Findings Of Fact Respondent is a state agency whose primary purpose is to provide an adequate supply of potable water to the Florida Keys. To this end, it has acquired or constructed well fields, treatment plants, transmission pipelines, pumping stations, distribution pipelines, and other related facilities. Because of its exaggerated linear service area of 130 miles, it incurs high capital and operating costs. Chapter 76-441, Laws of Florida, Respondent's enabling act, confers upon Respondent the authority to impose the subject System Development Fee. Respondent imposed the subject System Development Fee, which is an impact fee, in December 1974. Respondent's Rule 48-3.002(1) expressed the purposes of the System Development Fee as follows: The System Development Fee is an impact fee charged to new and existing customers who modify, add or construct facilities which impose a potential increased demand on the water system. This fee is charged in order to equitably adjust the fiscal burden of a new pipeline and expanded or improved appurtenant facilities between existing customers and new water users. All system development fees are allocated to the direct and indirect costs of capital improvements made necessary by actual and expected increased demand on the water system. The term "unit" is a commonly accepted concept in the public utility industry, and impact fees are often assessed on a per "unit" basis. Respondent's Rule 48-3.002(5)(b) provides for the assessment of the System Development Fee on a per unit basis and provides, in pertinent part, as follows: 5. (b) Where the premises served consists of single or multiple commercial units, the System Development Fee shall be assessed based on each individual unit. In those cases where the individual unit will require a meter size that exceeds a 5/8" meter to properly support the unit, the System Development Fee shall be based on the meter size required to serve that unit, whether individually metered or not. ... The term "unit", as used in Respondent's System Development Fee Rule is a technical term, but it is defined by Respondent's Rule 48-2.001(19) as follows: (19) "Unit" A unit is a commercial or residential module consisting of one or more rooms with either appurtenant or common bathroom facilities and used for a single commercial purpose or single residential use. The number of units existing in a multiple unit service operation are to be determined in accordance with Rule 48-2.007(1)(c), which provides, in pertinent part, as follows: ... The number of units, whether residential or commercial, will normally be determined according to applicable city or county occupational licenses, building permits, or plans of the subject structure. In cases of discrepancy or inconsistency in definition, or interpretation, the following Florida Keys Aqueduct Authority definition will control: A unit is a commercial or residential module consisting of one or more rooms with either appurtenant or common bathroom facilities and used for a single commercial purpose or single residential purpose. Respondent grandfathers in units that were in existence prior to December 1974 when the System Development Fee was first enacted. A System Development Fee is not imposed on any unit that was in existence prior to December 1974. Of the 376 improved campsites that presently exist at Petitioners' campground, 279 were improved prior to 1974. Consequently, only the 97 campsites improved after the enactment of the System Development Fee are at issue in this proceeding. Respondent is concerned with the potential use of a unit because it must be prepared to respond to that potential use. Once a customer has paid the System Development Fee for a unit, the owner of the unit can transfer the unit without the purchaser having to pay an additional System Development Fee regardless of the use the purchaser intends to make of the unit. Respondent has consistently applied the System Development Fee charges on a per unit basis for the purposes stated in its Rule 48-3.002(1). The per unit charge was $600 when first enacted in 1974, was increased to $1,500 in 1984, and was increased to its present level of $2,000 in 1986. A widely publicized amnesty program was in effect from August 1, 1984 through October 1, 1984, during which customers who had added units to their property without reporting same to Respondent could report the units during the amnesty program and pay the System Development Fee on an installment basis. Customers were advised that after the amnesty program closed, the System Development Fee would be based on rates in effect at the time an unreported unit was discovered, not at the rate the unreported unit was constructed. This policy serves to encourage Respondent's customers to promptly report newly added "units", and the policy produces fees commensurate with the expenses to be incurred by Respondent after it learns of the new units. Petitioner George W. Eager is the owner of approximately 30 acres of real property located west of U.S. 1 at Key Largo, Florida. Mr. Eager purchased the subject property in 1969, sold it in 1974, and reacquired it in 1975 by a deed given in lieu of foreclosure. This property is located within the area served by Respondent. Petitioner Calusa Camp Resort, Inc., a closely held Florida corporation whose stock is owned by Mr. Eager and his two children, operates a campground on this real property. In addition to the 376 campsites, the campground contains a grocery store, a marina, laundry facilities, bathrooms and showers, a swimming pool, a sewage treatment plant, and a sewage pumping station. The marina was not in operation at the time of the formal hearing. Petitioners