The Issue The issue for consideration in the proceeding concerns whether the Petitioner is entitled to an on-site sewage disposal system permit ("OSDS") authorizing installation of an on-site sewage disposal system for property the Petitioner owns near the Suwannee River in Gilchrist County, Florida, in consideration of the relevant provisions of Section 381.272, Florida Statutes, and Chapter 10D-6, Florida Administrative Code, and whether the Petitioner should be entitled to pursue a variance from the permitting statute and rules embodied in that chapter of the code.
Findings Of Fact The Petitioner owns certain real property located in Gilchrist County, Florida on the east bank of the Suwannee River, adjoining the river. The property is more particularly described as Lot 9, Block B, Two River Estates. The property was purchased on January 3, 1985 and was platted as a subdivision on January 5, 1959. The lot in question upon which the OSDS would be installed should a permit be granted, is approximately one acre in size. On April 30, 1990, the Petitioner made application for an OSDS seeking authorization to install such a conventional septic tank and drain-field system for disposing and treating household sewage effluent on the subject property. The system would be designed to serve a single-family residence, containing approximately two bedrooms, and approximately 1,200 heated and cooled square feet of living space. Upon making application, the Petitioner was informed that he would have to obtain a surveyed elevation of his property, as well as the ten-year flood elevation for his property for the river mile of the Suwannee River at which his property is located. The Petitioner consequently retained Herbert H. Raker, a registered land surveyor, who surveyed the elevation for his property. Mr. Raker established a bench mark elevation of 29.24 feet above mean sea level ("MSL"). The site of the proposed OSDS installation on that lot has an elevation at the surface grade of 28.5 feet. The subsurface of the lot at the installation site is characterized by appropriate, "slight-limited" soil extending 72 inches below the surface grade of the lot. The wet season water table is 68 inches below the surface grade of the lot. Consequently, there is more than adequate slight-limited soil to handle disposal and treatment of the sewage effluent from a single-family residence, such as is proposed, since the wet season water table is 68 inches below the surface of the property. Thus, a more than adequate treatment space and appropriate soil beneath the bottom surface of any proposed drain field to be installed at the site would exist so as to comply with the pertinent rules cited herein. The problem with a grant of the subject permit consists only of the fact that the property lies beneath the ten-year flood elevation, that is, it is approximately 1.5 feet beneath that elevation. The Suwannee River Water Management District report submitted to the Respondent agency by the Petitioner in the application process for the OSDS permit (in evidence) reveals that the ten-year flood elevation for the property in question is 30 feet above MSL. The soils prevailing at the proposed installation site, the great depth of the wet season water table, and the fact that the lot is approximately one acre in size and above the minimum size requirements for the installation of an OSDS, all militate in favor of a grant of the permit, except for the basis for its denial initially, that is, that it is simply beneath the ten-year flood elevation for purposes of the prohibition contained in Rule 10D-6.047, Florida Administrative Code. Although located within the ten-year flood elevation, the site is not located within the regulatory flood way so that if a mounded system or other raised OSDS alternative system were proposed and installed, an engineer's certification would not be required regarding the issue of raising the base flood level by the deposition of fill at the installation site for purposes of Rule 10D-6.047(6), Florida Administrative Code. There is no central water system available to the property; however, although there was conflicting testimony about the distance the proposed installation site would be from a neighbor's potable water well, the testimony of the Petitioner is accepted as being most certain in establishing that more than the required distance from that potable water well exists between it and the proposed septic tank and drain-field installation site, since the Petitioner established that approximately 110 feet is the actual separation distance. The Petitioner purchased the property to construct a single-family residence for himself and his family. He expended a substantial sum of money for the property and is unable to use it for its intended purpose without the subject permit or at least a variance so as to authorize him to install an OSDS. The Petitioner offered no concrete proposals or plans for an alternative system which might reasonably accomplish treatment and disposal of the sewage effluent in question without harm to ground or surface waters or the public health. No substantial proof was offered of a system which would either dispose of and treat the effluent at a location above the ten-year flood elevation or, if still below it, would adequately treat and dispose of the effluent sewage to safeguard the public health and the ground or surface waters involved, such that its existence slightly beneath the ten-year flood elevation would only be a "minor deviation" from that portion of the permitting rules. In point of fact, it would seem that a mounded system would be feasible on a lot this size, especially in view of the fact that the bottom surface of the proposed drain-field trenches or absorption beds would only have to be raised slightly over 1.5 feet from the surface grade of the subject lot and installation site in order to comply with the ten-year flood elevation parameter, which was the only basis for denial of this permit application. No proof was offered concerning how such a mounded system would be designed, installed and otherwise accomplished, however. Upon denying the initial application for the OSDS permit, the Respondent advised the Petitioner that he should pursue a formal administrative hearing process rather than make application for a variance and proceed through the internal variance board mechanism operated by the department in order to obtain a variance from the requirements of Rule 10D-06.47(6), Florida Administrative Code. The Respondent advised the Petitioner of this because the subject property was located within the ten-year flood elevation of the Suwannee River; and as the Respondent interpreted the Governor's Executive Order Number 90-14, which incorporated by reference the "Suwannee River Task Force Report" commissioned by the Governor, the Order absolutely prohibited the granting of any variances authorizing installation of OSDS's beneath the ten-year flood elevation of the Suwannee River or the granting of any OSDS permits themselves authorizing such installations.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is therefore, RECOMMENDED that a Final Order be entered denying the Petitioner's application for an OSDS permit. DONE AND ENTERED this 5th day of March, 1991, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of March, 1991. APPENDIX TO RECOMMENDED ORDER The Petitioner did not file a Proposed Recommended Order. Respondent's Proposed Findings of Fact 1-10. Adopted. COPIES FURNISHED: Sam Power, Agency Clerk Department of HRS 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda K. Harris, Esq. General Counsel Department of HRS 1323 Winewood Boulevard Tallahassee, FL 32399-0700 John Gary Wilson P.O. Box 2061 Lake City, FL 32055 Frances S. Childers, Esq. Department of HRS 1000 N.E. 16th Avenue Gainesville, FL 32609
The Issue Whether Petitioner should be granted a certificate authorizing it to continue operating a water and sewer utility in Flagler County; and Whether Petitioner's application to increase its water and sewer rates to its customers should be granted.
