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 The incorporation of the condominium association of the Orchards of Radcliffe, a Condominium, (hereinafter "Radcliffe Condominium") occurred on October 19, 1981, and the declaration of condominium occurred on or about December 12, 1981. Interrogatory answers 7 and 9, P. Ex. 3. The Developer of the Radcliffe Condominium, was the Respondent, Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium. The Developer of the Radcliffe Condominium elected pursuant to section 718.116(8)(a)1, Fla. Stat. (1985), to be excused from the payment of its share of the common expenses and obligated itself to pay that portion of the common expenses incurred during the election period which exceeded the amount assessed against other unit owners. Answer to interrogatory 2(a), P. Ex. 3. The Developer did not offer a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The first closing of a condominium unit at Radcliffe Condominium occurred on January 6, 1982. Interrogatory answer 1, P. Ex. 3. The turnover of control from the Developer to the condominium association occurred on January 22, 1986. P. Ex. 2. The Developer of the Radcliffe Condominium did not make monthly payments on the common expenses incurred from about May, 1982, through January, 1986, on some of the units owned by the Developer. The Developer contends that by using funds from related corporations, it paid expenses of maintenance directly to suppliers and creditors as needed, and that in so doing, it paid more than what it had obligated itself to pay monthly for assessments for common expenses on Developer owned units. The Department contends that the Developer did not pay the monthly obligations for units owned, that the failure to make such payments was the cause of the association not having enough funds to pay expenses when due, and that the Developer now owes a substantial amount for back payments. The Developer did in fact pay some bills directly from funds from related corporations. During the course of the final hearing, the Petitioner withdrew all issues that may have existed in this case concerning whether the Respondent owes any amount for past assessments, or the amount owed. As a result, the Respondent was not permitted to attempt to prove the amount of payments of expenses that were paid directly rather than as monthly unit assessments. Consequently, on this record, no finding of fact can be made as to the amount of direct payments, or whether the amount of such direct payments exceeded the amount of unit assessments owed by the Developer, but not paid. Within sixty days after turnover, a Developer is required to provide the condominium association with a turnover review. A turnover review is intended to provide the association with an accounting only for the period during which the Developer had control. A turnover review is intended to show whether the Developer fulfilled its stewardship responsibilities toward the condominium association. It is less formal than an audit, but more formal than a mere compilation. The Developer provided the condominium association with the turnover review on or about November 28, 1986, eight months late. A substantial reason for the delay was that the Developer did not completely pay the Certified Public Accountant who was hired to do the review. Another substantial reason for the delay was the fact that the Developer did not keep good records of payments of association expenses, and failed to follow good accounting practices in making payments directly rather than through association accounts. See finding of fact 13. The turnover review reviewed the balance sheet as of June 30, 1986, and the related statements of assessments, revenues, expenses and fund balance, and changes in cash position for the six months ended as of June 30, 1986. P. Ex. 1. The turnover review covered only the six months from January 1, 1986 to June 30, 1986. Thus, the turnover review failed to cover only the period of time that the Developer had control and had stewardship responsibilities toward the condominium association. The turnover review incorrectly assumed that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The turnover review did not address the question whether the Developer paid its unit assessments of common expenses pursuant to section 718.116(8)(a)1, Fla. Stat. (1985) because of the erroneous assumption in the review that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). Payment by the Developer of association expenses directly, rather than through association accounts, is contrary to good accounting practices. Failure to pay assessments when due results in retention by the Developer of funds owed the association. Thus, the failure of the Developer to pay assessments when due resulted in a form of commingling of Developer and association accounts and funds. Payment of expenses owed by the association by the Developer's related corporations was another form of commingling of accounts and funds.
Recommendation It is therefore recommended that the Department of Business Regulation, Division of Florida Land Sales, Condominiums, and Mobile Homes enter its final order assessing a civil penalty of $4,000 against Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, and requiring Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, within sixty (60) days of the date of the final order to provide the condominium association with a turnover review that complies with the requirements of section 718.301(4)(c), Fla. Stat. (1985) and all other requirements of law governing turnover reviews. DONE and ENTERED this 17th day of July, 1987 WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of July, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-1227 The following are rulings upon findings of fact proposed by the parties, using the numbers or designations used by each party, which have been rejected in this Recommended Order: Findings of fact proposed by the Petitioner: 1. The second sentence has been adopted as a conclusion of law. Rejected for the reasons stated in finding of fact 7. A conclusion as to whether "enough" money would have been available in association accounts cannot be made since a full accounting of all payments and expenses has not been made or placed in evidence. The second sentence has been adopted as a conclusion of law. 9. Most of this proposed finding of fact has been adopted as a conclusion of law. Findings of fact proposed by the Respondent: The testimony as to discussions with the Petitioner was not sufficiently precise in time for a conclusion to be drawn that either the Respondent was acting diligently toward obtaining the turnover review, or that the Petitioner had consented to the delay. As a matter of law, the responsibility for the turnover review is upon the Developer, and is not the responsibility of the association's agent. Section 718.301(4)(c), Fla. Stat. (1985). The second paragraph does not establish a defense since the Developer had the responsibility to maintain good records. The commingling occurred by the retention of funds due the association and the payment of association expenses from accounts not associated with the expenses. COPIES FURNISHED: Richard Coats, Director Department of Business Regulation Florida Land Sales, Condominiums and Mobile Homes The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 James Kearney, Secretary Department of Business Regulation The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 Thomas A. Bell, Esquire Department of Business Regulation The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000 Paul Haggar, President Radcliffe Condominium, Inc. 7939 Radcliffe Circle Port Richey, Florida 33568
The Issue Whether the application of Petitioner Florida Cities Water Company, to increase the ratios it charges customers for water service in Lee County should be granted. CONCLUSIONS and RECOMMENDATION Conclusions: Factors pertinent to ratemaking and enumerated in Section 367.081, Florida Statutes, have been considered in this pro- ceeding. The Petitioner utility has not justified use of "year-end" rate base; those adjustments which it has supported with a preponderance of evidence have been accepted, those lacking sufficient eviden- tiary support have been rejected. Peti- tioner's application for rate increase should be granted to the extent provided in this Recommended Order; the resulting rates are just, reasonable, compensatory, and not unjustly discriminatory. Recommendation: That the Commission recalculate adjusted rate base, operating income, and the result- ing additional and total gross revenues in a manner consistent with this Recommended Order, and that Petitioner be authorized to file new rates structured on the Base facility charge concept designed to generate the addi- tional and total annual gross revenues so specified.