hold the two business licenses they are required to have by Monroe County. One business license is for the operation of the campground while the other one is for the operation of the grocery store. Petitioners secured all pertinent building permits during the course of the improvement of the campground. Mr. Eager opened the campground in 1969, at which time he entered into a contract for services with Respondent. Mr. Eager constructed a private water system as part of the improvements to his real property. This private water system was connected to Respondent's water transmission system in 1969, and a one inch master meter was installed at that point of delivery. This one inch master meter has served Petitioners' property at all times pertinent to this proceeding. Mr. Eager entered into a new contract for services with Respondent in 1975. This contract did not indicate that Mr. Eager's property was considered a multiple unit operation and it did not indicate in the space available the number of units to be served. By a provision in this contract, Respondent reserved the right to change its rules and regulations and the rates for use of water from time to time. In 1976, Mr. Eager entered into another contract for services with Respondent for the provision of water to a swimming pool that he had constructed. This contract did not indicate that Mr. Eager's property was considered a multiple unit operation and it did not indicate in the space available the number of units to be served. Of the thirty acres owned by Mr. Eager, approximately twenty acres are west of the access road that divides the property and approximately ten acres are east of the road. Prior to 1974, Mr. Eager developed 279 individual campsites on eighteen of the acres west of the access road. These campsites had water, electrical, and sewer hookups for recreational vehicles and could accommodate all types of camping. A grocery store, bathrooms and showers, laundry facilities, and recreational facilities were also located on these eighteen acres. The remaining two acres west of the access road were reserved as the site for the marina. Prior to 1974, the ten acres east of the access road was used for open camping, but individual campsites were not designated. Water was made available to the campers who used this area through approximately 32 spigots spaced throughout the area and the other campground facilities were available to them. The ten-acre open area would accommodate up to 125 campsites. Since the enactment of the Systems Development Fee, Petitioners converted the ten-acre open camping area into 97 campsites with each campsite having water, electrical, and sewer hookups. This development, completed in 1983, organized the camping in the ten-acre area, but it did not increase the number of potential campers in the ten-acre area over the 1974 level. This development did, however, change the type camping that could be accommodated in this area. Prior to the development, the area could not accommodate camping in large vehicles such as motorhomes and recreational vehicles. After the development, the campsites were improved to accommodate all types of camping. None of the campsites are permanently improved with any structures or rooms and Petitioner does not rent campsites with accommodations on them. Persons renting the campsites provide their own method of camping, whether it be by car, truck, motorhome, travel trailer, tent, or otherwise. In 1983, Petitioners requested that the size of the water meter serving his property be increased from one inch to two inches. At that time, Respondent's staff suspected that Petitioners may have modified the campgrounds so as to have triggered the System Development Fee. Consequently, Mary Castellano, Respondent's Policy & Procedure Coordinator wrote a letter of inquiry to Petitioners' attorney. This letter, dated May 2, 1983, provided, in pertinent part, as follows: The material submitted by you last March 2, 1983, has been reviewed. Although a planned layout of the campground was provided from 1969 showing a plan to develop 279 camp and trailer spaces, what is required, prior to approval of a change to a larger meter, is some type of proof showing the number of camp and trailer spaces in existence and actually served prior to June 13, 1974, and certification regarding the actual number of camp and trailer spaces in existence today. If those two numbers are the same, no system development fee will be assessed and Mr. Eager's request for a 2" meter will be honored upon payment of additional deposit, new service charge and tapping fee. However, if there were less camp and trailer spaces in 1974 actually in existence then than there are at the present time, then additional system development fees will be assessed on a per space basis for the difference. Ms. Castellano's letter of May 2, 1983, accurately stated Respondent's interpretation of its rule imposing the System Development Fee. The information requested by this letter was not forthcoming, and Petitioners did not pursue the request to change the master meter from one inch to two inch again until 1989. Respondent's staff did not pursue whether Petitioners owed a System Development Fee until the issue was again raised in 1989. The water bills sent by Respondent to Petitioners up until April 1989 reflected that Petitioners had been classified as a "single unit commercial" account. In April 1989, the billing reflected that Petitioners were classified as a "multiple unit commercial" account. Because Petitioners' private water system is located on private property, Respondent's staff could not discover any undeclared units except by conducting an appropriate inspection. In 