Findings Of Fact The Utility The Utility, a subsidiary of ITT Community Development Corporation, owns and operates a central water and sewer system serving Palm Coast Community--a planned development of approximately 40 square miles located in Flagler County. Although the development has less than 3,000 occupied homesites, more than 40,000 homesites are planned. (Testimony of Potter; P-2, R-4.) The Water System The water system includes wells, a treatment plant, storage facilities, and distribution mains. There are 13 water supply wells with a flow capability of 3.40 MGD (million gallons per day); present peak flow is 2.00 MGD. The raw water is piped to a central water treatment plant which utilizes a lime- softening process. Present plant peak flows equal the maximum rated capacity: 2.00 MGD. There are two ground storage reservoirs (with a total capacity of 1,300,000 gallons) and two elevated storage tanks (with a total capacity of 850,000 gallons). The water distribution system consists of an extensive network of mains, valves, fire hydrants, and meters used to convey potable water from the treatment plant to customers throughout Palm Coast Community. Although during the test year ending June 28, 1980, the Utility supplied water to an average of 2,191 residential and 80 general service customers, water distribution mains have been constructed to 22,988 building sites. The total water system, as of June 28, 1980, has been constructed at a cost of $17,486,433. (Testimony of Potter; P-2, R-4.) The Sewer System The sewer system includes a collection system, 57 lift stations, a wastewater treatment plant, and effluent disposal facilities. The wastewater plant utilizes an extended aeration process and has a rated hydraulic capacity of 600,000 gallons per day. Effluent is disposed of by spray irrigation on a 65-acre disposal field. Although during the test year, the Utility supplied sewer service to an average of 1,502 residential and 39 general service customers, sewage collection mains have been constructed to 22,988 building sites. As of June 28, 1980, the sewer system has been constructed at a cost of $24,850,962. (Testimony of Potter; P-2, R-4). The Rate Increase Application By its application, the Utility seeks authorization to increase water operating revenues by $170,460 and sewer operating revenues by $106,924. If granted, annual gross water revenues would increase (by approximately 40 percent) to $422,211 and gross sewer revenues would increase (by approximately 40 percent) to $267,194. (Testimony of Deterding; 5-3 P-4, R-2.) As grounds, the Utility contends that during the test year ending June 28, 1980, it suffered an operating loss of $225,430 in its water operations, and a loss of $109,909 in its sewer operations; that it is entitled to a 13.08 percent rate of return on its rate base. (Application for Rate Increase, dated November 3, 1980). II. The Elements of Rate Making In issuing a certificate and setting rates, the Commission must determine: the rate base 2/ ; (2) the cost of providing the utility service, including debt interest, working capital, maintenance, depreciation, tax, and operating expenses; (3) a fair return on the rate base; and (4) the quality of service provided. At hearing, the Utility presented evidence on each of these rate-making elements. For the most part, the Commission did not oppose the Utility's evidence; those matters which were disputed are separately addressed below. Rate Base Rate base represents the Utility's property which provides the services for which rates are charged. There are three issues involving the establishment of rate base: (1) average or year-end rate base. (2) inclusion of cost of a 750,000 gallon water storage tank; and (3) deferral of depreciation on non-used- and-useful plant. Average or Year-End Rate Base At hearing, the Utility asserted that it had experienced extraordinary growth, justifying the utilization of year-end rate base. The Commission disputed this claim of extraordinary growth, and urged the use of a 13-month average. On June 22, 1981, the Utility filed a post-hearing "Notice of Change in the Position of the Applicant," by which it receded from its previous position and agreed that, for purposes of this proceeding, an average rate base should be used. The issue is, therefore, moot and utilization of a 13-month average rate base is accepted. However, the Utility continues to assert that a year-end rate base should be established for "purposes of certification." 3/ Such assertion is rejected as inconsistent with its June 22, 1981, acceptance of average rate base: the acceptance applied to this "proceeding," 4/ and was not limited to rate-making purposes. Moreover, the Utility has not shown why a second rate base, based on year-end figures, should be established. Year-end rate base constitutes a deviation from the standard and preferable method of using a 13-month average; it may only be used under circumstances of unusual or extraordinary growth-- circumstances which the Utility no longer claims exist. (Testimony of Deterding; R-2) Deferral of Depreciation and Amortization The Utility requests authority to defer depreciating non-used-and-useful plant and amortizing contributions-in-aid-of-construction ("CIAC") until such time as the plant or contributions become used and useful. The effect would be to preserve the original cost of the property so it may eventually be recovered from future customers benefitting from its use; because original cost would not have been reduced, rate base would be higher for those future customers. The Commission opposes the requested deferral. Both parties cite language in a previous Commission order (Order No. 7455, Docket No. 760034, In Re: Petition of North Orlando Water and Sewer Corporation) as evidence of existing Commission non-rule policy on deferral of depreciation expense on non-used-and-useful property. The Commission language in that order lends support to the opposing arguments of each party. Even if the policy was stated unequivocally it could not--without record support--establish Commission policy for purposes of this rate proceeding. The Utility's request is rejected because record evidence in this proceeding. The Utility executed a Revenue Agreement with ITT Community Development Corporation on June 27, 1980. Under that agreement, Community Development Corporation, the developer of Palm Coast Community, agreed to pay the Utility--through 1990--an amount sufficient to allow recovery of costs, including depreciation, attributable to utility property installed for unimproved lots. Such utility property is the same non-used-and-useful property for which the utility now seeks to defer depreciation and amortization. Since this revenue agreement allows the Utility to recover from the developer depreciation expenses attributable to non-used-and-useful property, deferral of depreciation--to allow recovery from future customers--is unnecessary. (Testimony of Gregg, Deterding; R2) 5/ Inclusion of Cost of Water Storage Tank The Utility proposes to include in rate base the use-and-useful portion of a 0.75 million gallon elevated storage tank. It was not completed and placed in service until after the test year. Neither was its construction explicitly ordered by government order. However, from an engineering standpoint, it was needed during this test period to maintain minimum water pressure during peak- flow periods and provide adequate flows for fire protection purposes. It now functions as an integral component of the Utility's water system. At hearing, the Commission's accountant testified that 100 percent of the cost of the water storage tank should be removed from the plant-in-service component of rate base because it was not in service during the test year. The parties agreed to his submittal of a post-hearing accounting exhibit showing adjustments resulting from his testimony. However, in his late-filed exhibit (R-2), the accountant took a position which contradicted his testimony at hearing: In this case we feel that consideration of this after test year plant must be given. The utility's used and useful portion of the other storage facilities will increase substantially. In addition this item appears to be an integral component of the plant which was operating during the test year and at present. (R-2.) (Emphasis supplied.) He included proposed schedules which: (1) include the tank as if placed in service during the last month of the test year; (2) include the total cost of the tank including interest capitalized net of the non-used-and-useful portion in calculating average rate base; and (3) show the effect of these adjustments in construction work in progress (CWIP) so that they can be easily identified and not confused with plant that was, in fact, in service by the end of the test year. Notwithstanding this significant change in its accountant's testimony, the Commission continues to advocate 6/ the accountant's earlier position at hearing--one which he has now abandoned. Thus, the Commission argues that: [T]he only correct position in calculating an average rate base is to exclude the after test year plant addition and adjust the used and useful percentage. . .as he [its accountant] originally proposed at the hearing. (Commission's Recommended Order, p. 5) This contention his rejected as inconsistent with the Commission's own accounting and engineering evidence. 