Findings Of Fact Based upon the evidence presented at hearing, the following facts are determined: I. The Application By its application, the UTILITY seeks authority to increase its rates sufficiently to generate additional annual gross revenues of $1,483,300. It attributes the need for increased revenues to extensive additions recently made to its water plant pursuant to COMMISSION Order No. 6209 entered in Docket 74176-W. The UTILITY claims that the increased investment and higher operating expenses associated with such plant additions effectively reduce its rate of return to 4.2 percent; it asserts that the requested additional revenues are necessary to allow it to earn a fair and reasonable rate of return of 12 percent. (Testimony of Reeves, Cardey; P-2, P-8.) II. Rate Base There are three issues involving the proper determination of rate base in this case: (1) whether "year-end", rather than "average" rate base should be used, (2) whether an Allowance for Funds Used During Construction (AFUDC) for post-test period additions allowed in rate base is proper, and (3) whether connection fees collected from 1969 to 1973 should be recorded as Contributions in Aid of Construction (CIAC) "Year-end" v. "Average Rate Base In determining rate base, absent extraordinary or emergency conditions or situations, "average" rather than "year- end" investment during the test period should be used. City of Miami v. Florida Public Service Commission, 208 So.2d (Fla. 1968). The Florida Supreme Court has suggested that average investment "should not be departed from except in the most unusual and extraordinary situations where not to do so would result in rates too low as to be confiscatory to the utility." Id. at 258. Year-end investment may be used only when a utility is experiencing extraordinary growth. Citizens v. Hawkins, 356 So.2d 254 (Fla. 1978). The UTILITY has not established that it meets the standard for utilization of "year-end" rate base, i.e. , that it has experienced unusual and extraordinary growth. Its customer growth rate averaged 8.2 percent for the last seven years, with a 10.56 percent gain during the test year. This growth rate has been experienced by many other Florida utilities of similar size and is neither extraordinary nor unusual. Neither is the UTILITY's growth extraordinary when measured in terms of water sold. Between 1975 and 1979, its growth in water sales averaged approximately 11 per- cent, in 1980--6 percent. In terms of plant growth, the UTILITY averaged 19.37 percent over the last seven years; the growth rate for 1979 was 12.03 percent. However, in 3980, its investment in gross plant grew at a 33 percent rate. The UTILITY's growth rate was repeatedly described as "substantial" by its consultant, K. R. Cardey, but substantial growth does not equate to extraordinary or unusual growth as defined by the Florida Supreme Court. Furthermore, the UTILITY did not establish that failure to use "year-end" rate base would reduce its rates to a confiscatory level. See, City of Miami, supra. It follows that "average" investment during the test period is the proper method to utilize in determining rates in this case. (Testimony of Cardey, Deterding.) Appropriateness of Allowance for Funds Used During Construction (AFUDC) After the test period, the UTILITY completed five major additions to its plant, all of which were required by previous order of the COMMISSION. (Order No. 6209, Docket 74176-W.) The COMMISSION agrees that, since it required these post-test period additions, they should be included in rate base at full weight. Since these additions, which total $5,966,569, were under construction during the test period, the COMMISSION contends they should be recorded as Construction Work in Progress (CWIP). The UTILITY agrees that these additions should be included in rate base but seeks to include, as well , an AFUDC allowance in the amount of $326,422.2 AFUDC represents interest that was capitalized on each of these additions while they were under construction during and after the test period. Since these additions are already included in rate base at full weight, the inclusion of AFUDC in rate base would allow the UTILITY to duplicate earnings on its investment. Such a result would be unreasonable, improper, and should not be allowed. (Testimony of Reeves, Deterding; P-1, P-3, P-10, R-2.) Connection Fees: CIAC or Revenue From 1969 through 1973, the UTILITY operated under the regulatory jurisdiction of Lee County, not the COMMISSION. During those years, it was the UTILITY's practice and policy to record connection fees, which totaled $226,582, as revenue, not CIAC. Since connection fees are ordinarily considered CIAC, the COMMISSION proposes to adjust CIAC by $226,582. (Testimony of Deterding, Cardey; P-8, R-2.) Contributions in Aid of Construction are defined as monies used to offset the acquisition, improvement, or construction cost of utility property used to provide service to the public. Section 367.081(2), Florida Statutes (1980). The UTILITY's consultant testified that connection fees collected and credited to revenue by the UTILITY during 1971, 1972, and 1973, totaling $176,773, were "not used to offset the improvements or construction costs of the [UTILITY's] property. (P-8, p. 6.) The COMMISSION, on cross-examination, did not question the accuracy or impeach the credibility of this statement; neither did it present any evidence to controvert or rebut the UTILITY's assertion as to how the connection fees were used. The only evidence on the question presented by the COMMISSION consisted of its accountant's conclusion: "During the years from 1969 to 1973, Florida Cities Water Company recorded many tap-in fees collected as revenue. These should properly be recorded as contributions in aid to construction. This adjustment [of $226,582] adds these contributions." p. 5.)