forma cost for payroll is a mere estimate and not supported by competent, substantial evidence. Additionally, it was established by the Commission's accounting witness that certain rate case expenses arose from a prior rate case and therefore should be removed from consideration in arriving at revenue requirements for purposes of this proceeding. This adjustment was not contested, nor were similar adjustments to remove depreciation expense on construction work in progress, to remove depreciation expense on the contributed property, to remove unsupported property taxes, and to remove property tax as an expense and depreciation expense attributable to non-used and useful portions of the Utility's invested plant. None of these adjustments were disputed by the Utility. They are appropriate and reasonable and should be adopted. The Utility has also requested allowance of a $55.00 annual fire hydrant charge and a $10.00 charge for the initial commencement of service. The Utility submitted evidence (Exhibits 6 and 7) supportive of the actual number of water and sewer connections made during the test years as well as the costs upon which the initial commencement of service charge requested is based. The Commission did not dispute, therefore, the requested $10.00 charge for initial commencement of service and, inasmuch as the current $25.00 annual fire hydrant charge was established in the late 1960's and was shown to be no longer sufficient to cover costs, the Commission also did not dispute the increase in the annual fire hydrant charge from $25.00 to $55.00, which accordingly should be increased. Cost of Capital The Utility has requested a rate of return of 11.76 percent which includes an attrition allowance of .78 percent. There is no dispute as to the debt-equity ratios in the capital structure of the Utility. The common stock equity represents approximately 49.57 percent of the total capitalization. Long-term debt makes up 35.96 percent of capital and cost-free capital items make up 14.47 percent. The cost rate of the equity in the capital structure was established by the Commission's financial expert witness to be 14.5 percent or the midpoint in a range for companies and utility companies possessing a similar degree of risk to equity investors of 13.5 percent to 15.5 percent. The 14.5 percent cost of equity figure represents an accurate assessment of the opportunity costs of equity capital for such a company. The imbedded cost of long-term debt is 8.3 percent, which is a very advantageous rate to be enjoyed by such a company in today's money market and reflects a high degree of management efficiency on the part of the operation and management personnel of the petitioner. These two items, when combined with a zero cost factor shown to be appropriate for the cost-free capital items, results in a calculated rate of return of 10.35 percent, which does not take into account an attrition allowance due to inflation. The Utility advocated an attrition allowance equal to 10 percent of the weighted cost of equity capital to help offset the erosion in earnings caused by inflation. There can be little doubt that attrition of earnings due to significant inflation in costs of operation experienced by such companies is a very real factor. However, this record contains no substantial and competent evidence to demonstrate whether the utility wants coverage of capital attrition or attrition of its ability to cover operation and maintenance expenses nor which could justify the alleged 10 percent factor or any other quantification of attrition of earnings which may be experienced. Thus in the absence of a definitive establishment of the appropriate attrition factor, a cost of equity and a corresponding return on rate base in the midpoint of the range found above is appropriate. Thus, the proper return on rate base for this Utility has been shown to be 10.35 percent, which is within the range 9.85 percent to 10.84 percent. A summary of the cost of capital structure and weighted cost of capital calculation is depicted as follows: CALENDAR YEAR 1979 COMMON STOCK EQUITY RATIO 49.57 COST RATE 14.5 WEIGHTED COST 7.19 LONG TERM DEBT 35.96 8.8 3.16 COST FREE 14.47 -0- -0- 10.35 Floor CSE at 13.5 9.85 Ceiling CSE at 15.5 10.34 In summary, the required operating revenue for the Utility's water system should be $658,451.00 which results in an operating income of $211,407.00. The sewer system requires an annual, gross operating revenue of $475,629.00 in order to obtain a return or operating income of $130,017.00. The operating expenses and adjustments supportive of these figures are depicted in more detail in Schedules IV, V and VI attached hereto and incorporated by reference herein. The sewer revenue requirement found herein is less than the interim revenues authorized for sewer service, thus a refund is in order.