7/ It also overlooks the undisputed fact that the storage tank is now operating as an essential component of the water system, and that it will continue to be used during the period in which the new rates will be in effect. The Commission's alternative treatment--as proposed by its accountant's post-hearing exhibit (R-2), is accepted as persuasive. The cost of the storage tank is thus included as CWIP, and is calculated as if placed in service during the last month of the test year; the total cost of the tank, including interest capitalized net of the non-used-and-useful portion, is utilized (Testimony of Gregg, Deterding, Chastain; R-1.) The sewer system rate base proposed by the Utility is not disputed by the Commission and is accepted. The resulting average rate bases for the water and sewer systems are $2,736,279 and $1,044,165, respectively. They are depicted below. WATER RATE BASE (Test Year Ended 6-28-80) Utility Plant in Service $12,397,249 Plant Held for Future Use (8,848,497) Construction Work in Progress 39,097 Accumulated Depreciation (216,405) Contribution-in-Aid-of-Construction (Net of Amortization) (687,787) Working Capital Allowance 35,837 Materials and Supplies 7,785 Income Tax Lag -0- RATE BASE $ 2,736,279 SEWER RATE BASE (Test Year Ended 6-28-80) Utility Plant in Service $18,461,055 Plant Held for Future Use (15,787,481) Construction Work in Progress -0- Accumulated Depreciation (109,729) Contributions-in-Aid-of-Construction (Net of Amortization) (1,551,865) Working Capital Allowance 27,186 Materials and Supplies 4,999 Income Tax tag -0- RATE BASE $ 1,044,145 (Late-filed Exhibit, R-2.) B. Operating Income The parties agree that, during the test year, the Utility had a $130,243 operating loss from its water operations, and a sewer operations. The operating statements are $95,281 operating loss from it depicted below: WATER OPERATING STATEMENT (Test Year Ended 6-28-80) Operating Revenues (Present Rates) $251,751 Operating Revenue Deductions Operation 286,694 Depreciation 75,314 Amortization 954 Taxes Other Than Income 19,032 Income Taxes -0- TOTAL OPERATING EXPENSES $381,994 s Operating Income (Loss) $(130,243) SEWER OPERATING STATEMENT (Test Year Ended 6-28-80) Operating Revenues (Present Rates) $160,270 Operating Revenue Deductions Operation 217,487 Depreciation 21,872 Amortization 767 Taxes Other Than Income 15,425 Income Taxes -0- TOTAL OPERATING EXPENSES $255,551 Operating Income (Loss) $(95,281) Since during the test year, the Utility operated its water and sewer systems at a loss; it received a negative rate of return on its rate base. (Testimony of Gregg, Deterding; Late-Filed Exhibit R-2, P-3, P-4.) Cost of Capital and Fair Rate of Return The only issue between the parties concerning cost of capital to the Utility is whether deferred taxes should be included in its capital structure. At the end of the test year, the Utility's books showed no deferred taxes; however, during the later half of 1980, it changed its accounting treatment for deferred taxes. Applying its new method, deferred taxes at the end of the test year would be $3,137,000--assuming deferred depreciation on non-used-and-useful property is disallowed. The Utility failed to establish the impropriety of applying an accounting method which it will continue to follow in the foreseeable future; it is therefore concluded that the deferred taxes should be calculated as $3,137,000, at zero cost. 8/ The resulting overall cost of capital is 12.29 percent. A reasonable rate of return falls within a range of 11.87 percent to 12.72 percent. It is depicted below: COST OF CAPITAL Weighted Component Common Stock Equity Amount $22,224,497 Weight 42.23 Cost 15.0 percent Cost 6.33 Long Term Debt 27,163,003 51.62 11.5 5.94 Customer Deposits 99,653 .19 8.0 .02 Deferred Taxes 3,137,000 5.96 -0- -0- $52,624,153 100.00 12.29 (Testimony of Kelly, Potter; R-5.) proposed Revenue The Utility seeks increased water revenues of $170,460 and increased sewer revenues of $106,924. Although the parties agree on a base facility rate design, 9/ the Commission disputes proposed charges for fire hydrants and irrigation meters. 10/ Fire Hydrant Charges The Utility presently collects, under contract, a fire hydrant charge of $70 per year per hydrant from two fire districts which serve the area. This method is favored by customers and the fire districts; because the fire districts raise their funds through tax assessments, the customers payments are tax deductable. The Commission argues that the $70 charges do not cover all of the Utility's fire protection costs and that such costs should be recovered through regular service rates. While the $70 charge was shown to be insufficient to cover fire service costs, no reason was provided why the additional funds could not be recovered by increasing charges to the fire districts. This method of paying for fire protection costs is advantageous to the customers. It is likely that the fire service districts would cooperate with the Utility in negotiating fire service charges which are adequate to cover the costs of the service provided. Consequently, it is concluded that the present method of collecting fire service charges should be retained, although the charges should be increased sufficiently to cover the attendant costs to the Utility. (Testimony of Fabelo, Public Witnesses.) Irrigation Meter Charges The Utility proposes a $2.00 base facility charge for irrigation meters, with a $4.50 charge for regular service. The Commission prefers an irrigation meter base facility charge equal to one-half of the base charge of a corresponding regular service meter, assuming both meters are on the same tap to the water main. Since the demand for water that both meters can cumulatively place on the water system is 1.5 times that placed by a regular service meter, the Commission's position is persuasive. 11/ The parties also disputed the base facility customer accounting charges for irrigation meters--the Utility contending that the additional meters impose little additional costs and the Commission asserting that customer accounting charges should be given full weight. The Utility's position is accepted as persuasive. The two meters are usually close together and easily read. Both services are included on one account and one monthly bill covers both. Thus, while the irrigation meter imposes a slight additional accounting cost, it is minimal when compared to the cost imposed by a separate regular service meter. (Testimony of Gregg, Fabelo.) Rate of Return Allowed by Proposed Revenue Adding the requested water revenue increase of $165,633 to the adjusted test-year water operating revenues of $251,751 results in total recommended operating revenues of $417,384. Subtracting test-year operating expenses of $381,994 leaves a net operating income of $35,390--a 1.29 percent return on a water rate base of $2,736,279. Adding the requested sewer revenue increase of $111,751 to the adjusted test-year sewer operating revenues of $160,270 results in total recommended operating revenues of $272,021. Subtracting test-year operating expenses of $255,551 leaves a net operating income of $16,470--a 1.58 percent return on a sewer rate base of $1,044,165. (Testimony of Deterding; R-2) Quality of Service The quality of the water furnished the Utility's customers depends on their location. Customers residing in the area most heavily populated--north of Highway 100--receive satisfactory water service. Their water is treated by the Utility's central lime-softening plant. In contrast, the customers residing in the Seminole Woods area have not received water of comparable quality. Seminole Woods lies in the south extremity of the service area; it consists of approximately eight single-family residences and one duplex. Due to the remote location and slow rate of growth of Seminole Woods, the Utility has not found it practical to interconnect with the central lime-softening plant or build a separate lime-softening plant to serve the area. Instead, the Utility pumps raw water from a nearby well to a temporary facility where it is chlorinated and then conveyed to the residences where it is treated by separate zeolite or "Culligan" water-softening devices. These devices are furnished customers by the Utility without additional charge. The residents of Seminole Woods have frequently received water with excessive chlorine or hydrogen sulfide. The Utility's efforts to monitor the chlorine levels and regularly flush the system have not solved the problems. Seminole Woods customers have repeatedly complained about the quality of their water--its excessive chlorine taste, offensive odor (similar to the smell of rotten eggs), and high sodium content. The water quality is so poor that at least three of the residents have found it undrinkable; they buy bottled water at an additional cost of approximately $20 per month. The Utility's current solution to the problem is to extend mains from the northern area to Seminole Woods. The lines are now under construction and completion is expected "within a year or so." (Tr. 253.) With the exception of the Seminole Woods area, the quality of sewer and water service provided by the Utility is acceptable and has rarely been the subject of complaints. Occasional problems of power outages have been corrected. Neither the water nor the sewer system has been or is now under any governmental citation for non-sewage or water treatment standards. Upon completion of the connecting water mains, it is likely that the residents of Seminole Woods will receive water equal in quality to that enjoyed by other residents of Palm Coast Community. (Testimony of Thomas, Sannartano, Creolino, Potter, Likins.) III. Certificate of Public Convenience and Necessity The Utility has filed with the Commission a map of its existing utility systems, a description of the area served, and all information requested by the Commission concerning its rates and charges. Neither the Commission nor the public objected to the granting of a certificate authorizing it to continue providing water and sewer services in the affected area. (Testimony of Chastain, Members of the Public; Prehearing Statement.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Utility be granted a certificate to continue operating its water and sewer systems in the areas described, and That it be authorized to file tariffs, consistent with the provisions of this Recommended Order, designed to generate annual gross water revenues of $417,384 and annual gross sewer revenues of $272,021. DONE AND RECOMMENDED this 13th day of August, 1981, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of August, 1981.