1989 Respondent's staff conducted such an inspection of Petitioners' campground and determined that Petitioners had added 97 campsites, that each campsite was a "unit" within the meaning of Respondent's rules, and that a system development fee of $2,000 was due for each site. This was the first time that Respondent had inspected the property and was the first time that Respondent knew that Petitioners had improved the 97 campsites. Respondent does not routinely inspect all private water systems or keep an up-to-date count of all units within its service area because of the costs of gathering such information. On April 26, 1989, Mary Castellano, who was still employed by Respondent, but whose title had been changed to Director of Policy Administration, wrote Petitioners a letter which provided, in pertinent part, as follows: Of the 376 spaces/units currently existing, the Authority accepts the documentation submitted to establish that 279 spaces/units existed prior to June 1974, for which no System Development Fees are due. However, the following fees are assessed and due for the remaining 97 spaces/units: System Development Fee ($2,000 x 97 Units) $194,000.00 Deposit ($75 x 97 Units) 7,275.00 Service Charge ($15 x 97 Units) 1,455.00 $202,730.00* *Plus Tapping Fee * * * 4. The Authority will require the execution of a Restrictive Covenant since a potential for future expansion exists. Petitioners thereafter filed a timely request for formal hearing after Respondent's Board of Directors upheld the assessment of the System Development Fee at a duly called meeting.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Respondent enter a final order which upholds the assessment against Petitioners of the System Development Fee based on the improvement of the 97 campsites since 1974. DONE AND ENTERED this 30th day of July, 1990, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 1990. COPIES FURNISHED: Gus H. Crowell, Esquire Tittle & Tittle, P.A. P. O. Drawer 535 Tavernier, Florida 33070 Floyd A. Hennen, Esquire Florida Keys Aqueduct Authority Post Office Box 1239 Key West, Florida 33040 Patty Woodworth, Director Planning & Budgeting Executive Office of the Governor The Capitol, PL-05 Tallahassee, Florida 32399-0001 APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-5620 The following rulings are made on the proposed findings of fact submitted by Petitioner: The proposed findings of fact in paragraph 1 as being subordinate to the findings made or as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 2-10, 12, 14, and 18-21 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 11 are adopted in part by the Recommended Order and are rejected in part as being unsubstantiated by the evidence. While it was established that one corporation operated the campground, it was not established that no additional business purpose exists at the property. The property contains, in addition to the subject campsites, a grocery store, a marina, laundry facilities, and a sewage pumping station that is available to non-campers. The proposed findings of fact in paragraph 13 are rejected as being conclusions of law. The proposed findings of fact in paragraphs 15 and 16 are rejected as being subordinate to the findings made. The proposed findings of fact in paragraphs 17 and 23 are rejected as being unnecessary to the conclusions reached. The findings of fact contained in the first three sentences of paragraph 23 are adopted in material part. The findings of fact contained in the final sentence of paragraph 23 are rejected as being unsubstantiated by the evidence. The following rulings are made on the proposed findings of fact submitted on behalf of Respondent. The paragraphs contained in the findings of fact section of Respondent's Proposed Recommended Order have been numbered 1-13 for convenience. The proposed findings of fact in paragraphs 1, 3, 6, 7, 12, and 13 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in part by the Recommended Order and are rejected in part as being unnecessary to the conclusions reached. The examples given by Respondent were not incorporated as a finding of fact because the examples used are not analogous to the facts of this case. The proposed findings of fact in paragraph 4 are rejected as being unnecessary to the conclusions reached. The proposed findings of fact in paragraph 5 are adopted in part by the Recommended Order and are rejected in part as being unnecessary to the conclusions reached. The proposed findings of fact in paragraph 8 are adopted in part by of the Recommended Order and are rejected in part as being unnecessary to the conclusions reached. The proposed findings of fact in paragraph 9 are rejected as being recitation of testimony or as being subordinate to the findings made. The proposed findings of fact in paragraph 10 are adopted in part by the Recommended Order and are rejected in part as being recitation of testimony or as being unnecessary to the conclusions reached. The proposed findings of fact in paragraph 11 are adopted in material part by the Recommended Order with the exception of the findings of fact contained in the final sentence of the paragraph, which are rejected as being unnecessary to the conclusions reached.
The Issue The issue in this case is whether the Department of Insurance acted according to the requirements of law in reviewing submissions of vendors responding to the Department's request for proposals for provision of licensure and examination services.