Recommendation In consideration of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the application of Lehigh Utilities, Inc. be granted in part, and that the Utility be authorized to receive a gross annual water revenue of $658,451.00 and gross annual sewer revenue of $475,629.00 to be achieved by rates filed with and approved by the Public Service Commission. It is further RECOMMENDED that the Utility be required to file revised tariff pages containing rates designed to produce annual revenues in the above amounts. It is further RECOMMENDED that the Utility be required to refund the interim sewer revenues previously authorized in this proceeding which exceed those sewer revenues determined to be appropriate herein. It is further RECOMMENDED that the above refunds be accomplished within ninety (90) days. This Recommended Order entered this 13th day of October, 1980, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of October, 1980. COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 William H. Harrold, Esquire 101 East Gaines Street Tallahassee, Florida 32301
Findings Of Fact The Petitioner is a wholly owned subsidiary of Queens Cove Properties, Inc. Mr. Alex B. Cardenas is president of the parent development company as well as the utility. The water system was constructed for the sole purpose of providing water to purchasers of lots in the Queens Cove subdivision. However, the Petitioner obtained certification as a public utility to serve the general area in the belief that it was required to do so. See Section 367.031, Florida Statutes. Lots in this subdivision have sold for $15,000 to $24,000, which includes undifferentiated amounts for availability of water service. The water service is part of a "bundle of rights" which the purchaser obtains with his lot. (e.g. bridge, roads, underground utilities). In addition, existing lot owners have purchased the "bundle of rights" separately from their land (where Queens Cove was not the original property seller) at prices ranging from $4,000 to $8,000. Again, the charge for water service availability was not differentiated from other rights. At the time of the second hearing, the utility had 45 connections--42 single family residences, one developer's office, one model home, and an irrigation outlet. Ten customers testified (five by adoption) at these hearings as to service problems. The water treatment plant is of the reverse osmosis type. This system is complex and costly to maintain, but is useful where as here the raw water contains a high level of natural impurities. The utility has not properly maintained this system and water taste, smell and clarity are generally poor. The customers also experience frequent periods of very low water pressure. Furthermore, they are unable to contact the utility when outages occur after business hours since there is no emergency phone number provided. The testimony of a Department of Environmental Regulation (DER) representative also established that chlorine residuals are not properly maintained and a high coliform reading in June, 1980, will require monitoring by DER. Thus, overall service is unsatisfactory and must be improved before the Petitioner is allowed to receive a return on its investment. See Section 367.081(2), Florida Statutes, which requires the Commission to consider service in setting rates. Profits earned by a utility with service deficiencies such as these would normally be placed in escrow until the problems were corrected. Here, however, the utility does not seek to earn a return on its investment, but only to break even. In addition, there was no competent, substantial evidence adduced by either Petitioner or Respondent to demonstrate what the utility's investment is. Therefore, rate base cannot be determined in this proceeding, and consequently no return can be established. Appendix one hereto details Petitioner's test year expenses as set out in its rate application, with adjustments to correct erroneous entries and to delete or reduce expenses which were not shown to be reasonable and prudent. No controversy exists with the exception of allowances for plant manager compensation, office rent and rate case expense. The Petitioner's request for an annual manager's salary of $20,000 was not supported by the evidence. No salary is currently paid for this function, nor is a plant manager as such required or utilized. Rather, the limited functions of a plant manager can be handled by one of the full time maintenance or administrative employees. This procedure is consistent with management practices in other small, developer-owned water utilities. Such delegation does not, however, relieve the owner from his duty to hire qualified personnel and provide adequate resources. A separate allowance for office rent is not justified. The Petitioner has no office in the immediate area but uses the owner-developer's office in Stuart. There is no need for a separate office under the present organizational structure, and therefore no expense for this item should be authorized. Evidence on rate case expense (attorney and accountant fees) was submitted by post-hearing pleadings pursuant to agreement of the parties. The Petitioner seeks $9,702 rate case expense, amortized over three years, or $3,234 annually. The Respondent proposes to allow $6,000 amortized over five years, or $1,200 annually. As with other expenses, the amount authorized will be paid by customers and any portion disallowed will be borne by the owner of the utility. The rate case expense sought here is $215 per customer, which far exceeds the average water/sewer utility rate case expense of $6.92 per customer. A substantial portion of these expenses were incurred as a result of Petitioner's failure to keep adequate records and its initial decision to proceed without counsel. Therefore, the reduction of authorized expenses to $6,000 proposed by Respondent is appropriate. However, Petitioner's proposed three-year amortization period better represents industry experience and is consistent with current Commission policy. Therefore, the rate case expense authorized is $6,000 amortized over three years, or $2,000 annually. The Petitioner currently bills its customers on a monthly basis using a minimum gallonage charge. This rate design neither encourages conservation of water nor accurately reflects the cost of providing service. Therefore, the utility should be required to adopt the base facility charge rate structure. This charge includes a fixed amount for the customer's share of the utility's fixed costs, as well as a gallonage charge to represent the variable expenses associated with water consumption. Petitioner requested authority to increase its tap-in or meter installation fee from $100 to $200. This increase was authorized on an interim (escrow) basis by Order 9140. The utility has now withdrawn its request for the increase and should return the escrowed amounts to all customers who have paid the $200. In addition, Petitioner should be required to pay interest on customer deposits at the rate of 6 percent prior to July 1, 1980, and 8 percent after that date. See Section 25-10.72, Florida Administrative Code. Since no interest on deposits has ever been paid, the credit must be retroactive to the date of each customer's deposit. Proposed findings of fact were submitted by the Petitioner and the Public Service Commission. To the extent these proposed findings have not been adopted herein or are inconsistent with the above findings, they have been specifically rejected as irrelevant or not supported by the evidence.