The Issue Whether Respondents' Division of Hotel and Restaurants' license should be suspended or revoked, or a civil penalty assessed for alleged violation of Division Rule 7C-4.01(5)(c) and Florida Statute s. 509.221, as set forth in Notice to Show Cause issued by the Petitioner.
Findings Of Fact On April 19, 1977, Johnny Bell, inspector for petitioner's Division of Hotels and Restaurants, received notification from the Health Department of Sarasota County that respondents' place of business, Port-of-Call, resort apartments located at Longboat Key, Florida, was not connected to the sewerage system of Longboat Key. Bell inspected respondents' premises and discovered that a septic tank system was in use at the Port-of-Call. He informed respondents that they must connect to an "approved" sewerage system within sixty (60) days. On June 20, 1977, Bell returned to the premises and found that no action had been taken to connect to the Longboat Key system. Respondent Edward W. Henderson informed him that he should not have to go on such a system because his septic tanks were adequate and functioning properly. Bell did not examine the septic tanks or ascertain if they were, in fact, in proper condition and operating satisfactorily. He proceeded to issue a Notice to Show Cause as to why respondents' license No. 68-606H should not have a civil penalty assessed against it or be suspended or revoked. The stated cause for such intended action was as follows: "Division Rule 7C-4.01(5)(c) ; Florida Statutes 509.221 -- Failure to have sewage system hooked into public sewerage system." The Notice to Show Cause also informed respondents of their right to an Administrative Hearing under Chapter 120, Florida Statutes. Respondents thereafter requested such a hearing. There is no food operation at the Port-of- Call. (Testimony of Bell, Exhibit 1)
Recommendation That the charges against respondents be dismissed. Done and Entered this 10th day of October, 1977, in Tallahassee, Florida. THOMAS C. OLDHAM Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Lawrence C. Winson, Esquire Department of Business Regulation The Johns Building, Suite 210 725 South Bronough Street Tallahassee, Florida 32304 John W. Meshad, Esquire 100 South Washington Boulevard Sarasota, Florida 33577
The Issue The issue for consideration in this case is whether Respondents should pay two fines of $500 each for allegedly violating Section 386.041, Florida Statutes (1997). (All chapter and section references are to Florida Statutes (1997) unless otherwise stated.)
Findings Of Fact Petitioner is the state agency responsible for issuing citations under Chapter 386. Respondents own an apartment complex located at 1202 Shadow Drive, Lakeland, Florida. In the two weeks preceding December 29, 1997, Respondents received complaints from several tenants regarding an overflowing sewer system in their rental units. On December 29, 1997, Respondents responded to the complaints by pumping sewage from the dosage chamber in the septic tank onto a vacant lot adjacent to the apartment complex. On December 30, 1997, Petitioner received a complaint that sewage was being discharged onto the neighboring lot of the apartment complex. Petitioner inspected the site on December 30, 1997, and advised Respondent, Shirley Crawford, and an employee named "Fred" that it was illegal to dump untreated sewage onto the open ground. Petitioner ordered them to immediately turn off the pump so that no more sewage could be discharged onto the adjacent lot. Respondent, Shirley Crawford, failed to respond immediately to the order. Respondents were unwilling to cooperate with Petitioner. Petitioner issued a citation to Respondents for violating Section 386.041. Although Respondents did unplug the pump later that same day, the pump was reset to work through the night. They continued pumping discharge onto the adjacent lot during the following day. Petitioner received another complaint on January 5, 1998, alleging that the septic tank at the same address was discharging from the tank onto the ground surrounding the rental units. Petitioner inspected the site. The drain field was breaking out. A probe placed into the drain field verified that the discharge on the ground was coming from the septic tank. It was determined that there was a hole in the drain field. Furthermore, a PVC pipe used to drain the system on December 30, 1997, had not been removed from the system as required on December 30, 1997. A second citation was issued for violating Chapter 386. As part of the citation, Petitioner instructed Respondents to pull a permit by the following week to repair the system so that they could accommodate the needs of the apartment complex. Respondents pulled a permit within the following week. However, they failed to repair or replace the septic system according to the specifications and requirements of the permit. Respondents failed to supply Petitioner with a schedule for pumping sewage out of the tank until the system was repaired according to the specifications and requirements of the permit. The work Respondents performed on the system was completed on March 15, 1998. Respondents modified the faulty system by covering or plugging pipes leading into the faulty system from another older system. It took approximately 45 minutes to one hour to plug these pipes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that Petitioner enter a Final Order sustaining the two citations issued on December 30, 1997, and January 9, 1998, imposing fines of $1,000, and denying the request to dismiss the citations. DONE AND ENTERED this 2nd day of July, 1998, in Tallahassee, Leon County, Florida. DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of July, 1998. COPIES FURNISHED: Wayne and Shirley Crawford 4732 Highway 98, North Lakeland, Florida 33810 Roland Reis, Esquire Department of Health 1290 Golfview Avenue, 4th Floor Bartow, Florida 33830 Angela T. Hall, Agency Clerk Department of Health 1317 Winewood Boulevard Building 6, Room 136 Tallahassee, Florida 32399-0700 Dr. James Howell, Secretary Department of Health 1317 Winewood Boulevard Building 6, Room 306 Tallahassee, Florida 32399-0700
The Issue Whether Petitioner's application to increaseits water and sewer rates to its customers in Seminole County should be granted.
