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
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
Findings Of Fact The Petitioner is a utility regulated by the Commission that is in the business of acquiring and operating water and sewer systems in Florida, principally in Central Florida. It now operates 39 systems, of which at least 30 water systems and 5 sewer systems are located in Orange, Lake and Seminole counties. In this case, the utility serves 547 water customers and 528 sewer customers in a subdivision known as University Shores. Southern commenced operating these systems in June, 1978, purchased them from University Shores Utilities, Inc. in September, 1978, and applied to the Commission for a transfer, which application was approved November 1, 1978, by Order 8550. The rates for service by these systems were granted by Order 6822 on August 6, 1975. Notwithstanding customer complaints of the quality of the water service (smell, taste, excess chlorine, sediment and no-noticed interruptions), the systems are in compliance with governmental standards. No customer complaints had been made to regulatory agencies, and the utility had handled only five for 1979 and to date in 1980. Due to a large increase in number of customers, a year end, rather than average, test year is appropriate; and the facilities are used and useful. Petitioner's rate bases are computed as follows: WATER SEWER Year end test year plant $526,737 $957,176 Construction Work in Progress 2,500 -0- Acquisition adjustment (net of amortization) (41,490) (78,300) Accumulated depreciation (67,172) (128,393) CIAC (net of amortization) (186,470) (489,438) Working Capital 5,476 6,386 Income tax lag (2,951) (4,225) $236,630 $263,214 The following capital structure and rate of return is that agreed to by the Petitioner and Respondent prior to intervention by the customers: WEIGHTED TYPE AMOUNT RATIO COST COST Common Stock $1,882,055 60.44 14.0 percent 8.46 Long Term Debt 1,037,372 33.31 8.89 2.96 Cost Free 194,768 6.25 0 0 TOTAL $3,114,195 100.00 11.42 percent The above rate bases and rate of return provide an authorized constructed net operating income from water service of $22,523 and from sewer service of $30,059. Although the return on water service is only 9.52, the revenue is limited to that in the application. This results in the following constructed statement of operations for year ended June 30, 1979: WATER SEWER Operating Revenue $94,550 $117,814 Operating Expense Operation 41,853 49,838 Maintenance 1,950 1,244 Depreciation 5,964 7,451 Amortization (860) (1,598) Taxes, other than income 8,363 9,726 Income taxes 14,757 21,124 TOTAL $ 72,027 $ 87,785 Net Operating Income $ 22,523 $ 30,059 Rate Base $236,630 $263,214 Rate of Return 9.52 11.42 percent It is noted that the above revenue requirement is more than the interim authorized revenue of $68,841 for water and $81,720 for sewer. The staff proposed that the rate structure should be changed from the present block structure for water and flat rate for sewer to a base facility charge for both water and sewer. This concept is appropriate since it serves to conserve water and insures that each customer pays his fair share of the costs of providing service. No evidence opposing this type rate structure was presented.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Southern States Utilities, Inc., University Shores Division, be granted and that the utility he authorized to file new tariffs to be approved by the Florida Public Service Commission that would have provided for the test year ending June 30, 1979 annual gross revenues of $94,550 for water service and $117,814 for sewer service. It is further RECOMMENDED that the refund bend be returned to utility. DONE and ORDERED this 25th day of November, 1980, in Tallahassee, Florida. H. E. SMITHERS Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 William H. Harrold, Esquire Florida Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301 Jack Shreve, Esquire Stephen C. Burgess, Esquire Benjamin H. Dickens, Jr., Esquire Office of Public Counsel Holland Building - Room 4 Tallahassee, Florida 32301 Steve Tribble, Clerk Florida Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301 Robert T. Mann, Chairman Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301
Findings Of Fact The Petitioner is a water and sewer utility subject to the jurisdiction of the FPSC. The utility's water and sewer service is in compliance with governmental requirements. During the test year ending December 31, 1977, the utility operated at a less and additional revenues were required to insure continued compliance with service standards. The test year rate base was $83,472 for water and $83,818 for sewer. The interim rates authorized by Order 9188 produce less than the established 10 percent rate of return on rate base, however, service will not suffer from the deficiency. A base facility charge rate structure is appropriate since it encourages conservation, tends to eleminate discrimination between classes of customers and establishes an acceptable rate for vacation service. This rate structure provides for a base charge that covers fixed costs (property taxes and insurance, depreciation, etc.) and a consumption charge that covers costs directly related to usage. Sixty percent of the residential customers use less than 3000 gallons of water a month, and nearly 69 percent use less than 4000 gallons. Should Respondent's proposed base facility charge rate structure be placed into effect to achieve the water revenue sought, the customers using less than 4000 gallons of water would be required to pay 25 percent mere than the interim rates. A similar situation exists for these same residential sewer customers. Respondent's proposed base facility charge rate structure is supposed to approximate a typical "bell" curve, however, in this instance the curve is "skewed" or "downright crooked" (tr. 104).