Recommendation Based on tide foregoing findings of fact and conclusions of law, it is RECOMMENDED that the petition of Island Services, Inc. be granted in part, and that Petitioner be authorized to file new rates structured on the base facility charge concept, designed to generate gross water revenue of $12,823 annually, based on the average number of customers served during the test year. It is further RECOMMENDED that Petitioner be required to refund $100 to all customers who have paid the interim $200 water connection charge and that its tariff be amended to show that $100 is the authorized charge for this service. It is further RECOMMENDED that Petitioner pay interest on deposits at the annual rate of 6 percent through June 30, 1980, and at 8 percent thereafter, with such payments retroactive to the dates of deposit. DONE and ORDERED this 6th day of August, 1980, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 Marta M. Crowley, Esquire Florida Public Service Commission Fletcher Building, 101 E. Gaines St. Tallahassee, Florida 32301 Douglas E. Gonano, Esquire Citizens Federal Building Suite 200 1600 South Federal Highway Fort Pierce, Florida 33450
Findings Of Fact Petitioner is the receiver for Bayside Club, Islamorada, Inc., a dissolved Florida corporation ("Bayside"). Mr. Joseph Popplewell is a general contractor and former president of Bayside. Respondent is the governmental entity authorized by Chapter 76-441, Section 14(1), Laws of Florida, to adopt impact fees for the water system in the Florida Keys, to equitably adjust the financial burden of a new pipeline, and to expand it or improve appurtenant facilities between existing customers and new water users. In 1986, Bayside sought to construct a 30 unit hotel on approximately one acre of land in Monroe County, Florida. The development project was formally classified as an expansion of an existing eight unit hotel. The existing hotel, however, had little, if any, useful life, and, in substance, the project involved the development of a new 30 unit hotel. Bayside obtained a building permit on June 4, 1985. In the same month, the building permit was challenged by an adjacent land owner. The challenge asserted that the existing hotel constituted a grandfathered nonconforming use and that the building permit improperly treated the development site as if it were located in a zoning district which permitted hotel usage and subsequent expansion. During the last half of 1985, the Monroe County Commission considered the challenge to the building permit and found that the building permit was valid. The adjacent landowner filed suit against Bayside. The circuit court upheld the validity of the building permit. The suit was finally decided on May 29, 1990, when the Third District Court of Appeal reversed the lower court's decision that the building permit was valid. Dowd v. Monroe County, 557 So.2d 63 (Fla. 3d DCA 1990). On May 29, 1990, the circuit court entered its order declaring the building permit invalid. In 1986, Bayside was advised by Respondent that unit water system development fees ("impact fees") were scheduled to increase from $1,500 to $2,000. Bayside chose to avoid paying impact fees at the increased unit rate and to achieve a savings in development costs. On or about April 18, 1986, Bayside executed an Agreement For Water Service. On or about April 29, 1986, Bayside issued a check payable to Respondent in the amount of $36,840, which included impact fees in the aggregate amount of $33,000. As provided in Florida Administrative Code Rule 48-3.002 2., the Agreement For Water Service expressly stated in paragraph 1 that "SAID SYSTEM DEVELOPMENT CHARGE SHALL NOT BE REFUNDABLE." Construction of the proposed hotel stopped sometime in 1986. A receivor was appointed for Bayside by the appropriate circuit court on June 14, 1991. Sometime in early 1992, the receiver for Bayside requested a refund of the impact fees. Respondent denied that request in a letter dated February 27, 1992, but refunded amounts paid by Respondent in excess of the impact fees. Respondent's denial of Petitioner's request for a refund did not constitute an unreasonable classification and did not establish a differential rate that was either unjust or inequitable. Respondent has consistently applied Florida Administrative Code Rule 48-3.002 2. to prohibit the refund of impact fees regardless of the classification or rate charged the person who paid the impact fee. Petitioner had adequate notice in Rule 48-3.002 2. and the Agreement For Water Service that the impact fees were nonrefundable. Respondent reasonably anticipated that the projected costs for expanding the water system would be incurred. The county commission and circuit court both upheld the validity of the building permit. If Bayside reasonably anticipated that projected costs for expanding the water system and appurtenant facilities would not be incurred due to a suit challenging the building permit, Bayside had the option of not paying the impact fees until the final conclusion of litigation. Bayside was on notice that the impact fees were nonrefundable and chose to forego its option not to pay the fees until the conclusion of the suit challenging