Findings Of Fact Based upon the evidence presented at hearing, including consideration of the demeanor and credibility of witnesses, the following facts are determined: I. Application and Retroactive Implementation of Interim Rate Increase By its application, the UTILITY, seeks to increase its water revenue to $158,890, and its sewer revenue to $83,830, by increasing service rates to its customers in Winter Springs, Seminole County, Florida. During the test year ending September 30, 1979, the UTILITY suffered combined losses from its water and sewer operation of $420,692. This is the first rate increase requested by the UTILITY since its inception in 1973. On April 24, 1980, the COMMISSION issued Order No. 9344 which suspended the UTILITY's proposed rate increases but granted it an interim increase under bond. The UTILITY was directed to file revised tariff pages containing residential and general service rates which would allow it to earn total annual gross revenue for water service of $139,277 and total annual gross revenues for sewer service of $83,830. The Order also stated: ". . .that the rate increase contained herein shall become effective for all bills on or after thirty (30) days after the date of this order. . . (Testimony of Blair, Fabelo; P.E. 1, 2, R.E. 3.) The UTILITY implemented the interim rate increase, within its normal billing cycle, on the June 2, 1980, water and sewer service bills. However, these bills were based on meter readings taken on May 10, 1980, for service provided from April 10 to May 10, 1980. Thus, the UTILITY increased its rates to its customers fourteen (14) days prior to April 24, 1980, the effective date of the COMMISSION's order authorizing such increase. The UTILITY's action was, however, taken in good faith, and based on a COMMISSION staff member's representation that the interim rates could properly be included in the June billing. The amount of revenues received from the interim rate increase and collected prior to the effective date of Order No. 9344 is approximately $8,700. (Testimony of Fabelo, Blair; P.E. 1, R.E. 3.) However innocently imposed, the UTILITY's action constitutes improper retroactive ratemaking. The UTILITY should refund to customers of record during the period in question their pro-rata share of revenues collected by the retroactive rate increase. The amount of each refund will depend on the amount of water consumed and paid for during the period of retroactive rates-- approximately April 10 through April 24, 1980. The UTILITY may minimize costs by distributing the refunds as separately itemized credits on its regular service bills. (Testimony of Fabelo; R.E. 3.) II. Factors Relevant to Ratemaking In determining whether a rate increase is justified, the COMMISSION must consider several factors, including (1) quality of service, (2) rate base, (3) a fair rate of return on the utility's investment, and (4) operation and maintenance expenses; each is separately addressed below. (Testimony of Asmus, Lowe.) III. Quality of Service During 1979, several customers of the UTILITY experienced occasional low water pressure in their homes. It is likely that these water pressure problems were caused by fluctuating amounts of electricity supplied the UTILITY by Florida Power Corporation. The UTILITY has recently installed an electronic control panel and Florida Power has installed a direct transmission line to the UTILITY in order to prevent this from reoccurring in the future. Several times during 1980, the UTILITY had its water service interrupted due to a cable-TV company cutting its water lines while laying cable; repairs, however, were quickly made. Few customer complaints have been made to regulatory agencies concerning the quality of the water and sewer service provided by the UTILITY: one complaint on water service was made to the Florida Department of Environmental Regulation in 1979, and subsequently determined to he unfounded; no complaints were made to the Department concerning sewer service. Although several customers testified that the water sometimes caused irritation, tests show that the water meets Florida and federal safe drinking water standards. The sewage treatment provided by the UTILITY also complies with state and federal requirements. The water and sewer service is, therefore, determined to he of satisfactory quality. (Testimony of Blair, Bostwick, Customers.) IV. Rate Base A regulated utility is entitled to an opportunity to earn a fair rate of return on its investment in plants and facilities which are used and useful in providing water and sewer service to the public. The utility investment is referred to as "rate base". Here, the average water and sewer rate base for the UTILITY's test year ending September 30, 1979, is calculated as follows: AVERAGE RATE BASE WATER SEWER Utility Plant in Service $847,287 2/ $1,218,363 Utility Plant held for Future Use (271,153) (608,476) Accumulated Depreciation (82,099) (97,306) Contributions in Aid of Construction (183,749) 3/ (178,456) 3/ (CIAC)--Net Allowance for Working Capital 11,983 4/ 11,851 TOTAL RATE BASE $322,627 $ 354,433 (Testimony of Blair, Asmus, Heiker, Lowe; Respondent's Proposed Findings of Fact and Conclusions of Law, Pg. 3; P.E. 4, R.E. 2.) V. Rate of Return A fair rate of return is the percentage factor that, when multiplied by the rate base, produces revenue that will pay the costs of capital--interest on debt to lenders, and return on equity to stockholders. In this case, after considering the UTILITY's capital structure and that of its parent company, Gulfstream Land and Development Corporation, the parties stipulated that a fair rate of return is determined to be 12.40 percent, and is calculated: COST OF CAPITAL Test Year Ending September 30, 1979 COMPONENT RATIO COST RATE WEIGHTED COST Common Equity 33.3 percent 15.50 percent 5.16 percent Long-Term Debt 53.0 13.67 7.24 Cost-Free Capital 13.7 -0- -0- TOTAL 100.0 percent Midpoint 12.40 percent (Testimony of Lowe, Asmus; Joint Stipulation of Parties, Joint Exhibit 2; P.E. 10.) VI. Operations and Maintenance Expenses The adjusted operation and maintenance expenses, including depreciation and taxes, of the UTILITY for the test year are set out below: CONSTRUCTED STATEMENT OF OPERATIONS Test Year Ending September 30, 1979 WATER SEWER Operating Revenues: $160,531 5/ $83,830 5/ Operating Expenses: Operation 84,275 6/ 90,480 7/ Maintenance 11,586 4,324 Depreciation 12,219 16,014 Taxes Other than Income Tax 7,330 8/ 4,581 8/ Provision for Income Taxes 9,786 9/ -0- TOTAL EXPENSES $125,196 $115,399 Operating Income (Loss): $35,334 ($31,569) (Testimony of Asmus, Lowe; COMMISSION's Proposed Findings of Fact; P.E. 10, R.E. 1.) The depreciation expense indicated above includes an adjustment of $2,015 (water) and $6,788 (sewer) proposed by the UTILITY as a result of a rate base adjustment which properly reclassified plant balances to their proper month. The UTILITY had inadvertently posted plant additions to a year-end entry, rather than to the months the additions were completed. At hearing, the COMMISSION agreed to the rate base adjustment and agreed, "in principle", to the UTILITY's proposed correlative adjustment to depreciation expense. However, in its posthearing Proposed Findings of Fact, the COMMISSION's counsel disputed the UTILITY's adjustment, and offered a substitute adjustment: ". . .However, in actual calculation, the. . . [COMMISSION] disagrees. The utility's adjustment does not consider used and useful as applied to the expense. In addition, the. . . [UTILITY's] adjustment includes expense on pro-forma plant. The. . .[COMMISSION's] calculation considers these adjustments. (Pg. 4, Paragraph D.) Because factual issues are difficult to resolve by posthearing submittal, evidence should be presented at hearing, where it is subject to cross- examination and rebuttal. At hearing, the COMMISSION did not object to the depreciation expense adjustment presented by the UTILITY; neither did it cross- examine to elicit the method used for its calculation nor move for a continuance based on surprise or inability to adequately verify the UTILITY's figures. Rather, it chose to defer examination of and rebuttal to the UTILITY's evidence until after the conclusion of hearing. Under such circumstances, the COMMISSION's posthearing submittal is insufficient to overcome the competent evidence adduced by the UTILITY. (Testimony of Asmus, Lowe; Respondent's Proposed Findings of Fact, Pg. 3, 4; P.E. 10.) VII. Tariff Modifications By its application, the UTILITY also requested COMMISSION approval of proposed water and sewer tariff modifications. By stipulation of the parties, the following modifications to the UTILITY's tariffs are warranted: The initial connection charge and reconnect charge on delinquent accounts is TEN AND NO/100 DOLLARS ($10.00) during working hours and FIFTEEN AND NO/100 DOLLARS ($15.00) after working hours. Customer deposit shall be FIFTY AND NO/100 DOLLARS ($50.00) for both water and sewer service and TWENTY-FIVE AND NO/100 DOLLARS ($25.00) for either water service alone or sewer service alone. Customer deposits may be increased to the foregoing sums on delinquent accounts after giving thirty (30) days' written notice, which notice shall be separate and apart from any bill for service. (Testimony of Fabelo; Prehearing Stipulation; P.E. 1, R.E. 3.) VIII. Rates The UTILITY seeks, and the COMMISSION recommends approval of these specific rates and charges: WATER RATES RESIDENTIAL RATES Base facility charge per month based on meter sizes for zero consumption. METER SIZE 5/8" x 3/4" $ 5.00 1" 12.50 1-1/2" 25.00 2" 40.00 Gallonage Charge-Per 1,000 gallons .75 General Service Base Facility charge per month based on meter sizes for zero consumption. METER SIZE 5/8" x 3/4" $ 5.00 1" 12.50 1-1/2" 25.00 2" 40.00 3" 80.00 4" 125.00 Gallonage Charge-Per 1,000 gallons .75 SEWER RATES RESIDENTIAL RATES Base facility charge per month $ 5.00 First 10,000 gallons-Per 1,000 gallons .75 Over 10,000 gallons-Monthly flat rate 12.50 General Service Base facility charge per month based on motor size for zero consumption. METER SIZE 5/8" x 3/4" 5.00 1" 12.50 1-1/2" 25.00 2" 40.00 3" 80.00 4" 125.00 Gallonage Charge-Per 1,000 gallons .75 These requested rates are structured using a base facility charge (BFC) rate design. This rate design requires customers to pay: (1) their pro-rata share of the UTILITY's fixed facility costs, and (2) a charge for pumping, treating, and delivering the actual water gallonage consumed, by 1,000 gallon increments; it equally distributes the costs of providing utility service and the COMMISSION encourages its use. (Testimony of Fabelo; Respondent's Proposed Findings of Fact; P.E. 1, P.E. 3.) These rates proposed by the UTILITY will generate water revenues of $158,890 and sewer revenues of $58,865, which provide a rate of return on water rate base of 10.52 percent, and a zero return on sewer rate base. Combined water and sewer operations will earn a rate of return of .35 percent, whereas a fair rate of return in this case has been stipulated to be 12.40 percent. Although the proposed rates will not provide the UTILITY with a fair return, the quality of its present water and sewer service will not suffer, or be decreased in any manner. (Testimony of Blair, Asmus; P.E. 10.)