Findings Of Fact Although numerous customers were present, four of them testified at the hearing. No service quality problems were described with regard to either water or sewer service. Indeed, several of the customers described water quality as being good or excellent. The primary concern of the customers was the magnitude of the proposed rate increase, although a number of then opined that some increase in rates may he necessary. Expert engineering witnesses presented by both the Comission and the Petitioner established that the Utility has not been cited by any local, state or federal agency for health or environmentally related violations. No corrective orders are in force either by the Department of Environmental Regulation, the Lee County Health Department, or the Public Service Commission. The water and sewer treatment exceeds all governmental quality standards extant. In order to enhance service quality, the company has constructed a one million gallon ground storage tank and has installed an additional high-service pump. All parties agree that the cost of these improvements should be added to the Utility's rate base for purposes of this proceeding. Rate Base The Utility propounded evidence alleging its proper water rate base to be $1,872,470.00 and the appropriate sewer rate base to be $1,917,931.00. In arriving at the Utility's net investment in property used in the public service (rate base), it is necessary to calculate the amount of contributions-in-aid-of-construction, which serve to decrease the Utility's investment. Normally, where there has been a previous rate case for a utility in which the utility's net investment would have been determined by the Commission, the calculation of the utility investment in a current rate case is generally competed by adding additions to plant-in-service and subtracting additional contributions-in-aid-of construction in order to arrive at the current net "return yielding" investment. In the instant proceeding, however, Lehigh has elected to take issue with the amount of contributions-in-aid-of-construction (CIAC) previously determined by the Commission in the last rate case. In that last case (Docket No. R-73384-WS), the amount of CIAC was determined by multiplying water connections by $350.00 and sewer connections by $400.00. (See Exhibits 10, 19 and 20) The Utility in the prior proceeding agreed with that method of calculation and, further, two land sales contracts in evidence show that a charge of $750.00 for "sales price of water and sewer" to purchasers of houses in the service area has been imposed by the Utility or its predecessor, Lehigh Corporation (development company), when the Utility was merely a division of the development company. Notwithstanding that prior position, the Utility in this proceeding has elected to attempt to prove its level of CIAC ab initio and has conducted a "Special CIAC Study" in an attempt to show that the amount of contributions is now substantially less than the amount it and the Commission agreed to be applicable in the last rate proceeding and that which the Commission maintains is germane to this proceeding. The Utility thus is alleging that the appropriate charge per connection for CIAC is $650.00 for a water and sewer connection as opposed to the Commission's contention that the figure should be $750.00 per connection. Although a developer's agreement with an affiliated company shows a water and sewer connection charge of $650.00, the testimony of a senior officer of the Utility establishes that there were a total of 1,308 such contracts indicating a sales price for water and sewer service of $750.00. The Utility contends that only $650.00 of the $750.00 charge in question was actually transferred to the utility company and that, therefore, the $650.00 is the appropriate amount to attribute to CIAC. There is no question, however, that with regard to these 1,308 land sales contracts, that $750.00 was actually collected from the lot purchasers involved as the sales price of water and sewer service. Thus, the actual amount of CIAC paid by those 1,308 customers was $750.00 each, for a total of $981,000.00 for water and sever service and that figure represents in its entirety contributions-in-aid-of-construction. The contracts for which the customers involved paid $750.00 for water and sewer service, were entered into in the latter 1960's and early 1970's. Prior to that time, the same type of contracts carried an amount of $650.00 for water and sewer and following the period of time when the fee was $750.00, the line item in the contract was changed so that there was no longer any separate item providing for "sales price of water and sewer." The water and sewer charge was thereafter included in the amount charged for "sales price of improvements." Thus, contrary to the position of Lehigh, because of the segregation