the building permit. Bayside made a business decision to save money and time by paying the impact fees when it did. Viewed in the light of hindsight, that business decision was imprudent. Bayside did not notify Respondent that the costs of expanding the system were not reasonably anticipated until six years after Bayside chose to pay the impact fees. The nonrefundable impact fees imposed by Respondent in 1986 were just and equitable. Expansion of the water system pipeline and appurtenant facilities was reasonably required as a result of the development proposed by Bayside at the time that the impact fees were imposed. The costs attributable to such expansion were reasonably anticipated by Respondent at the time that the impact fees were imposed. The use of the impact fees was limited to meeting such reasonably anticipated costs of expansion. The impact fees imposed by Respondent in 1986 did not exceed a pro rata share of reasonably anticipated costs. Expansion of Respondent's water system was necessary irrespective of the proposed hotel. The expansion of Respondent's water system and appurtenant facilities was financed through the sale of debentures. The indebtedness incurred is made good through revenues in the form of rates, fees, and other charges. Under such circumstances, rates and fees were set with a view towards raising the money necessary to repay the loan. The impact fees did not cease to be just and equitable merely because they were set high enough to meet the water system's reasonably anticipated capital requirements.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following facts relevant to the issue presented for determination are found: Customers who testified at the hearing and those who adopted the testimony of others had three major complaints as to the quality of water and sewer service received from the petitioner. These included the inconsistency of the quality of the water, billing procedures and practices, and plant and system management. The quality of the water which petitioner provides to its customers has not been consistent. While quality has greatly improved since November of 1980, the water does, on occasion, appear rusty, muddy or yellowish and does, on occasion, discolor laundry and ice cubes. No evidence was offered as to the frequency of such occasions. Some customers have received a bill for a vacant lot upon which there was no sewer connection or water meter. Another customer was billed at the wrong address after notifying the petitioner of a change in address. A customer who spent some eighteen months in Michigan continued to receive bills in full service amounts after he had requested that his water be disconnected. His correspondence on this problem was not responded to by Petitioner. Petitioner's main office is located in Orlando, approximately one hour away from Inverness. When major breakdowns in the water and sewer system occur, a crew can be dispatched from the Orlando area. Petitioner purchased the subject water and sewer operation in June of 1978. At that time the condition of the mechanical and electrical aspects of the operation was poor and the water was high in iron content, thus causing the water to have an almost constant rusty appearance. Petitioner installed a chemical called "aquamag" to hold the iron in suspension. Aquamag does not, however, remove the iron from the water, and petitioner is presently engaged in research concerning the possibility of a new water supply. It is possible that petitioner could have a new well in operation by June of 1981. Neither the water system nor the sewer system of petitioner are currently under any citations from local or state officials or agencies. Prior to November of 1980, petitioner employed three or four operators who were not able to provide the customers with the best quality of water possible. A new operator was employed in November of 1980 and service and the quality of water has greatly improved since that time. This operator is capable of handling routine operations. If major breakdowns occur, petitioner's mechanics and electricians in Orlando can be radio dispatched to the system for any type of repairs. Petitioner's Orlando office has had a toll-free 800 number for the convenience of customers for the past eight months to one year. The number is displayed at some of petitioner's plants, but is not presently printed on the bills which the customers receive. At the time of the hearing, the customer bills were being restructured to include the petitioner's toll-free number. Prior to the acquisition of the water and sewer system by the petitioner, the former owners had approval in their tariffs filed with the Public Service Commission to charge fees for vacant lots. Such charges were dropped in May of 1979, and the bills which the customers are presently receiving containing such a charge are actually past due bills from a time prior to May of 1979. During the 1979 test year, the annual average of customers served by petitioner was 166 for water service and 130 for sewer service. At the time of the hearing, petitioner estimates approximately 235 lots for water service and 159 or 160 active sewer service customers.