Findings Of Fact The Department of Insurance is the state agency responsible for licensure and regulation of insurance agents in Florida pursuant to the Insurance Field Representative Licensing Procedures Law set forth at Chapter 626, Florida Statutes. Persons seeking to become licensed by the Department are required to take and pass an examination. Insurance Testing Corporation (ITC) develops and administers insurance licensure examinations in other states. Assessment Systems Incorporated (ASI) develops and administers insurance licensure examinations in other states. Since 1990, the Department has contracted with the University of South Florida (USF) for exam administration. The contract was to expire on September 30, 1994. It has been twice extended and is currently set to expire on September 30, 1996. The parties have standing to participate in this proceeding. On December 29, 1995, the Department of Insurance issued a Request for Proposal Number 95/96-07 (RFP) seeking the provision of testing development and administration services. The RFP was prepared through a collaborative effort within the Department. In issuing the RFP, the Department intended to broaden the level of services obtained from a contracted vendor and to take advantage of the expertise of companies already in the business of regulatory examination provision. The Department issued an RFP to permit vendors to generate their own programs for licensure and examination programs. The alternative, an Invitation to Bid, would have required vendors to bid on a program designed by the Department. The RFP provided that the contract between the Department and the successful vendor would consist of the RFP, addenda and amendments to the RFP, and the successful vendor's proposal. The RFP also provided that Department reserved the right to negotiate with the selected contractor, to waive minor irregularities and to reject all submissions. The RFP provided a schedule and deadlines as follows: submission of questions and requests for clarification by vendors, January 15, 1996; the preproposal conference with vendors, January 22, 1996; submission of proposals, February 12, 1996; oral presentations by vendors, February 19, 1996; and posting of the intended award, February 23, 1996. There was no protest to the RFP's specifications. Submissions were received from five vendors. The RFP evaluation panel scheduled separate oral presentations by the five vendors submitting proposals. The purpose of oral presentations was to permit the vendors to present their proposals and to respond to questions from the evaluation committee. The first thirty minutes of each one-hour presentation were reserved for the vendor presentation; the second thirty minutes were reserved for questions from the evaluation panel to vendor representatives. Vendors were not invited to and did not attend the oral presentations of other vendors. For reasons discussed herein, ITC's proposal was deemed non-responsive and was not evaluated. After completion of oral presentations, the evaluation panel independently reviewed and scored the proposals (other than ITC's) and submitted the scores to the Department's purchasing office. The purchasing office opened and scored the vendors cost proposals, then calculated the vendors' total scores. Of the proposals which were evaluated, ASI's received the highest total score of 134.5 points. The second highest score, 115 points, was received by USF. The Department posted a Notice of Intended Award to ASI on February 23, 1996. On February 23, 1996, ITC contacted the Department purchasing director and requested a copy of the ASI proposal. At that time, ITC was advised that a notice of protest would be due on February 28, 1996. ITC filed a Notice of Protest on February 28, 1996. ITC filed a formal protest on March 8. 1996. Although the State of Florida insurance licensure tests are currently administered by USF, the Department retains ownership of the questions ("test items") used in the examination. Upon the expiration of the contract with USF, all test items are to be returned to the Department. The test items used in Florida insurance exams are developed by employees of the Department with experience in the subject matter being tested. Test items have been revised and updated by USF according to psychometric principles. The Department desires to continue ownership of the "Florida bank" of test items. Section 2.1B of the RFP, "EXAMINATION DEVELOPMENT," states: The Department currently retains ownership of all test items in use for existing exams. The Department shall maintain exclusive owner- ship of the items developed, item bank(s), examinations, and all related materials deve- loped for use in fulfilling the requirements of this RFP. The Contractor will be respons- ible for continued development and maintenance of an item bank for use in preparing the examinations.... Section 2.2 of the RFP, "Related Requirements and Information," states: Use of any test items owned by the Department or developed to fulfill obligations resulting from a contract entered into as a result of this RFP for any purpose other than those covered by said contract is prohibited with- out advance written authorization by the De- partment. Any violation of this provision will result in immediate cancellation of the contract and/or legal actions against the contractor. Vendors were allowed to submit questions and requests for clarification by January 15, 1996. At the preproposal conference, an addendum to the RFP was issued which included the Department's responses to vendor requests for clarification. All potential vendors received the addendum. As did other vendors, ITC submitted question and requests for clarification. ITC question Number 8 states: The Department claims ownership of all existing test questions and requires owner- ship of all items, examinations, and related materials used in the Florida