(Testimony of Deterding, Cardey; P-8, R-2.) In its Proposed Recommended Order, the COMMISSION asserts that the UTILITY has the burden of showing: (1) the correctness of collecting funds normally authorized for service availability and using them for another purpose, and (2) the exact manner in which the funds were used. (Proposed Recommended Order, p. 6.) However, there was no evidence in the record to show that the UTILITY's treatment of connection fees during 1971 through 1973, was incorrect or violative of Lee County's regulatory standards. Neither is there any evidence to show that the connection fees collected in those years were used as contributions in aid of construction, i.e., to offset acquisition, improvement, or construction costs. The only evidence presented as to how those fees were actually used was that of the UTILITY's consultant; he testified that those funds were used only to defray operation and other expenses associated with the new customers. This evidence was sufficient to shift to the COMMISSION the burden of presenting evidence on the question or discrediting the evidence presented by the UTILITY. The COMMISSION did neither. It is found, therefore, that the $176,773, representing connection fees collected between 1971 and 1973, do not constitute CIAC, the UTILITY's testimony in this regard being persuasive. (Testimony of Cardey, Deterding; P-8, R-2.) However, as to the years 1969 through 1970, the UTILITY presented no evidence that the $48,809 in connection fees collected during that time were used only for operating and maintenance expenses and not to offset acquisition, improvement, or construction costs. In the absence of such evidence, the COMMISSION testimony that connection fees should ordinarily be treated as CIAC is persuasive. The connection fees collected during 1969 and 1970, calculated to be $49,809, are therefore properly included as CIAC. (Testimony of Deterding, Cardey; P-8, R-2.) In light of the above findings and the absence of disagreement concerning other adjustments proposed by the COMMISSION, the elements of the UTILITY's adjusted rate base are: RATE BASE Test Year Ended March 31, 1980 Utility Plat in Service $ 11,178,094 Construction Work in Progress 5,966,569 3/ Accumulated Appreciation (626, 160) CIAC,(Net of Amortization) (3,041,747) 4/ Advances for Construction (111,567) AFUDC (326,422) 5/ Working Capital Allowance 146,911 Materials and Supplies 117,450 Income Tax Lay [To be calculated based on additional gross revenues rec- opmended herein.] RATE BASE [To be determined upon recalculation.] In order to determine the adjusted rate base which should be utilized, Income Tax Lag requires recalculation in a manner consistent with the above findings and Section III below. (Testimony of Cardey, Deterding; P-1, P-3, P-8, P-10, R- 2.) III. Operating Income Operating Expense: Water Royalty Charge In calculating operating income for the test year, the UTILITY included $18,577 as an operating expense attributed to a $.03 per gallon royalty charge it paid an affiliate for water pumped from the Green Meadows well field. The UTILITY operates this water field on a 21-acre site and has easements to locate 26 wells. It pays no other cost for the water. The COMMISSION disputes the reasonableness of this charge because it is not an arms-length transaction, and the UTILITY has not explained the basis of the $.03 charge, the cost to the affiliate of the land involved and its subsequent sales price (the affiliate reserving the water use rights) , and the identity of the present owner. The COMMISSION's accountant testified that reasonableness of the charge could be determined by analyzing the costs of the rental of the land based on the original cost of the property to the affiliate. In response, the UTILITY established that the $18,577 expense is less than it would cost tide UTILITY, in terms of annual revenue requirements, to purchase the land involved. But the UTILITY failed to address the cost of renting the property, based on the affiliate's acquisition costs, or furnish information necessary to make such a determination. The COMMISSION is entitled to clearly scrutinize the expenses claimed by a utility and require that their reasonableness be shown. Tide UTILITY did not adequately explain or support the reasonableness of its claimed royalty expense, and it should therefore be disallowed. (Testimony of Reeves, Deterding; P-6, R-2.) Depreciation and Taxes: Adjustments Attributable to Post-Test Period Plant Additions The parties disagree on whether adjustments should be made to test year operating expenses to reflect increases in depreciation and taxes due to the five post-test year plant additions completed subsequent to the test period. The evidence is uncontroverted that these plant additions, including the Green Meadows water treatment plant and related facilities, were required by prior COMMISSION order and that they were necessary to provide service to existing customers of the UTILITY. The parties have also agreed that the full cost of these additions should be included in rate base, at full weight. The operating expenses of the UTILITY during the test year should be adjusted as was rate base, for known and no net changes in order to reflect conditions which will prevail when the rates become effective. The UTILITY's 2.1 percent composite depreciation rate should thus be applied against the new plant additions, and tide resulting depreciation expense included in the cost of providing service. Similarly, taxes (other than income) on the $5,960,569 worth of plant additions are known and eminent, are a cost of providing service, and should be included as an adjustment to test year taxes. The COMMISSION presented no policy or factual justification or explanation for its opposition to these adjustments to test year operating expenses. It does not contend that these expenses are other than known and eminent, attributable to the government-ordered plant additions, and will be part of the cost of providing service during the period the new rates will be in effect. The UTILITY's evidence in support of these adjustments is therefore persuasive. (Testimony of Cardey, Deterding; P-1, P-8, P-10, R-2.) Similarly, the UTILITY contended that test year income tax should be adjusted to reflect changes in revenue, operating expenses, depreciation, taxes, and interest expenses attributed to operation of the new plant addition. The COMMISSION offered no reason or explanation why such an income tax adjustment should not be made; changes in income tax due to the operation of the plant additions are known and eminent, and should be allowed as adjustments to test year expenses in order to adequately represent the UTILITY's future costs of service. However, due to the findings herein relating to use of "average rate base, the AFUDC allowance, treatment of connection fees previously collected, the water royalty charge, depreciation, and taxes, the income tax adjustment proposed by the UTILITY requires recalculation. (Testimony of Cardey, Deterding; P-1, P-0, P-10, R-2.) In light of the above findings, and the UTILITY's lack of opposition to other adjustments proposed by the COMMISSION, the known elements of adjusted operating income are: operating revenues of $2,419,437 and operating expense (operation) of $1,175,291. In order to determine adjusted operating income which should be used in this case, depreciation, taxes other than income, and