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the quality of service provided by petitioner to its customers in Citrus County be found to be satisfactory and that no adverse consequences be imposed upon the petitioner as a result of the quality of its service. Respectfully submitted and entered this 16th day of April, 1981, 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 16th day of April. COPIES FURNISHED: R.M.C. Rose Myers, Kaplan, Levinson, Kenin and Richards Suite 103, 1020 East Lafayette Street Tallahassee, Florida 32301 M. Robert Christ Legal Department Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Jack Shreve Public Counsel Room 4, Holland Building Tallahassee, Florida 32301 Steve Tribble, Clerk Florida public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Joe Cresse, Chairman Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301
Findings Of Fact By Pre-Hearing Stipulation, the parties agreed, and it is so found, that the District is a public corporation in Florida under Chapter 373, Florida Statutes, and Chapter 40E, F.A.C.. It exists as a multipurpose water management district with its principal office in West Palm Beach. Respondent James P. McCarthy and his wife, Rebecca, reside at 6017 Southern Road South in West Palm Beach. This property is located within Section 3, Township 44 South, Range 42 East, in Palm Beach County. On December 31, 1991, the District issued a Notice of Violation to the Respondent notifying him that his 2 inch pvc irrigation line, exposed near the top of the bank due to erosion, constituted an encroachment on the District's right-of-way adjacent to Canal 51 at the rear of his property. The line was not removed. On April 9, 1992, the District issued its Second Notice of Violation to Respondent McCarthy assessing a civil penalty in the ultimate amount of $560.00 for the same alleged encroachment, and on April 24, 1992, Mr. McCarthy filed his Petition for Formal Hearing to contest that action. Mr. McCarthy does not contest the fact that the line exists as indicated by the District but debates the allegation that it constitutes an encroachment violation requiring a permit, contending that the District has failed to properly complete the work it promised to do on his property, the completion of which is a condition precedent to the requirement for a permit. The South Florida Water Management District owns a right-of-way located on the south bank adjacent to C-51 canal in West Palm Beach, and the McCarthy's property is adjacent to that right-of-way. They have constructed a 1 1/2 inch PVC lawn irrigation line from the sprinkler system in their backyard beneath and across the District's right-of-way into the canal. According to Douglas Sykes, the District's senior engineering field representative in the area, who inspected the McCarthy's pipe line subsequent to the completion of the Corps' work, the line meets the District's standards and is permittable. All that is required is for McCarthy to make the requisite application and pay the permit fee. On April 17, 1989, the McCarthys and the District entered into a written Settlement Agreement by which both granted deeds to each other for portions of the land adjacent to the canal for the payment of the sum of $11,000.00, plus attorneys fees, to be paid to the McCarthys. This agreement did not, however, address either the slope or grade of the canal bank adjacent to the McCarthy property. The bank slope was to be constructed by the U.S. Army Corps of Engineers in accordance with their proposed constructions plans. The agreement did, however, call for the McCarthys to obtain an irrigation permit pursuant to District criteria "after completion of construction." The Director of the District's Right-of-Way Division, responsible for the enforcement of the occupancy regulations in the right-of-way, considered the canal complete when the Corps ceased its construction activities and removed its equipment. This was done before September, 1991. The Corps notified its contractor that it accepted the C-51 project as complete on March 20, 1991. Mr. Sykes also inspected the area subsequent to the departure of the Corps' contractor. He found the work to be consistent with the District requirements, though as late as June, 1992, some additional work was being done by the District on property to the east of the McCarthy property. There is some indication that when the District sought permission to cross McCarthy's property line to access that work area, permission was denied. The District crossed McCarthy's property anyway, causing some minor damage. This work has now ceased. The District employee who negotiated the settlement agreement with the McCarthys intended for the term "completion of construction" to mean the moment when the Corps relinquished its control of the right-of-way to the District. This was done on September 4, 1991. Other landowners applied for and received permits for irrigation lines when the Corps' contractor left the site. As McCarthy tells it, in early 1990, after the settlement agreement was signed, the heavy construction was begun on the canal project and the trees were removed. A roadway was put in and the contractor began to install a large earthenware