of the items in the purchase price shown in these land sales contracts into separate figures for price and for the sales price of water and sewer service, there have been shown to be definite, proven amounts of contributions-in-aid-of-construction supported by company records. The remaining portion of the contributions attributable to the Utility and not represented by these contracts were contributed in the sum of $650.00 per connection, with which figure both parties agree. An additional issue regarding contributions and the "Special CIAC Study" concerns contributions recorded as income from the inception of the Utility operation until November 30, 1964. As demonstrated by Exhibit 12, the amount of contributions recorded as income equals $756,656.00. The Utility's own "Special CIAC Study" refers to contributions recorded as income and Lehigh received sums of money for the availability of water and sewer service in the early 1960's which it treated as income. During the early 1960's when the Utility was regulated by Lee County, the Lee County regulatory board allowed it and other water and sewer utilities to receive and record service availability fees as revenue. This was done in order to enhance the apparent financial posture of the utilities and therefore improve their credit status as an aid to financing improvements. There is no question that those fees during this time period were paid into the Utility or its predecessor for water and sewer service availability and hence should properly be accounted for as CIAC. It might be argued, as the Utility does, that if Lehigh declared the contributions it received to be revenues with the Internal Revenue Service, then the benefit of those contributions or the amount of revenue they represent to the Utility would be reduced by the amount of the resulting income tax, and that if they are now determined to be contributions instead of revenue that an additional detriment to the Utility would occur by the reduction by that amount of its rate base and, therefore, its dollar return. It should be pointed out, however, that because of the tax advantages of the Utility's demonstrated operating loss carry-overs and investment tax credits, as well as accelerated depreciation, all of which tax advantages this Utility has been able to employ, no actual income tax has been paid on such "revenue." Further, Lehigh is depreciating this $756,655.00 in assets in its returns to the Internal Revenue Service and is thereby recovering the costs of the assets. If the Utility is permitted to treat them for regulatory rate-making purposes as revenue instead of CIAC, then the effect would be to maintain rate base and return at a correspondingly higher level than if these amounts are determined to be CIAC, which would reduce rate base and thereby the net investment upon which a return could be earned for regulatory purposes. Thus, the appropriate amount of contributions-in-aid-of-construction for the water system as of the closing date of March 31, 1979, equals $1,057,000.00. The amount of contributions-in-aid-of-construction attributable to the sewer system as of that date equals $1,389,977.00. (Net of amortization). The detailed calculations and adjustments supportive of the above findings with regard to rate base are attached hereto and incorporated by reference herein as Schedules I, II and II. The first issue to be concerned with in calculating the operating expense basis for the revenue requirement is the cost of the above-referenced CIAC study. The Utility prepared this special CIAC study because of its fear that, in view of the Commission's decision in Tamarac Utilities, Inc. v. Hawkins, 354 So.2d 437, that it would not otherwise be able to meet its burden of proof on the issue of contributions and therefore would suffer a dismissal of the petition. In the Tamarac case, the Public Service Commission auditors encountered numerous problems resulting from a lack of primary data supporting the amount of contributions and the Commission issued an order allowing the Utility to provide clarifying evidence. When the Utility failed to satisfactorily perform this task, it ultimately suffered a dismissal of its petition and a refund of monies collected under interim rates. In this case, however, it has been demonstrated that there is no dearth of primary data or books and record supportive of the level of CIAC; nor has an order been issued requiring this Utility to provide such clarification or a "study" of its CIAC. Moreover, in the case of this utility, a previous rate case has been finalized wherein it was found by the Commission that there was a definite, specific level of contributions which were also consistent with those alleged by the petitioner in that proceeding. Thus, there is adequate primary data upon which a determination of CIAC can be computed in this proceeding