tests. This requirement precludes the use of previously developed, calibrated, and validated banks of items owned by the major providers of insur- ance license examinations. It thus requires the development and maintenance of a completely separate bank of test questions for Florida. This can be done only at considerable expense, which must be reflected in the test fees. Is it truly the Department position that all questions used in Florida insurance tests will be or become the property of the Depart- ment? Is this a negotiable item? The Department's response to ITC's question Number 8 states: The desire of the Department to retain owner- ship of its test items does not preclude the use of previously developed, calibrated and validated banks of items. Subject to the approval of the Department, the selected vendor may use test items it has already de- veloped as long as the subject/line of auth- ority listings for Florida are adhered to and are in accordance with Florida law and administrative rules. It is the Department's position that all items currently owned by the Department or developed for the Department in fulfillment of services requested through this RFP, re- main the property of the Department. This is not a negotiable item. ITC question Number 22 states: Will the Department grant the contractor the right to use test items owned by the Depart- ment in other states where it has testing contracts. If so, what guarantees will the Department offer that the Department will treat these questions as confidential material in the future, when they are used in other states. The Department's response to ITC's question Number 22 states: Yes, the Department will grant the vendor authority to use test items owned by the Department in other states where it has testing contracts. However, some agreement would have to be reached regarding the vendor's liability and responsibility should any test item become compromised as a result of such use. The question relating to the Department offering a guarantee that it will treat such questions as confidential when they are in use in other states is not understood. Obviously, the Department would not want to compromise its own test items. By February 12, 1996, the deadline for submission of proposals, five vendors had submitted responses to the RFP, including ITC, ASI and USF. On the question of test item creation, ITC's proposal states: Generally, we provide the entire bank of questions that are used in the tests of a state we serve. Florida is unusual in providing a bank of questions to start with. Our approach to questions for the Florida tests will follow three tracks. First, we will use the questions in the current Florida tests. Second, we will identify those ques- tions in our own bank that are appropriate for use in Florida. Third, we will write additional questions where shortages are identified in the banks, or to cover add- itional topics in the study manuals. ITC's proposal further states, "ITC staff will write and develop all of the new test questions. We will not rely upon Department staff or the Florida insurance industry...to write any of the new questions required for your tests." On the question of test item ownership, ITC's proposal states: Since you currently own a bank of test ques- tions, we understand that you will want to own a bank of test questions when a contract you may establish with us comes to an end. We currently own our bank of questions and would not want to relinquish ownership to that bank as a result of contracting with Florida. Therefore, our proposal is to divide the bank ownership according to four criteria: (1) Ownership of questions in the original Florida bank will remain with Florida; (2) ownership of questions in ITC's bank as of contracting will remain with ITC; (3) owner- ship of ITC-developed questions that are Florida specific and not applicable to other states will be assigned to Florida; (4) ownership of ITC-developed questions that are applicable to other states will remain with ITC. Florida questions that are materially revised by ITC will be considered ITC questions. During the ITC oral presentation, the evaluation panel sought clarification of ITC's position on test item ownership. ITC indicated that its position was as set forth in the proposal. The issue of test item ownership was the central question discussed at ITC's oral presentation. Essentially, the ITC proposal provides that at the close of any potential contract period, the Department will own the questions it currently owns and only those ITC-developed questions that are specific to Florida and to no other state. Further, under the proposal, ITC would be able to "materially revise" any question in the current Florida test item bank and claim ownership of the revised question. Neither ITC's proposal nor its oral presentation provided reliable information as to what would constitute a "material revision" of a test item. After the oral presentations were concluded, the evaluation panel and Department purchasing personnel determined that the ITC proposal did not comply with RFP's requirement related to test item ownership. The ITC proposal was disqualified and was not evaluated by the panel. The evidence fails to establish that the Department acted improperly in disqualifying the ITC proposal. The evidence establishes that the ITC proposal fails to meet the requirements of the RFP relating to ownership of test items, and was properly disqualified from further evaluation. As set forth in the RFP, the Department requires "exclusive ownership of the items developed, item bank(s), examinations, and all related materials developed for use" in providing examination and licensure services to