Conclusions The water and sewer rate increases and tariff modifications requested by Petitioner are just, reasonable, not unjustly discriminatory, and should be granted. Although the rates will provide less than a fair return, it has not been shown that Petitioner's service will suffer. Petitioner's collection of interim rate increases from its customers prior to the effective date of Order No. 9344 violates Section 367.081(1), Florida Statutes (1979); all revenue so collected should be refunded to its customers. Revised tariff pages should be filed, a letter explaining the rate increases should be sent to Petitioner's customers, and the Petitioner's letter of credit, returned.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the UTILITY's application for approval of the rates specified in Paragraph 11, infra, be granted; That the UTILITY be required to submit, for COMMISSION approval, revised tariff pages containing the new rates and rate structure; That the UTILITY be required to send to its customers a letter, approved in form by the COMMISSION, explaining the rate increases and reasons therefore; That the irrevocable letter of intent drawn on the Pan American Bank, dated May 3, 1980, be returned to the UTILITY and the bank releaned thereafter; That the tariff modifications contained in Paragraph 10, infra, be approved; and That the UTILITY be required to expeditiously refund to its customers the interim rate increases collected prior to the effective date of PSC Order No. 9344. DONE AND ENTERED this 24th day of November, 1980, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
The Issue The issue is whether Respondent should be required to obtain a current operating permit for his aerobic treatment unit and have a $500.00 fine imposed for violating an agency rule for the reason cited in the Citation for Violation issued by Petitioner on December 1, 1999.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: In this dispute, Petitioner, Department of Health (Department), has alleged that Respondent, Dr. Anthony Massaro, a retired public health physician, failed to obtain an annual operating permit for an aerobic treatment unit (ATU) located at his residence at 3402 North Oceanside Boulevard, Flagler Beach, Florida. The Flagler County Health Department (Health Department) is charged with the responsibility of issuing such permits. That department is under the direction and control of Petitioner. While Respondent readily admits that he failed to obtain a permit, he contends that he was misled by the Health Department when he first installed an ATU at his residence; the Health Department is not enforcing the law regarding ATUs and thus another system would be more appropriate; and the law, as he interprets it, allows him to install another type of on-site sewage disposal unit on his property. Respondent purchased his property in Flagler County in 1997. The property is located in Ocean View Estates Subdivision (subdivision), which has an Urban Single-Family Residential District (R-1b) zoning classification under the Flagler County Land Development Code (Code). Section 3.03.05A of the Code requires that owners within the R-1b classification use "public or community water and sewer facilities," but makes an exception for "[s]mall R-1b subdivisions, fifty (50) lots or less, utilizing a public community water system," in which case residents "may utilize Class I aerobic onsite sewage disposal systems." Further, "[t]he use of individual onsite sewage disposal systems must be consistent with adopted county policies and standards." Because the subdivision has 50 lots or less, and public or private sewer facilities were not available in the area, the subdivision's Plat Agreement recorded in 1995 provided that "[i]ndividual aerobic onsite sewage disposal systems are to be permitted and constructed as each lot is developed." Another type of onsite sewage disposal system is the anerobic system, which has a septic tank and larger drainfield, is far less expensive, but does not conform with "county policies and standards" in this locale. Thus, this type of system requires a variance from the zoning regulations before one can be installed in the subdivision. Even so, Respondent says "all" of his neighbors have installed such a system. Because of the Plat Agreement, the zoning restriction, the difficulty in obtaining a variance, and the lack of a sewer line, Respondent had no choice except to use an ATU system for his residence. This meant that he had to apply for a permit from the Health Department. Once a permit is obtained and an ATU installed, the owner must renew his operating permit annually at a cost of $150.00, and he must enter into a maintenance agreement with a licensed contractor. The $150.00 fee is used to defray the costs incurred by the Health Department in making quarterly inspections and performing annual sampling and laboratory analysis of effluent. The record does not reflect precisely when a sewer line became operational across the street from Respondent's property, but the sewer project was accepted "for service" in April 1998, or before Respondent's ATU was installed in August 1998. Had Respondent known this, he would have obviously chosen that option rather than an ATU. The evidence reflects that in November 1997 Respondent made application for an ATU with the Health Department, a permit was issued in December 1997, and the system was installed and approved in August and September 1998, respectively. In early April 1998, the Health Department was advised by the private utility company that it would accept new sewer connections in a service area that included Respondent's home. However, Health Department representatives made no mention of this to Respondent since they were under the impression that he desired to use the ATU option, they do not normally "counsel" applicants on onsite sewage disposal system options, and Respondent had made no inquiry. Disclosure of this fact would have saved Respondent considerable money (and grief) in the long run; unfortunately, however, while good public relations would dictate otherwise, the Health Department had no legal obligation to do anything other than process the pending application. Likewise, it has no obligation in law to now pay the costs for Respondent to hook up to the line because of its non-disclosure. Respondent has now invested more than $5,000.00 in his ATU. This type of system is operated by a compressor in Respondent's garage, which must be run 24 hours per day, and is very noisy. Because of this, Respondent understandably wishes to change to an anerobic system, which has a traditional septic tank, larger drainfield, no unsightly "mound" in the yard, no annual permits, and is far cheaper than an ATU. Also, it does not require a noisy motor to sustain operations. However, this type of system is prohibited by the Code except where a variance from Flagler County (County) has been obtained. It appears to be unlikely that Respondent can obtain a variance from the County. Because Respondent's property is so low in relation to the sewer line, to achieve the proper gravity, he must install a lift station and pay a connection fee, both totaling $3,540.00, before hooking up to the sewer system. Given these costs, and the considerable investment he already has in an ATU, Respondent does not consider this to be a viable alternative. Respondent pointed out that, despite the requirement that they do so, many ATU owners in the County are not running their systems 24-hours per day because of the noise from the compressor. He also pointed out that the Health Department has consistently found numerous violations of such systems during its inspections. He further asserted that while the $150.00 annual fee is to defray certain sampling and laboratory analysis costs associated with inspecting ATUs, the Health Department has done neither on his ATU. Finally, Respondent pointed out that prior to 1999 the regulations were enforced by sampling the compliance of a very small percentage of total ATU systems (ten percent), rather than all systems, in the County. Given these considerations, Respondent concludes that ATUs are the least effective way to treat sewage, and that existing laws and regulations have not been enforced. Assuming these allegations to be true, and they were not seriously disputed, they are legitimate concerns. However, until the law is changed, they do not constitute a lawful basis for allowing Respondent to switch to an anerobic system. Respondent further contended that under his interpretation of the general law, which was not fully understood by the