berm on the property. After some of it was done, he stopped the workers and found that the berm should go on another property. It was removed and after that, no other work was done. Mr. McCarthy contends the agreed-upon canal bank was not properly constructed by the Corps. He claims the Corps' contractor left the canal bank without the required grading and in a rough state without sod. This is, supposedly, the only parcel that was not graded properly or sodded. He was left with a 1 1/2 :1 slope - very steep, and he complained about this in writing to the District because it was not what he claims they had all agreed upon. Mr. Shattner, the District's Director of Construction Management, indicates that regardless of what drawing is examined, the slope is no more gentle than 2:1. Throughout 1990 and 1991, Mr. McCarthy alleges, he repeatedly advised the District that it had not lived up to their agreement but never got an answer. The agreement does not define the slope to be used except as it referred to a survey which was supposedly attached to the agreement. Towards the end of 1991, Mrs. McCarthy wrote to Mr. Swartz of the District about the work but received no answer. She then called the office of Mr. Creel, the District Executive Director, to complain. On December 19, 1991, someone called back and agreed to send someone out to look at the berm. No one came, however, and the next contact with the District was the violation letter of December 31, 1991. Mr. McCarthy has repeatedly taken the position with the District that it has not lived up to the terms of its agreement with him and he will not apply for a permit for the line until the construction is completed properly. The current line complained of by the District is temporary and will be destroyed by the corrective construction. The residue of the Corps' work remaining on his property is, he complains, unsafe. It does not conform to either the county code or the District's own manual which calls for a 4:1 ratio.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be issued dismissing the assessment of the currently assessed $560.00 civil penalty against the Respondents herein, James and Rebecca McCarthy, but requiring them to apply within 30 days from the date of that Order for a permit to construct and maintain an irrigation pipeline across the District's right-of way for Canal C-51 at the rear of their property. RECOMMENDED this 30th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1992. COPIES FURNISHED: Scott A. Glazier, Esquire Toni M. Leidy, Esquire South Florida Water Management District P.O. Box 24680 West Palm Beach, Florida 33416-4680 James P. and Rebecca R. McCarthy 6017 Southern Boulevard South West Palm Beach, Florida 33415 Tilford C. Creel Executive Director South Florida Water Management District P.O. Box 24680 West Palm Beach, Florida 33416
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing; the following facts relevant to the issue presented for determination are found: The prime complaint heard from petitioner's customers who testified at the hearing was the objectionable odor of the water received in their homes. The water was described as smelling like chlorine or like sewer, swamp or sulphur water. Such an objectionable odor affects the water's taste, and several customers testified that they were compelled to use filters to make the water bearable to drink. Another witness testified that the water tasted like quinine. Other complaints regarding the quality of water provided by petitioner to its customers included the presence of debris, such as sand, silt or dirt, in the water, the staining of white sinks by the water and inadequate water pressure. Complaints with regard to the service provided by petitioner to its customers were also voiced. These complaints included interruptions in water service without prior notice, the presence of air in the water lines and the necessity of making long-distance telephone calls to Orlando when inquiring about their bills. One customer testified that even though he had paid for a temporary disconnection of his water when he was away from his residence, he was still billed a minimum charge for service. Several customers testified that petitioner's office personnel failed to timely or adequately respond to their complaints or inquiries regarding their bills. Charles Sweat, the vice president of operations for petitioner's fifty- one systems in eight counties, visits each of the systems at least once a month. At the time that petitioner took over the operation of the Intercession City water system in 1977, the system was under citation by the Department of Environmental Regulation for inadequate chlorination of the water. The Department of Environmental Regulation does have a minimum requirement as to the amount of chlorine which must be added to the water. Petitioner corrected this deficiency and the citation was removed. Neither of the two water systems involved in this proceeding - Intercession City and Tropical Park - are presently under citation by any state or local regulatory agency. Analyses of monthly laboratory samples of water from the Intercession City and the Tropical Park systems indicate that the water