the Department. RFP Addendum Number 1 clearly states "the Department's position that all items currently owned by the Department or developed for the Department in fulfillment of services requested through this RFP, remain the property of the Department" and further states that the item is not negotiable. The purpose of the Department's insistence on ownership of test items is to assure that, at the conclusion of the contract period, the Department will own the questions which have been prepared by the successful vendor for use in Florida exams. ITC's proposal fails to provide the Department with test item ownership as specifically required by the RFP and addendum. ITC asserts that on the question of test item ownership, its proposal is essentially the same as the proposal submitted by ASI. The evidence fails to support the assertion. ASI's proposal states: ASI acknowledges that the Department currently owns all examination items in use for existing exams. Furthermore, the Depart- ment will also retain ownership of all items developed for use in Florida examinations. Unlike the ITC proposal, the ASI proposal clearly states that the Department will own all items developed for use on the Florida exam. Items developed for the Florida exam will be owned by the Department, whether or not the items are applicable to other states. ITC asserts that the inclusion of cost information within the body of the RFP warrants disqualification of the ASI proposal. The evidence fails to support the assertion. Each vendor was evaluated on compliance with Florida Certified Minority Business Enterprise (CMBE) contracting goals. Evaluation points were awarded if a vendor established that CMBE firms would receive at least 10 percent of the contract award. Section 2.4 of the RFP, "Proposal Form and Content," provides instructions on how to structure a vendor proposal and states: ...ATTENTION IS CALLED TO SECTION 1.8. ANY REFERENCE TO COST IN PARAGRAPHS (A) THROUGH (G) BELOW MAY DISQUALIFY THAT PROPOSAL. Paragraphs (A) through (G) include items related to technical portions of vendor proposals. Section 1.8 addresses copies of proposals and states, "[c]ost proposals must be labelled as such and be submitted in a separate envelope." ASI's proposal included the following statement: ...ASI has signed a Letter of Agreement with Stallion Properties Management of Tallahassee to provide certain real estate and property management services specifically related to the Department's RFP and this Proposal. In total, it is estimated that ASI's Letter of Agreement with Stallion Properties Management will provide a total income of approximately $600,000.00 to Stallion over the term of ASI's three year contract with the Department. This project income to Stallion represents ten percent of the total projected income that ASI will earn should we be awarded the Department's contract. The requirement for submission of sealed cost proposals is intended to assure that the technical review of proposals is not influenced by cost factors. Other than to note compliance with the CMBE goal, the members of the evaluation panel did not extrapolate the ASI disclosure to determine the total ASI cost proposal. There is no evidence that the ASI disclosure affected the panel's evaluation of the proposal. Had the ASI technical proposal included its total cost proposal, evaluation panel members would have referred the issue to the Department's purchasing office. Apparently because the panel members did not note the inclusion of the CMBE total and did not extrapolate cost information based on the CMBE disclosure, the members did not refer the matter to purchasing. Because no other vendor included cost information within the technical portion of the proposals, there was no comparative cost information available for evaluation until the cost proposals were opened by Department purchasing personnel. Cost proposals were reviewed after the evaluation of technical factors was completed. ITC asserts that ASI's proposal modification after the proposals had been opened and during the oral presentation warrants rejection of ASI's proposal. The evidence fails to support the assertion. Section 2.1L of the RFP, "COLLECTION AND REMITTANCE OF FEES," states: The Department requires the collection of certain fees from applicants for services related to the licensure and examination process. It is intended that the Contractor collect these fees, as necessary and appropri- ate, and remit these fees daily (exclusive of weekends and State of Florida holidays) in a manner acceptable to the Department. It is intended that the Contractor retain its fee for services as provided for in the contract and remit the balance to the Department as appropriate. The Department is currently not prepared to accept electronic funds transfers in this area, however, it is interested in proposals which could accommodate such tran- sactions during the contract period. The Department contemplates technological enhance- ments in the Receipt's database within the contract period, however it is unable to specify the details of such at this time. Contractor must be able to accommodate such technological changes and enhancements. If any invoices are required to be submitted by the contractor to the Department, they must be submitted in a manner acceptable to the Department and in detail sufficient for a pre- audit and postaudit thereof. The Contractor shall have a system which maintains certain data, as specified by the Department, related to its activities in this area. The Department had indicated that a vendor could collect the total fee, deduct the vendor service charge, and remit the balance of the fee to the Department. Prior to