undersigned, he is not required to use an ATU. But local zoning regulations clearly require that he do so, and until the state or local regulations are changed or waived, he cannot use an anerobic system. Finally, Respondent has cooperated with the Department throughout this process. With his lengthy public health background, Respondent initiated this action with good intentions, seeking to point out the flaws in the ATU systems, and to remedy a problem which none of his neighbors apparently have. Given these considerations, a civil penalty should not be imposed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health enter a final order sustaining the charge in the Citation for Violation and requiring that Respondent obtain an annual permit for his ATU. A civil penalty is not warranted. DONE AND ENTERED this 20th day of June, 2000, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of June, 2000. COPIES FURNISHED: Angela T. Hall, Agency Clerk Department of Health Bin A02 2020 Capital Circle, Southeast Tallahassee, Florida 32399-1703 Charlene J. Petersen, Esquire Department of Health 420 Fentress Boulevard Daytona Beach, Florida 32114 Dr. Anthony Massaro 3402 North Oceanside Boulevard Flagler Beach, Florida 32136 Amy M. Jones, General Counsel Department of Health Bin A02 2020 Capital Circle, Southeast Tallahassee, Florida 32399-1701
Findings Of Fact Quality of Service There were no customers of the utility present at the public hearing, except for the Department of the Navy. As a result, there is no public testimony in the record relating to the quality of the water and sewer service provided by the utility. However, a representative of the Department of Environmental Regulation and an engineer from the Public Service Commission agree that the utility's water treatment meets all relevant quality standards, and its sewage treatment is within acceptable limits. Nevertheless, there exist problems of infiltration into the company's sewage lines which have resulted in variations in its level of treatment efficiency. The Department of the Navy acknowledges that some of these infiltration problems originate at the Navy housing facility, and the Navy asserts that corrective measures will be undertaken. In the meantime, the Navy contends that the sewage flows from its housing facility have been underestimated, resulting in an overstatement of revenue to the utility. However, there is insufficient specific evidence in the record to support a finding of fact resolving this issue. Since the variations in the utility's sewage treatment efficiency are within acceptable levels, the Company's wastewater treatment is found to be satisfactory. Rate Base By its exhibits, the utility has alleged its adjusted rate base to be $59,401 for water and $87,134 for sewer. Public Service Commission adjustments reduce and correctly state the water rate base to be $19,356 and the sewer rate base to be $65,552. The utility contests the removal of $16,530 from sewer rate base as a contribution in aid of construction (CIAC). This amount is the difference between the $155,000 paid by the Duval County School Board to a partnership consisting of the utility's partners and others, and the $138,170 recorded on the books of the utility. It contends the $16,330 represents a contractor's profit to one of the former partners of utility, but this amount is properly recordable as CIAC and should be removed from rate base. Other adjustments are either not contested, or make no material difference in the utility's revenue requirements, and should be accepted. The accompanying schedules 1 and 3 detail the rate base for both water and sewer with appropriate explanations for the adjustments. Cost of Capital Representatives from the utility and from the Public Service Commission presented evidence on the issue of cost of capital. The major area of disagreement relates to the company's capital structure. The Commission contends that the utility is 100 percent debt, while the utility asserts the capital structure to be 52.97 percent equity and 47.03 percent debt. The Commission's contention is based on the annual reports filed by the utility wherein a deficit is reported in the equity account. The utility, however, has made several adjustments to the investment shown in the annual reports which it alleges increase equity from a deficit of $39,804 to a positive amount of $92,727. The first adjustment made by the utility is in the amount of $22,700 to make the amount of investment equal to rate base, in accordance with principles of double entry bookkeeping. However, because revenue requirements of public utilities are based on used and useful plant in service rather than on total assets, it is not uncommon for the rate base to be different in amount from the total capitalization. Thus, this adjustment is unnecessary and improper. The utility's second adjustment increases the amount of investment by $39,464 as the Unrecovered Cost of Abandonment of Utility Plant. The plant to which this adjustment refers was abandoned, and because of the hazards presented by the abandoned structure, it was disassembled and scrapped. The unrecovered costs were written off for tax purposes, but were not written off for regulatory purposes. This amount should be treated as any other loss, and the adjustment to increase investment should be disallowed. When a utility has recovered the cost of a loss due to abandonment through a write off against income, the placement of the amount of the investment in the capital account results in accounting twice for the loss. The third adjustment involves an amount of $57,067 representing loans procured by the utility's partners from a financial institution. Although these loans were made directly to the partners, the proceeds were used by the utility and the company services the debt. The utility contends that these funds are equity, and it has increased the investment account by the amount thereof. However, the intent of the parties to the transaction was that the funds borrowed by the partners were loaned to the utility, not invested in it. Accordingly, the utility's adjustment is improper; the amount of the loan should be considered as debt in the utility's capital structure; and it should be allowed to earn the embedded cost of this debt, but not an equity return on the amount thereof. In summary, since this utility's equity account has a deficit balance, the appropriate capital structure is 100 percent debt. The cost of this debt is its embedded cost, estimated to be 11.75 percent overall, and the weighted cost is 10.21 percent, as shown in the following table. CAPITAL STRUCTURE COMPONENT PERCENT OF AMOUNT CAPITAL COST RATE WEIGHTED COST Mortgage Note $36,593 20.9 8.00 2.312 Loans Outstanding 48,162 38.0 9.69 3.681 Proposed Note 41,870 33.1 12.76 (est) 4.220 TOTAL $126,625 100.0 10.213 perc. These "Amounts" are the non-current portion of the debt. Operating Statements The accompanying schedules 2 and 4 detail the operating statements for both water and sewer, with appropriate adjustments. The utility contests the Commission's disallowance of depreciation on its proforma plant acquisition. However, the plant has not yet been constructed. Thus, although the proforma plant adjustments have been agreed to, depreciation expense thereon cannot be allowed. The utility further challenges a Commission adjustment disallowing depreciation expense on contributed assets. This adjustment is proper and should be allowed. The utility also contends that it should be allowed income taxes, asserting that an unincorporated proprietorship is entitled to the same income tax expense as a corporation, and that the related income taxes do not have to be paid, merely accrued. However, the purpose of the income tax accounts in the NARUC Uniform System of Accounts is to allow entities which pay income accounts in which to record them. There is no provision in the uniform system for recordation of a nonexistent expense. Since the utility admits that the partnership has paid no income taxes, the disallowance is proper. Finally, the utility contests what it claims is disallowance by the Commission of all its proposed amortization of abandoned plant. However, the exhibits reflect that the Commission increased the amount of amortization expense from $2,790 to $3,284 for water, and from $3,016 to $6,468 for sewer, to allow for amortization of the abandoned plant. Revenue requirements The application of a 10.21 percent rate of return to the adjusted rate base for both water and sewer requires that the utility receive gross annual revenues of $33,752 for water and $81,432 for sewer. These