without resort to a "Special CIAC Study" and the additional increment of rate case expense it represents. It should be further noted that even if the instant case involved a "Tamarac situation" where financial books and records were not adequate to properly document contributions-in-aid-of-construction that, in that event, if a CIAC study were made, then the proper rate-making treatment would be to amortize tile cost of that study over several years, since it is a large, nonrecurring expense in the Utility's operation, as opposed to allowing the entire expense to be written off (and charged to the customers through rates) based upon one year. The Utility has alleged that certain additional pro-forma adjustments to various expense items should be accomplished in order to arrive at the appropriate revenue which will support an adequate rate of return. Thus, the increased costs alleged for purchases of lime, chlorine and gasoline, depicted in the attached schedules incorporated herein, were undisputed, agreed to, are reasonable and therefore should be accepted. The alleged pro-forma cost for payroll is a mere estimate and not supported by competent, substantial evidence. Additionally, it was established by the Commission's accounting witness that certain rate case expenses arose from a prior rate case and therefore should be removed from consideration in arriving at revenue requirements for purposes of this proceeding. This adjustment was not contested, nor were similar adjustments to remove depreciation expense on construction work in progress, to remove depreciation expense on the contributed property, to remove unsupported property taxes, and to remove property tax as an expense and depreciation expense attributable to non-used and useful portions of the Utility's invested plant. None of these adjustments were disputed by the Utility. They are appropriate and reasonable and should be adopted. The Utility has also requested allowance of a $55.00 annual fire hydrant charge and a $10.00 charge for the initial commencement of service. The Utility submitted evidence (Exhibits 6 and 7) supportive of the actual number of water and sewer connections made during the test years as well as the costs upon which the initial commencement of service charge requested is based. The Commission did not dispute, therefore, the requested $10.00 charge for initial commencement of service and, inasmuch as the current $25.00 annual fire hydrant charge was established in the late 1960's and was shown to be no longer sufficient to cover costs, the Commission also did not dispute the increase in the annual fire hydrant charge from $25.00 to $55.00, which accordingly should be increased. Cost of Capital The Utility has requested a rate of return of 11.76 percent which includes an attrition allowance of .78 percent. There is no dispute as to the debt-equity ratios in the capital structure of the Utility. The common stock equity represents approximately 49.57 percent of the total capitalization. Long-term debt makes up 35.96 percent of capital and cost-free capital items make up 14.47 percent. The cost rate of the equity in the capital structure was established by the Commission's financial expert witness to be 14.5 percent or the midpoint in a range for companies and utility companies possessing a similar degree of risk to equity investors of 13.5 percent to 15.5 percent. The 14.5 percent cost of equity figure represents an accurate assessment of the opportunity costs of equity capital for such a company. The imbedded cost of long-term debt is 8.3 percent, which is a very advantageous rate to be enjoyed by such a company in today's money market and reflects a high degree of management efficiency on the part of the operation and management personnel of the petitioner. These two items, when combined with a zero cost factor shown to be appropriate for the cost-free capital items, results in a calculated rate of return of 10.35 percent, which does not take into account an attrition allowance due to inflation. The Utility advocated an attrition allowance equal to 10 percent of the weighted cost of equity capital to help offset the erosion in earnings caused by inflation. There can be little doubt that attrition of earnings due to significant inflation in costs of operation experienced by such companies is a very real factor. However, this record contains no substantial and competent evidence to demonstrate whether the utility wants coverage of capital attrition or attrition of its ability to cover operation and maintenance expenses nor which could justify the alleged 10 percent factor or any other quantification of attrition of earnings which may be experienced. Thus in the absence of a definitive establishment of the appropriate attrition factor, a cost of equity and a corresponding return on rate base in the midpoint of the range found