the preproposal conference, ITC submitted a question (Number 21) seeking information on how fees were to be conveyed to the Department. In Addendum Number 1, the Department indicated that a response to the question would be provided in a second addendum to be issued after the preproposal conference. In the second addendum, the Department's response to ITC's question Number 21 states: The Department intends for the vendor to receive, on behalf of the Department, certain fees currently paid by licensure applicants and/or exam candidates. These fees may be paid by personal check, certified check or money order. Cash cannot be accepted. All checks or money orders must be made payable to the Florida Department of Insurance and must be deposited by the vendor into a state concentration account (with Barnett Bank) or a clearing fund in the name of the Department. The Department will assist in establishing these accounts. The Department will require a daily accounting of all monies collected and/or deposited. This information must be in the format prescribed by the Department. This information must be transmitted via an automated system compatible with the Department's existing information systems in this area. The vendor will be required to submit in- voices to the Department for services rendered on a monthly basis. Such invoices must be in sufficient detail for pre-audit and post-audit purposes and be in a format prescribed by the Department. The Department's response in addendum Number 2 specifically noted that the Department's position had changed. ASI's proposal states: Fees will be collected on the day of examina- tion and/or license issuance. This method will eliminate late payment processing. We will collect examination fees payable to ASI. This will minimize reconciliation tasks for the Department, and will allow accounting efforts to focus on those fees collected on behalf of the Department. Application re- venues will be shared with the vendor, based on prices stipulated in the price proposal and associated processing volumes. Appli- cation and fingerprinting fees will be collected via checks made payable to the Department. ASI will provide a reconcilia- tion of these fees, and daily deposits will be made to the Department's account. ASI will invoice the Department for its applica- tion screening services on a monthly basis. ASI's proposal further states: As part of the standard project planning process, [ASI will work side-by-side with the Department to identify specific requirements to be included in the implementation plan, including fee collection procedures], de- tailed invoice requirements, and the most appropriate method to transmit detailed tran- saction information to the Department.... [emphasis supplied] The proposed fee collection process suggested by ASI is inconsistent with applicable Florida law and does not follow the procedure set out by the Department in Addendum Number 2. Section 2.4 of the RFP, "Proposal Form and Content," subsection (C) "Work Plan" states: Describe in narrative form your plan for accom- plishing the work described....Modifications of requirements of this RFP are permitted, however, reasons for changes should be fully explained and justified. " At the oral presentation, and prior to evaluation of the proposals, the evaluation panel advised ASI that the fee collection proposal was not legally appropriate. ASI representatives indicated that they were attempting to provide an improved fee reconciliation process and were not aware that Florida law prohibited their fee collection plan. ASI utilizes the two-check fee payment system in some of the states where ASI administers licensing exams. At the oral presentation, ASI representatives assured that, as specifically stated in the proposal, ASI was committed to working with the Department "...to identify specific requirements to be included in the implementation plan, including fee collection procedures...." ASI representatives stated that the fee collection procedure desired by the Department would be accomplished within the costs set forth in the proposal. Although ASI's fee collection procedure does not follow the method suggested in the RFP, such does not warrant rejection of the ASI proposal. As stated in the RFP, ASI's modification of the RFP requirement was permitted where the reasons for changes were fully explained and justified. ITC implies that ASI can't provide the services offered in the ASI proposal within the fee and cost structure set forth in the response to the RFP. There is no credible evidence supporting the implication.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance enter a Final Order DISMISSING the case and awarding the contract to Assessment Systems, Incorporated. DONE and ENTERED this 21st day of May, 1996 in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM, 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 21st day of May, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 96-1330BID To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 6. Rejected, not supported by the weight of the evidence. Rejected, subordinate. Rejected, not supported by the weight of the evidence. Rejected, comment on testimony is not finding of fact. Rejected, unnecessary. The ITC proposal is not responsive to the Department's requirement of test item ownership. 12-13. Rejected, contrary to the weight of the evidence. Rejected, immaterial. Rejected, subordinate. Rejected, not supported by the weight of the evidence. 22. Rejected, subordinate. 23-24. Rejected, unnecessary. Rejected, subordinate. Rejected, unnecessary. Rejected, not supported by the weight of the evidence. Respondent The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 2. Rejected, subordinate. 