revenues represent increases of $9,381 and $23,446 for water and for sewer, respectively. See Schedules 2 and 4 attached). Rate structure The utility provides water service to an average of 67 residential customers, 12 general service customers and 11 multi-dwelling customers (Average 346 Units). It provides sewer service to an average of 26 residential customers, 12 general service customers and 4 multi-dwelling customers (Average 645 Units). The present residential water rates are structured to provide for a minimum quarterly charge, which includes a minimum number of gallons, and a one- step excess rate over that minimum. The proposed rates follow the same basic structure. The present general service water rates are structured in the same manner, except that the rates for this classification are approximately 25 percent higher than residential. The proposed rates follow the same basic structure. The present multi-dwelling water rates are structured in compliance with the provisions of the old Rule 25-10.75, Florida Administrative Code, which provided that the rate for master metered multiple dwelling structures should be 66 2/3 percent of the minimum residential rate, with an equal minimum gallonage allowance included within the unit minimum charge. The total number of gallons to be included within the minimum gallonage allowance was determined by the number of units served, with excess gallons over the cumulative allowance to be billed at the excess residential rate. The proposed races follow the same basic structure for determining the minimum gallonage allowance and excess gallonage over the minimum allowance. The proposed minimum charge per unit has been structured approximately 25 percent higher than the proposed minimum unit charge for residential service. The proposed excess rate has been structured at the same level as general service, which is approximately 25 percent higher than the residential service rate. Any rate structure that requires a customer to pay for a minimum number of gallons, whether those gallons are used or not, is discriminatory. Over 27 percent of this utility's basic residential customers did not use as much as the minimum gallonage allowance during the test year. The average number of gallons consumed in the gallon brackets below the minimum allowance bracket was 3,197 gallons per customer per quarter. A rate structure that requires the general service customers to pay a higher rate than the other classifications of service is also discriminatory. Since the Cost of Service to Multiple Dwelling Structures Rule 25- 10.75, Florida Administrative Code, was repealed by Commission Order No. 7590, issued January 18, 1977 in Docket No. 760744-Rule, it has been the practice of the Public Service Commission to structure this type customer in the general service classification, and to structure water rates under the Base Facility Charge form of rate design. The basic concept of this type rate design is to determine a base charge whose foundation is based on the associated costs of providing service to each type customer. The charge covers associated costs such as transmission and distribution facility maintenance expenses, depreciation, property taxes, property insurance, an allocated portion of customer accounts expenses, etc. The amount of the charge is determined by an equivalent residential connection formula using the standard meter size as the base. There are not any gallons included within the frame of the Base Facility Charge. The second structure is to determine the appropriate charge for the water delivered to the customer. This charge would cover related costs such as pumping expenses; treatment expenses, an allocated portion of customer accounts expenses, etc. The primary reasoning supporting this type structure is that each customer pays a prorata share of the related facility costs necessary to provide service, and thereafter the customer pays for only the actual number of gallons consumed under the gallonage charge. The present residential sewer rates are structured in the manner of a quarterly flat-rate charge for all residential customers. The proposed rates are structured with a minimum charge, which includes a minimum number of gallons and an excess rate above that minimum. The present general service sewer rates are structured so that a percentage factor is applied to the water bill to determine the sewer charge. The rates for this classification are structured approximately 25 percent higher than residential. The proposed rates are structured with a minimum charge, which includes a minimum number of gallons and an excess rate above the minimum. The proposed rates are structured approximately 25 percent higher than residential. The present multi-dwelling sewer rates are structured in compliance with the provisions of the old Rule 25- 10.75, Florida Administrative Code, which provided that the rate for sewer service to multiple dwelling units should be 66 2/3 percent of the basic charge for sewer service to single residential units. The proposed rates are structured with a minimum charge for each unit, which includes a minimum number of gallons, and an excess rate over the minimum. The minimum charge per unit and the excess rate are structured approximately 25 percent higher than residential. Since the repeal of Rule 25-10.75, Florida Administrative Code, it has been the practice of the Public Service Commission to structure this type customer in the general service classification of customers, and to structure sewer rates under the Base Facility Charge form of rate design. This should be implemented by the utility for both water rates and sewer rates. The utility has been misapplying its schedule of rates for the commercial sewer classification of service. The schedule calls for 250 percent of the water bill with a minimum charge of $0.15 monthly ($24.45 quarterly). However, the utility has been billing its commercial sewer customers 250 percent of the water bill plus the minimum charge. This amounted to an overcharge to this customer classification of approximately $1190 during the test period. The utility should be required to make the appropriate refund to each commercial sewer customer, and the amount of this overcharge has been removed from test year revenues on the attached schedule 4. The utility is collecting a meter installation charge of $200, and a charge of $246 for each connection to the sewer system, without any apparent tariff authority. Further, the charges made for customer reconnect after disconnection for nonpayment are not adequate to cover the associated costs of this service. An investigation docket should be opened to consider the appropriateness of the meter installation charge, and to receive evidence of actual costs of service restoration. Finally, insufficient facts were presented to support a finding relative to the validity of the utility's sewer service contract with the Navy or the compatibility of the charges for sewer service to the Navy with the utility's tariff. These issues should be revisited during the course of the investigation docket. However, the utility's practice of requiring customer deposits when service is billed in advance should be discontinued.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Buccaneer Service Company, 1665 Selva Marina Drive, Atlantic Beach, Florida 32233, be granted in part, and that the utility be authorized to receive gross annual water revenue of $33,752, and gross annual sewer revenue of $81,423, by rates to be approved by the Public Service Commission. It is further RECOMMENDED that the utility be required to adopt a Base Facility charge form of rate design for both water and sewer rates, and to make appropriate changes in its tariff. It is further RECOMMENDED that the utility be required to refund to each commercial sewer customer a prorata portion of the total amount of overcharges collected since the beginning of the test year. It is further RECOMMENDED that an investigation docket be opened for the purpose of making further inquiry into the appropriateness of the utility's meter installation charge, to receive evidence of actual costs of service restoration, and to determine the validity of the utility's contract for sewer service with the Navy and the appropriate rate to be charged for this service. And it is further RECOMMENDED that the utility be required to discontinue the practice of collecting customer deposits for service which is billed in advance. THIS RECOMMENDED ORDER entered on this 6th day of August, 1980. WILLIAM B. THOMAS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