income taxes require recalculation consistent with the findings contained in Sections II and III, infra. (Testimony of Cardey, Deterding; P-1, P-8, P-10, R- 2.) IV. Capital Structure, Cost of Capital, and Rate of Return The parties agree that UTILITY's capital structure and cost of capital are as follows: CAPITALIZATION COMPOSITE WEIGHT Rate 15 pct. 16 pct. Long-Term Debt 49.33 pct. 10.68 pct. 5.27 pct. 5.27 pct. Equity Capital 41.25 15-18 6.19 6.60 Subtotal 90.58 pct. 11.46 pct. 11.87 Deferred Federal Income Taxes 4.74 pct. -0- -0- -0- Customer Deposits .90 8.00 .07 .07 subtotal 96.22 Investment Tax Credit 3.79 pct. Average 11.53 .45 pct. 11.94 pct. .45 TOTAL 100.00 pct. 11.98 pct. 12.39 pct. They are also in agreement that a 12 percent return on the UTILITY's rate base, including a 15-16 percent return on equity, is a fair and reasonable rate of return. (COMMISSION's Proposed Recommended Order, p. 7; P-8, P-5.) V. Additional Required Revenues In order to determine the additional gross revenues which the UTILITY should file rates designed to generate, the authorized operating income should be computed by multiplying 12 percent times the adjusted rate base computed pursuant to Paragraph 10 above. The UTILITY should then be authorized to earn additional gross revenues equivalent to thee difference between the authorized operating income and the adjusted test year operating income computed pursuant to Paragraph 14 above. VI. Rate Structure and Rates The UTILITY proposes, with the COMMISSION's concurrence, that its new rates be structured in accordance with the Base Facility Charge Rate Design (BFC) and that the 25 percent surcharge currently imposed on general service customers be eliminated. The new BFC rate structure design contains a customer charge and a gallonage charge, both of which are directly related to the cost of providing the service. The customer charge assures that all customers pay their pro rata share of certain fixed and operating costs of the UTILITY which are not related to the amount of water used by the customer. The gallonage charge is based on the actual amounts of water used. With implementation of the base facility charge system, the UTILITY should lower its current $20 charge for reconnections during working hours to $10; similarly, its current $25 charge for reconnection after working hours should be reduced to $15. These lower charges are sufficient to cover the costs associated with the service rendered. The UTILITY also proposes various increases in its service availability, or connection charges. These increases, based on increased construction costs, will be used to finance additional facilities and stabilize rates to existing customers. The BFC rate design system proposed by the UTILITY is fair, reasonable, and nondiscriminatory. In light of the foregoing, it is unnecessary to consider the "alternative" rate structure which was presented to the COMMISSION staff on the day of hearing. With such time constraints, meaningful review of the "alternative" rate structure proposal was not possible. (Testimony of Byrd, Collier; R-1, R-3.) VII. Adequacy of Service Customer testimony criticized the 25 percent surcharge currently Imposed on general service customers, and the magnitude of the requested rate increase. Several customers complained of the quality of the water supplied. Under the proposed rate structure, tide surcharge on general service customers will be eliminated. While several customers complained of sediment in their drinking water, testimony established that the new Green Meadows softening plant should help alleviate that problem. The water supplied by the UTILITY meets all regulatory and health standards of the Health Department and the Florida Department of Environmental Regulation. The UTILITY is currently under no citation for violation of any regulatory standards. It is found that the quality of the water service offered by the UTILITY is adequate. (Testimony of Collier, Reeves, Customers; P-7.) VIII. Franchise Fees The UTILITY has collected $395,000 in "franchise fees" for Lee County, but has not paid them to the county due to questions surrounding the legality of the franchise fee. Neither have the funds been placed in a special escrow account pending resolution of this controversy. The UTILITY should ensure that such franchise fees are deposited in a special interest-bearing escrow account, and take steps to ensure that this controversy is resolved without further delay. (Testimony of Cardey; Late-filed Exhibit P-12.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the COMMISSION recalculate adjusted rate base, operating income, and the resulting additional and total gross revenues in a manner consistent with this Recommended Orders and that Petitioner be authorized to file new rates structured on the base facility charge concept designed to generate the additional and total annual gross revenues so specified. DONE AND ENTERED this 27th day of February, 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 27th day of February, 1981.
The Issue Whether the Department's proposed amendment of Rule 38F- 7.020, Florida Administrative Code, constitutes an invalid exercise of its delegated legislative authority under Section 120.52(8), Florida Statutes, [1996 Supp.], or whether the authority specified in the proposed rule is sufficient for the Department to adopt the proposed rule?
Findings Of Fact The Florida Society of Anesthesiologists is a voluntary, nonprofit association comprised of individual members, each of whom is licensed in the State of Florida to practice medicine. Petitioner, Robert A. Guskiewicz, M.D., is a licensed medical doctor in the State of Florida specializing in anesthesia. Pursuant to Section 440.13(12), Florida Statutes, a three-member panel is charged with the responsibility of determining the schedules of maximum reimbursement for physician treatment of workers' compensation patients. In March 1996, the three-member panel convened and adopted a resource-based relative value scale ("RBRVS") reimbursement system, which, on or about January 3, 1997, the Department published notice of its intent to embody in proposed Rule 38F-7.020, in Vol. 23, No. 1 of the Florida Administrative Law Weekly. A copy is attached and incorporated herein by reference. The proposed Rule lists Sections 440.13(7), 440.13(8), 440.13(11), 440.13(12), 440.13(13), 440.13(14), and 440.591, Florida Statutes, as specific authority. The proposed Rule implements Sections 440.13(6), 440.13(7), 440.13(8), 440.13(11), 440.13(12), 440.13(13), and 440.13(14), Florida Statutes. There are no other facts necessary for determination of the matter.