above is appropriate. Thus, the proper return on rate base for this Utility has been shown to be 10.35 percent, which is within the range 9.85 percent to 10.84 percent. A summary of the cost of capital structure and weighted cost of capital calculation is depicted as follows: CALENDAR YEAR 1979 COMMON STOCK EQUITY RATIO 49.57 COST RATE 14.5 WEIGHTED COST 7.19 LONG TERM DEBT 35.96 8.8 3.16 COST FREE 14.47 -0- -0- 10.35 Floor CSE at 13.5 9.85 Ceiling CSE at 15.5 10.34 In summary, the required operating revenue for the Utility's water system should be $658,451.00 which results in an operating income of $211,407.00. The sewer system requires an annual, gross operating revenue of $475,629.00 in order to obtain a return or operating income of $130,017.00. The operating expenses and adjustments supportive of these figures are depicted in more detail in Schedules IV, V and VI attached hereto and incorporated by reference herein. The sewer revenue requirement found herein is less than the interim revenues authorized for sewer service, thus a refund is in order.
Recommendation In consideration of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the application of Lehigh Utilities, Inc. be granted in part, and that the Utility be authorized to receive a gross annual water revenue of $658,451.00 and gross annual sewer revenue of $475,629.00 to be achieved by rates filed with and approved by the Public Service Commission. It is further RECOMMENDED that the Utility be required to file revised tariff pages containing rates designed to produce annual revenues in the above amounts. It is further RECOMMENDED that the Utility be required to refund the interim sewer revenues previously authorized in this proceeding which exceed those sewer revenues determined to be appropriate herein. It is further RECOMMENDED that the above refunds be accomplished within ninety (90) days. This Recommended Order entered this 13th day of October, 1980, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of October, 1980. COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 William H. Harrold, Esquire 101 East Gaines Street Tallahassee, Florida 32301
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.
The Issue The issues in this case are: Whether Mr. Decker had an improperly maintained septic system on his property. Whether Mr. Decker illegally repaired his on-site sewage treatment and disposal system. Whether the Department of Health properly issued a citation to Mr. Decker for violation of Sections 381.0065(4) and 386.041(1)(b), Florida Statutes.
Findings Of Fact On April 25, 1997, an employee of the Department of Health, Volusia County Health Department, David Stark, inspected Mr. Decker's property known as Bulow Creek Farm. Mr. Decker provides low-cost rental housing on this property which utilizes an onsite well to provide drinking water. Mr. Stark observed a wet area in the ground with the smell of sewage near the building identified as Apartment Building C, which houses seven (7) apartments. Mr. Stark identified this area as a sewage leak. On May 28, 1997, Mr. Stark returned to Mr. Decker's property with another Volusia County Health Department employee, Ed Williams. They both observed a wet area in the ground with the smell of sewage in the vicinity of the septic tank serving Apartment Building C. Mr. Stark identified this area as a sewage leak. Mr. Stark issued a Notice of Violation (NOV) to Mr. Decker which stated the raw sewage leak was a sanitary nuisance and provided that Mr. Decker should have his drainfield repaired in accordance with the repair permit Mr. Decker had previously obtained from the Department. The NOV stated the repair should be completed no later than June 11, 1997. A repair permit is valid for a period of eighteen (18) months. Mr. Decker's permit expired on April 20, 1997. Repairs must be inspected by the Department as they are made. On June 13, 1997, Mr. Stark mailed Mr. Decker a letter reiterating the need for repair of his septic system and enclosed a Notice of Intended Action giving Mr. Decker a deadline of June 20, 1997 to make the needed repairs. Mr. Stark received a letter dated June 29, 1997, from Mr. Decker, informing him that Mr. Decker, himself, had repaired the drainfield for Apartment Building C. The letter described the new tank and drainfield which Mr. Decker had installed, and Mr. Decker stated his repair was a "cheaper version of what you wanted me to do in the first place." Mr. Decker had not sought the required inspections for the repairs which he had made to the septic system, and the repairs were not inspected and approved by the Department. The Department cited Mr. Decker for having an improperly built or maintained septic system, and for failing to repair the system in accordance with the terms of the permit. The citation levied a $500 civil fine for Mr. Decker's violation.