quality will meet the Department of Environmental Regulation's secondary drinking water standards which went into effect on January 13, 1981. Petitioner now provides a toll-free telephone number which Osceola County customers may use to call Orlando. Notice of this toll-free number was included in the water bills sent to customers in September or October of 1980. A log is maintained by petitioner of all interruptions of water service. On one occasion occurring on March 3, 1980, there was a water outage. The outage was caused by low temperatures freezing the pressure switch at a time when it was at a high pressure level. When there was no pressure, the switch, being frozen, was incapable of sending an on-signal to the pump. It was necessary for petitioner to use torches to thaw out the pipes to make the system work properly. Cold weather sufficient to cause such an effect rarely occurs in Florida. On January 16, 1981, there was an interruption in service caused by the county cutting a water line. Another interruption of service occurred on January 18, 1981. This was caused by the malfunction of an air release valve which releases excess air from the pressure tank. Air was eventually caused to go into the distribution system and consequently into the homes of the customers. Petitioner's personnel have been instructed to watch this type of situation more carefully and more often. Petitioner's vice president of operations was not aware of recent complaints from customers concerning air problems, but testified that he would immediately and personally follow up on the problem.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the quality of water service provided by petitioner to its customers in Osceola County be found to be satisfactory and that no adverse consequences be imposed upon the petitioner in its application for a rate increase as a result of the quality of its service. Respectfully submitted and entered this 22nd day of April, 1981, 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, 1981. COPIES FURNISHED: R.M.C. Rose Myers, Kaplan, Levinson, Kenin and Richards Suite 103, 1020 Lafayette Street Tallahassee, Florida 32301 Jack Shreve Public Counsel Room 4 - Holland Building Tallahassee, Florida 32301 M. Robert Christ Legal Department Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Steve Tribble, Clerk Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301
The Issue Whether a consumptive use permit for the quantities of water requested in the application should be granted.
Findings Of Fact Application 7500137 seeks an average daily withdrawal of 2.4 million gallons of water with maximum daily withdrawal not more than 2.88 million gallons from an existing well in order to process phosphate and reclaim land. This is an existing use for mining operations located southwest of Lakeland, Florida, on land consisting of 1531 acres. Notice was published in a newspaper of general circulation, to wit: The Lakeland Ledger, on November 11 & 18, 1975, pursuant to Section 373.146, Florida Statutes. The application and affidavit of publication were admitted into evidence without objection as Composite Exhibit 1, together with correspondence from James R. Brown, Vice President, Dagus Engineers, Inc., dated November 19, 1975 to the Southwest Florida Water Management District. No objections were received by the Water Management District as to the application. Mr. George Szell, hydrologist of the Water Management District testified that the application met the conditions for a consumptive use permit as set forth in Chapter 16J-2.11, Florida Administrative Code, except that the quantity of water requested to be withdrawn is 41.06 per cent over the maximum average daily withdrawal permitted under the water crop theory as set forth in Section 16J-2.11(3), F.A.C. However, the Water Management District witness recommended waiver of that provision since the mining operations will be concluded in several years and thereafter the water table and hydrologic conditions will return to normal. The Water District staff recommended approval of the application with the condition that a meter be installed on the well and that the applicant be required to take monthly readings thereof and submit quarterly reports of the readings to the District. The applicant's representative agreed to these conditions at the hearing.
Recommendation It is recommended that Application No. 7500137 submitted by Poseidon Mines, Inc., for a consumptive water use permit be granted on the condition that a meter be installed on the applicant's well and that monthly readings be taken and submitted quarterly by the applicant to the Southwest Florida Water Management District. It is further recommended that the Board of Governors of the Southwest Florida Water Management District, pursuant to Rule 16J-2.11(5), for good cause, grant an exception to the provisions of Rule 16J-2.11(3), as being consistent with the public interest. DONE and ENTERED this 19th day of January, 1976, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: J.T. Ahern, Staff Attorney Southwest Florida Water Management District P.O. Box 457 Brooksville, Florida 33512 Poseidon Mines, Inc. P.O. Box 5172 Bartow, Florida