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
Findings Of Fact On or about July 15, 1981 Petitioner Martha Maddux, as owner and operator of a facility known as Bivens Lake Retirement Home, applied for a license to operate the home as an adult congregate living facility. The application was denied July 30, 1981. The application shows the proposed residential capacity as 12 persons with two (2) full-time employees. The general monthly facility budget indicates as expenses a mortgage payment of $1,500, food $700, utilities $176, telephone $108, totaling $3,040. The monthly operating revenue is indicated to be $3,090. Petitioner Maddux listed Disability Social Security in the amount of $687 as supplemental income the operator of the home or her spouse receives. The personal financial statement filed with the application shows assets of $300 cash and real estate owned worth $120,000. Liabilities include furniture $125, loan $84, two (2) mortgages $710 and $565, and lease $1,500. (Respondent's Exhibit 1) Petitioner's testimony at the hearing showed the rent payment on Bivens Lake Retirement Home to be several months in arrears, and there were unpaid and outstanding claims for refunds from former residents which Petitioner did not have funds to pay. The major part of projected income is dependent on the Social Security monthly payments to the residents. Petitioner admitted at the time of hearing that only part-time maintenance and housekeeping employees were used. Such testimony contradicts the foregoing personal financial statement filed with Petitioner's application for licensure which showed assets of $123,000. A certified public accountant presented as a witness for Respondent and qualified as an expert, stated that his review of the records and statement of assets and liabilities of the facility showed they were inaccurate with no showing that the assets are in fact $123,000 as indicated by Petitioner. It was his finding that the statement of operations of the facility for the first six (6) months failed to budget reasonable sums for food, employment, taxes and reserves for extraordinary items and does not accurately reflect the expenses incurred or paid for by the facility. Petitioner did not dispute the statements of the witness. After a consideration of the evidence and the testimony, the Hearing Officer finds that there are insufficient assets and income to operate and conduct the facility with the number of residents and services proposed by Petitioner. Respondent submitted proposed findings of fact, memorandum of law and proposed recommended order, which were considered in the writing of this order. To the extent the proposed findings of fact have not been adopted in or are inconsistent with factual findings in this order, they have been specifically rejected as being irrelevant or not having been supported by the evidence.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law the Hearing Officer recommends that a final order be entered denying the application for licensure submitted by Petitioner. DONE and ORDERED this 23rd day of February, 1982, in Tallahassee, Leon County, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of February, 1982. COPIES FURNISHED: Mrs. Martha Maddux Bivens Lake Retirement Home 3450 Southwest 13th Street Gainesville, Florida 32608 James A. Sawyer, Jr., Esquire Department of Health and Rehabilitative Services 3001 Southwest Broadway Ocala, Florida 32675 David H. Pingree, Secretary Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301
Findings Of Fact Based upon the evidence presented, the following facts are determined: The UTILITY is owned by Florida Land Company, a Florida corporation, which is a wholly owned subsidiary of The Continental Group, Inc., a New York corporation. In 1975, the UTILITY constructed a water and sewage treatment system to serve a residential and commercial development known as Greenwood Lakes. The UTILITY's water and sewer rates and charges have not changed since the COMMISSION's approval of initial tariffs in 1976. (Testimony of Crosby; P.E. 1.) I. Elements of Ratemaking In fixing the water and sewer rates to be charged by a public utility, the COMMISSION must consider: (1) the value and quality of the service, (2) the utility's rate base, (3) the cost of providing the service, and (4) a fair return on the utility's rate base. Section 367.081(2), Florida Statutes (1979). Each element is addressed separately below. Quality of Service The UTILITY's water supply is provided by two deep wells with a total capacity, based on present pumps, of 2.376 million gallons per day. Treatment is provided by aeration and chlorination. The water system operates under an operating permit issued by the Department of Environmental Regulation. Water samples and reports are made monthly, and the water system presently meets all drinking water standards of the Department. (Testimony of Crosby, Heiker; R.E. 1.) The UTILITY's sewage treatment system consists of a .10 million gallon per day package plant; treatment consists of extended aeration followed by gravity flow to evapo-percolation ponds providing on-site disposal. It operates under an operation permit issued by the Department of Environmental Regulation, and complies with Department's sewage collection and treatment standards. (Testimony of Crosby.) Rate Base Rate base consists of the UTILITY property that is used and useful in providing the service for which rates are charged. In its application, the UTILITY proposed a rate base; after review, the COMMISSION suggested several adjustments, which are not opposed by the UTILITY. Use of a year-end test year is appropriate because of the extraordinary growth experienced by the UTILITY during 1979. For the test year ending December 3l, 1979, the UTILITY's adjusted water rate base is $135,977; the adjusted sewer rate base is $131,764. They are calculated as follows: RATE BASE Test Year Ending December 31, 1979 WATER SEWER Utility Plant in Service $190,969 $225,722 Construction Work in Progress 1,214 4,297 Accumulated Depreciation 18,920 2/ 14,801 2/ Contribution in Aid of Construction (CIAC)-Net of Amortization -48,831 -86,458 Working Capital Allowance 3,030 3,198 Income Tax Lag -0- - 194 RATE BASE $135,977 $131,764 (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) Operating Statement The following Operating Statement reflects the UTILITY's revenue earned, costs of operation, and not-operating income during the test year. It shows that the UTILITY suffered a loss of $26,429 in its water operations and a loss of $19,101 in its sewer operations. OPERATING STATEMENT Test Year Ending December WATER 31 , 1979 SEWER Operating Revenues: $10,172 Operating Expenses: Operatic 25,314 $14,365 22,436 Maintenance -0- -0- Depreciation 18,199 10,132 Amortization -0- -0- Taxes Other Than Income 1,088 898 Other Expenses -0- -0- Income Taxes -0- -0- TOTAL OPERATING EXPENSES $44,601 $33,466 Operating Income ($26,429) (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) ($19,101) The UTILITY requests an annual water revenue increase of $36,154, and a sewer revenue increase of $31,715, which would produce gross annual revenue of $54,326, and $46,080, respectively. The adjusted Operating Statement, constructed to reflect this additional requested revenue, is as follows: CONSTRUCTED OPERATING STATEMENT Test Year Ending December 31, 1979 WATER SEWER Operating Revenues: Operating Expenses: $54,326 $46,080 Operation 30,634 25,580 Maintenance -0- -0- Depreciation 3,812 2/ 3,436 2/ Amortization -0- -0- Taxes Other Than Income 2,280 1,941 Other Expenses -0- -0- Income Taxes 1,424 968 TOTAL OPERATING EXPENSES $38,150 $31,925 Operating Income $16,176 $14,155 Rate Base $135,977 $131,704 Rate of Return 11.90 percent 10.74 percent (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) Rate of Return The capital structure of the UTILITY is as follows: AMOUNT PERCENT TO TOTAL Debt 4/ $1,450,000 60.90 Customer deposits 6,389 .27 Common Equity 924,550 30.83 TOTAL $2,380,947 100.00 The proposed annual gross water revenues of $54,326, and sewer revenues of $46,080 will allow the UTILITY to earn a rate of return of 11.90 percent on its water rate base, and 10.74 percent on its sewer rate base. With debt service costs now in excess of 12.50 percent, the return on equity will be nominal; however, there is no evidence that this will cause the UTILITY's service to suffer. (Testimony of Smith; P.E. 6.) II. Capitalization of Interest on Non-Used and Useful Equipment The UTILITY's plant is larger than necessary to serve its present customers. In its application, the UTILITY seeks COMMISSION approval to capitalize its interest costs on that portion of the UTILITY's plant which is non-used and useful, and excluded from rate base. Capitalization will allow the UTILITY to recover its interest expenses over the useful life of the property involved. The COMMISSION has previously allowed capitalization of interest under similar circumstances, Docket No. 760054-WS, Application of North Orlando Water and Sewer Corporation, Order No. 7455, dated October 4, 1976. Here, the UTILITY's request is reasonable, concurred in by the COMMISSION, and should be granted. (Testimony of NewIon, Cooke, Lowe; P.E. .) III. Rate Structure The UTILITY currently uses a conventional two-tier rate structure. A base facility charge (BFC) rate structure is a more equitable method of distributing costs associated with providing a utility service. Under a BFC structure, customers pay a base charge which covers their pro-rata share of the UTILITY's fixed costs, and a gallonage charge which covers the costs of pumping, treating, and distributing the actual water gallonage used. Such a structure would require the UTILITY to alter its current customer service policy to insure that the base charge is paid during temporary discontinuances of service. (Testimony of Washington.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the UTILITY's application for increased sewer rates and charges be granted and that it be authorized to file revised tariff pages containing rates designed in accordance with the base facility charge concept to produce gross annual water revenues of $54,326 and annual sewer revenues of $46,080; That the UTILITY be required to notify each customer of any rate increase authorized, explaining the reasons for such increase. A letter of explanation should be submitted to the COMMISSION for prior approval; That the UTILITY be allowed to retain all interim revenues collected pursuant to COMMISSION Order No. 9416 and cancel the rate refunding bond previously submitted; and That the UTILITY be allowed to capitalize interest on non-used and useful equipment which is excluded from rate base. DONE AND ENTERED this 5th day of December, 1980, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact On or about February 5, 1990, Respondent and his wife filed with the Department an application for an onsite sewage disposal system construction permit attendant to a residence which they proposed to construct on Lot 7 of Block 15 in Breezeswept Beach Estates on Ramrod Key, in Monroe County, Florida. That application sought the Department's approval for the construction of a standard septic tank. The Department advised Respondent that he could not place a standard septic tank on that property. Accordingly, on approximately March 6, 1990, Respondent amended his application, this time seeking approval for the construction of an aerobic treatment unit. Respondent obtained final installation approval for his aerobic treatment unit from the Department on December 4, 1991. By letter dated August 3, 1992, the Department advised Respondent that changes in the law made by the 1991 Legislature which became effective on July 1, 1991, established the requirement for yearly operating permits for aerobic treatment units. That letter enclosed an application form for obtaining the operating permit and gave instructions on where to mail the completed application. Respondent did not submit an application for the operating permit and pay the fee in response to that letter. On July 30, 1993, the Department sent Respondent its Notice of Intended Action advising Respondent that his failure to pay the operating permit fee and obtain the permit within 14 days of receipt of that Notice would result in the imposition of an administrative fine. Thereafter, Respondent requested this formal proceeding. Respondent has, to date, failed to obtain an operating permit for any year and has not paid the fees associated with an operating permit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered: Requiring Respondent to pay the fee and obtain an annual operating permit for his aerobic treatment unit forthwith; Advising Respondent that his failure to comply by a date certain will result in the imposition of an administrative fine; and Fining Respondent in the amount of $155 a day commencing the day after the deadline contained in the Final Order and continuing every day thereafter until Respondent complies with the law. DONE and ENTERED this 6th day of April, 1994, at Tallahassee, Florida. LINDA M. RIGOT 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 6th day of April, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-6180 Petitioner's proposed findings of fact numbered 1, 3, and 6-8 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 2 has been rejected as being irrelevant to the issues under consideration in this cause. Petitioner's proposed findings of fact numbered 4 and 5 have been rejected as not constituting findings of fact but rather as constituting argument of counsel, conclusions of law, or recitation of the testimony. Respondent's proposed findings of fact numbered 1 and 4 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed findings of fact numbered 2, 3, 8, and 12 have been rejected as being irrelevant to the issues under consideration in this cause. Respondent's proposed findings of fact numbered 5-7 and 9-11 have been rejected as not constituting findings of fact but rather as constituting argument of counsel, conclusions of law, or recitation of the testimony. COPIES FURNISHED: Carmen D. Frick, Esquire Department of Health and Rehabilitative Services District Legal Counsel 401 N.W. 2nd Avenue, N-1014 Miami, Florida 33128 John E. Davis 824 Seabreeze Drive Ruskin, Florida 33570 Robert L. Powell, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Kim Tucker, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue Whether, and to what extent, Magnolia Valley Services, Inc., should be allowed to increase its water and sewer service rates.