Recommendation Based upon the findings of fact and conclusions of law, it is RECOMMENDED: That the Department issue a final order affirming the civil penalty against Mr. Decker and requiring Mr. Decker to repair his septic system according to permit. If Mr. Decker fails to effect the repairs, the Department should initiate action to abate this public health hazard. DONE AND ENTERED this 6th day of March, 1998, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN 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 6th day of March, 1998.
Recommendation That pursuant to Article 12.1.2, General Conditions of the Contract for construction of State Project Number HSMB-6115, Drivers License facility, Hillsborough County, Florida, a change order be approved and issued increasing the total contract sum in the amount of $6,788.00 as authorized under Paragraph 8.5 of the aforesaid contract. DONE AND ENTERED this 7th day of April 1976 in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 530 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: May Jo Carpenter, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida Stephen C. Cheeseman, Esquire Gordon and Maney 2919 First Financial Tower Tampa, Florida
Findings Of Fact Petitioners purchased property in New Smyrna Beach, Florida to build a home. The property, which was platted in the 1940's measures 50 feet by 200 feet. The east side of the property (50') is located on Engram Road. The northern 200 feet and western 50 feet of the property is waterfront, situated on a tidal inlet from the Indian River. The Indian River contains the last remaining Class II waters in Volusia County. Class II waters in Florida are waters in which the state allows shellfish harvesting for public consumption. As the last remaining Class II waters in the county, the area requires special protection from all possible sources of pollution and negative environmental impact, including sewage outflow. According to the Petitioner, the seller of the property indicated to Petitioners that the property had been approved for constructing a home. The seller substantiated his assertion with a letter from the Volusia County Planning and Zoning Department stating that a county variance had been granted to construct a single family dwelling on this property, subject to certain conditions. The county approval letter specified the required use of an aerobic wastewater treatment system. The Petitioners were unaware of the state regulations and standards for onsite sewage disposal systems. The Petitioners hired a builder who applied to the HRS Volusia County Public Health Department for a septic tank permit. The permit was denied because the proposed septic tank system violated 50 foot set back required of sewage treatment systems from Class II waters. The proposed drainfield was located within 28 feet of the mean high water line, and because of the configuration of the lot and its depth of only 50 feet the proposed site cannot meet the state standard. The Petitioners' builder subsequently applied to the state Department of Health and Rehabilitative Services for a variance from the code standards in order to obtain the septic tank construction permit. The state denied the variance stating that the "request was not considered to be a minor deviation from the minimum requirements". The Petitioners received no notification of the time and place of the Variance Review Board's meeting because the variance application was submitted by their builder. Petitioners had no opportunity to personally address the Variance Board when their application was being considered. A sewer line is located within 1000 feet of the property and a sewage grinding and pumping system could be installed to pump sewage from the site to the sewer line. Such a system, costs approximately the same amount as an onsite system. A grinding and pumping system is an economically reasonable alternative to permit development of the lot.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witness, the arguments of the parties, it is therefore RECOMMENDED: That the request for a variance be DENIED. DONE and ENTERED this 2nd day of April, 1991, in Tallahassee, Florida. STEPHEN F. DEAN 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 2nd day of April, 1991. COPIES FURNISHED: Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda Harris, General Counsel Department of Health and Rehabilitative Services 132 Winewood Boulevard Tallahassee, FL 32399-0700 Jerome and Bernice Massel 6426 Engram Road New Smyrna Beach, FL 32169 Charlene J. Petersen, Esquire HRS-District 4 P.O. Box 2417 Jacksonville, FL 32231-0083