Findings Of Fact Based on the evidence presented at hearing, the following facts are determined: I. The Application By application filed on August 14, 1980, APPLICANT sought authority to increase its water and sewer rates, on an interim and permanent basis, in amounts sufficient to produce $60,847 in annual gross water revenues, and $100,768 in sewer revenues. By Order No. 9571 dated September 30, 1980, the COMMISSION authorized an interim sewer revenue increase, under bond, of $8,205, and denied an interim increase in water revenues. The COMMISSION has approved APPLICANT's use of a test year ending December 31, 1979. At hearing, the APPLICANT amended its application by reducing its requested water revenues to $50,287, and increasing requested sewer revenues to $101,522. (Testimony of Gregg, Prehearing Statement; P-4.) II. Depreciation Rate Depreciation is a method of allocating the cost of fixed assets to their estimated useful life. As an above-the-line operating expense, it affects a utility's net operating income; by its impact on accumulated depreciation of plant-in-service and accumulated amortization of contributions-in-aid-of- construction, it also effects calculation of rate base. (Testimony of Walker, Gregg; P-3, R-1.) The COMMISSION has promulgated no rules as guidelines which establish generally, or in particular, the useful life of utility assets or the method by which their depreciation should be calculated. In practice, however, it has allowed utilities to apply a straight-line 2.5 percent depreciation rate and a 40-year useful life to all depreciable assets. Any deviation from this 2.5 percent across-the-board rate must be justified by the utility. (Testimony of Heiker.) Here, the APPLICANT proposes depreciation rates which vary according to the estimated useful life of the plant or equipment involved. In contends that its shorter estimates of useful life of specific assets reflect reality and actual experience more accurately than an across-the-board 40-year life standard. For example, rate meters are routinely replaced on a 20-year basis and lack of reserve capacity and changing voltages have substantially reduced the expected life of electrical motors and equipment. The APPLICANT's estimates of useful life were established by the opinion of a utility consultant and engineer whose qualifications went unchallenged by the COMMISSION; no competent evidence was offered to discredit or rebut his conclusions. The COMMISSION's engineer candidly admitted that depreciation "is really a nebulous thing," (Tr. 64) and declined to assert that the APPLICANT's depreciation schedules were erroneous. (Tr. 69.) The COMMISSION disputed the APPLICANT's depreciation schedules by referring to an unpublished 1973 staff memorandum retained at the agency's offices and not produced at hearing. That memorandum purportedly adopted 1973 depreciation rates developed by the American Water Works Association. Upon motion of APPLICANT, testimony concerning the contents of that memorandum was subsequently stricken. The COMMISSION engineer also testified that he was unfamiliar, even generally, with how the American Water Works Association's depreciation rates were derived. In light of the quality of the evidence presented of record, the APPLICANT's depreciation rates (including estimated useful life) are accepted as persuasive. (Testimony of Heiker, Gregg; P-1, P-3.) III. Attrition Allowance The APPLICANT seeks to include in operating expenses an attrition allowance of $1,992 for water and $8,161 for sewer operations based on alleged attrition it experienced between 1975 and 1979. It defines attrition as increased annual expenses which cannot be recovered at the time they are incurred. The COMMISSION opposes the requested attrition allowance on the grounds that: (1) the attrition study performed by the APPLICANT is unreliable, and (2) that the recent enactment of Section 367.081(4), Florida Statutes (Supp. 1980), which allows the passing through of certain increased expenses to customers, eliminates the need for a special attrition allowance. (Testimony of Gregg, Walker; P-2.) The COMMISSION's position is well taken. First, a major portion of the cost increases experienced by the APPLICANT in the past will be able to be passed through to its customers pursuant to Section 367.081, Florida Statutes (Supp. 1980). 2/ Those costs include increased power costs and ad valorem taxes. The APPLICANT responds that Section 367.081(4), supra, will not enable it to fully recover increasing expenses when they occur because rates may be adjusted, based on increased operating costs, not more than twice a year. Section 367.081(4)(e), supra. However, this new law should be implemented before it is pronounced inadequate to fulfill its purpose. Experience may show that major costs increase sporadically, or at predictable cycles, which facilitate carefully timed rate increases under Section 367.081(4), and that two such increases a year may prove fully adequate. (Testimony of Gregg, Walker; P- 2, R-1.) Secondly, the attrition study (P-2) submitted by the APPLICANT does not reasonably justify, or provide a reliable basis for projecting an attrition rate into the future. The 1975-1979 historical cost increases have not occurred at a constant rate. The 1979 increase in water operation costs was less than one- half of the average increase experienced between 1975 and 1979; in sewer operations, the 1979 cost increases were less than one-third of the four-year average. Moreover, a major factor in increased sewer costs was the 1978 conversion to a spray irrigation, total retention, sewage treatment system. Since this system meets the 1983 federal Clean Water Act standard of no- discharge, it is unlikely that increased operational costs relating to treatment changes will continue to occur. In short, the 1975-1979 historical cost increases of APPLICANT have been sporadic and do not support an assumption that they will continue to occur at the same rate. To include an attrition allowance based on such an assumption would be unwarranted. (Testimony of Gregg, Walker; P-2, R-1.) IV. Allowance of an Undocumented Operating Charge The APPLICANT proposed a $600 sewer expense item which was opposed by the COMMISSION because of lack of documentation. In response, the APPLICANT submitted--immediately prior to hearing--a cancelled check in the amount of $1,000. The discrepancy between the two amounts remains unexplained. Such action falls short of providing adequate documentation, and the proposed $600 sewer expense item must therefore be rejected. See, 25-10.77, FAC. V. Elements of Ratemaking and Applicant's Gross Revenue Requirements The parties agree: (1) that 14.5 percent is a fair and reasonable rate of return on rate base and reflects the actual cost of capital to APPLICANT; that the new rates should be designed in accordance with the base facility design concept, and that the quality of APPLICANT's water and sewer service is satisfactory. The remaining elements of ratemaking--rate base and net operating income--are not in dispute, and are depicted below: 3/ RATE BASE Test Year Ended 12/31/79 Water Sewer Plant in Service Accumulated $269,887 $511,200 Depreciation $(37,384) 4/ $(54,685) Net Plant $232,503 $456,515 Contributions in Aid of Construction (179,251) (360,055) Accumulated Amortization 22,421 Net Contributions in Aid of 4/ 41,231 4/ Construction (156,830) (318,824) Working Capital 3,515 7,082 TOTAL $ 79,188 $144,773 OPERATING STATEMENT Test Year Ended 12/31/79 Water Sewer Operating Revenues $53,300 $72,608 Operating Expenses: Operations 25,552 45,353 Depreciation 3,848 5/ 4,876 5/ Maintenance 2,572 6/ 11,306 6/ Amortization 1,439 Taxes Other Than Income 4,654 7/ 8,338 7/ TOTAL Operating Expenses $36,626 $71,312 Net Operating Income$16,674 $ 1,296 By applying a 14.5 percent rate of return against a rate base Of $79,188 for water and $144,773 for sewer, it is concluded that the APPLICANT should be allowed an opportunity to earn a return, or net operating income of $11,482 for water and $20,992 for sewer. Annual gross revenues of $48,108 (water) and $92,304 (sewer) are required to produce such a return--resulting in a net annual reduction of water revenues of $5,192 and a net increase of $19,696 in sewer revenues. VI. Interruption of Service Treatment Without Advance Notice Although the overall quality of its service has been adequate, infra, the APPLICANT has unnecessarily inconvenienced customers by interrupting water service without advance notice. These interruptions were planned in advance and not made on an emergency basis. The APPLICANT failed to adequately explain or excuse its failure to give timely notice. (Testimony of Pepper.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That Magnolia Valley Services, Inc., be authorized to file new rates structured on the base facility charge concept and designed to generate gross annual revenues of $48,108 for water operations and $92,304 for sewer operations, based on the average number of customers served during the test year. It is further RECOMMENDED that the utility be directed to strictly comply in the future with Section 25-10.56, Florida Administrative Code, by giving advance notice of service interruptions which are not emergency in nature. DONE AND ORDERED this 1st day of April, 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 1st day of April, 1981.
Findings Of Fact Florida Export Tobacco Co., Inc., Petitioner, operates, as a concessionaire, duty-free stores at Miami International Airport. The premises are owned by the Dade County Aviation Department and the stores are leased to Petitioner pursuant to the terms of a lease and concession agreement dated 19 July 1977, effective 1 August 1977 and continuing until 30 September 1987. (Exhibit 1 to Deposition) Pursuant to this agreement Petitioner occupies six stores and additional warehouse space at the Terminal Building and the International Satellite Facility. Article II in Exhibit 1 entitled Rental Charges and Payments provides for rental payments for each store and space occupied based upon a fixed fee of $X per square foot per year with the dollar per square foot cost varying with the space occupied. In addition to this minimal rental fee, Section 2.03 of this agreement provides: County Profit Participation: As additional consideration for the rights and privileges granted Concessionaire herein, Concessionaire shall pay the County a portion of its profits. As a convenience and in order to eliminate requirements for detailed auditing of expenditures, assets and liabilities and in order to provide an even flow of annual revenues for budgeting and bond financing purposes, said portion of the profits of the Concessionaire shall be calculated as the amount by which sixteen percent of the monthly gross revenues, as defined in Arti- cle 2.07, exceeds the sum of monthly rental payments required by Articles 2.01 and 2.04. Concessionaire shall pay such portion of its profits to County by the twentieth (20th) day of the month following the month in which the gross revenues were received or accrued. For the period October 1, 1982 through September 30, 1987, the percent of monthly gross revenues to be paid by Concessionaire as a portion of its profits shall be eighteen percent, payable and calculated in the same manner as above. The lessor provides air conditioning, garbage and sewage disposal facilities, security, and many other services to the lessee in addition to the space leased. From October 1976 through September 1977 Petitioner paid $40,499.66 in additional sales tax over the guaranteed minimum amount; for the year ending September 1978 this additional sales tax was $66,284.85; for the year year ending September 1979 this additional sales tax was $93,837.15; and for the year ending September 1980 this additional sales tax was $137,521.87. (Exhibit 2 to the Deposition) As the owner of the facility Dade County has the option of operating the various facilities and services available to the public or having these operated by a concessionaire. Dade County has opted for the manner it believed more profitable to the county and in the case of the duty free stores this has resulted in leasing the space to a concessionaire. The hotel at the airport is operated by the Aviation Department under a management contract. It is Petitioner's and Dade County's position that a sales tax should not be paid on the county profit participation charges because, if the Aviation Department operated the stores there would be no sales tax on any rental income and the County operates the facilities at the airport so as to maximize profits to the county. Therefore by requiring the concessionaire to pay sales tax, this reduces the profit available to share with the County.