3-5. Rejected, unnecessary. 7-8. Rejected, unnecessary. 14. Rejected, irrelevant. 20-23. Rejected, unnecessary. 34-37. Rejected, cumulative. 48-59. Rejected, cumulative. 61-62. Rejected, irrelevant. 63-69. Rejected, cumulative. Rejected, unnecessary. Rejected, cumulative. 83. Rejected, cumulative. 96. Rejected, unnecessary. Intervenor ASI Intervenor ASI's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: Rejected, unnecessary. Intervenor USF Intervenor USF's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 20-21. Rejected, unnecessary. Rejected, subordinate. Rejected, subordinate. Rejected, unnecessary. Rejected as to use of phrase "final offer;" the ASI RFP specifically committed to working with the Department on fee collection procedures. Rejected, unnecessary. 45. Rejected, subordinate. 50. Rejected, unnecessary. COPIES FURNISHED: Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner, General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300 Carl D. Motes, Esquire Maguire, Voorhis and Wells, P.A. 2804 Remington Green Circle, Suite 4 Tallahassee, Florida 32317-2429 Frank Fernandez, Esquire Thomas Valentine, Esquire Department of Insurance Division of Legal Services 612 Larson Building Tallahassee, Florida 32399-0333 William B. Graham, Esquire Richard N. Sox, Jr., Esquire Bateman and Graham, P.A. 300 East Park Avenue Tallahassee, Florida 32301 Regina L. DeIulio, Esquire Office of the General Counsel University of South Florida 4202 East Fowler Avenue, ADM 250 Tampa, Florida 33620-6250
Findings Of Fact Petitioner is the receiver for Bayside Club, Islamorada, Inc., a dissolved Florida corporation ("Bayside"). Mr. Joseph Popplewell is a general contractor and former president of Bayside. Respondent is the governmental entity authorized by Chapter 76-441, Section 14(1), Laws of Florida, to adopt impact fees for the water system in the Florida Keys, to equitably adjust the financial burden of a new pipeline, and to expand it or improve appurtenant facilities between existing customers and new water users. In 1986, Bayside sought to construct a 30 unit hotel on approximately one acre of land in Monroe County, Florida. The development project was formally classified as an expansion of an existing eight unit hotel. The existing hotel, however, had little, if any, useful life, and, in substance, the project involved the development of a new 30 unit hotel. Bayside obtained a building permit on June 4, 1985. In the same month, the building permit was challenged by an adjacent land owner. The challenge asserted that the existing hotel constituted a grandfathered nonconforming use and that the building permit improperly treated the development site as if it were located in a zoning district which permitted hotel usage and subsequent expansion. During the last half of 1985, the Monroe County Commission considered the challenge to the building permit and found that the building permit was valid. The adjacent landowner filed suit against Bayside. The circuit court upheld the validity of the building permit. The suit was finally decided on May 29, 1990, when the Third District Court of Appeal reversed the lower court's decision that the building permit was valid. Dowd v. Monroe County, 557 So.2d 63 (Fla. 3d DCA 1990). On May 29, 1990, the circuit court entered its order declaring the building permit invalid. In 1986, Bayside was advised by Respondent that unit water system development fees ("impact fees") were scheduled to increase from $1,500 to $2,000. Bayside chose to avoid paying impact fees at the increased unit rate and to achieve a savings in development costs. On or about April 18, 1986, Bayside executed an Agreement For Water Service. On or about April 29, 1986, Bayside issued a check payable to Respondent in the amount of $36,840, which included impact fees in the aggregate amount of $33,000. As provided in Florida Administrative Code Rule 48-3.002 2., the Agreement For Water Service expressly stated in paragraph 1 that "SAID SYSTEM DEVELOPMENT CHARGE SHALL NOT BE REFUNDABLE." Construction of the proposed hotel stopped sometime in 1986. A receivor was appointed for Bayside by the appropriate circuit court on June 14, 1991. Sometime in early 1992, the receiver for Bayside requested a refund of the impact fees. Respondent denied that request in a letter dated February 27, 1992, but refunded amounts paid by Respondent in excess of the impact fees. Respondent's denial of Petitioner's request for a refund did not constitute an unreasonable classification and did not establish a differential rate that was either unjust or inequitable. Respondent has consistently applied Florida Administrative Code Rule 48-3.002 2. to prohibit the refund of impact fees regardless of the classification or rate charged the person who paid the impact fee. Petitioner had adequate notice in Rule 48-3.002 2. and the Agreement For Water Service that the impact fees were nonrefundable. Respondent reasonably anticipated that the projected costs for expanding the water system would be incurred. The county commission and circuit court both upheld the validity of the building permit. If Bayside reasonably anticipated that projected costs for expanding the water system and appurtenant facilities would not be incurred due to a suit challenging the building permit, Bayside had the option of not paying the impact fees until the final conclusion of litigation. Bayside was on notice that the impact fees were nonrefundable and chose to forego its option not to pay the fees until the conclusion of the suit challenging the building permit. Bayside made a business decision to save money and time by paying the impact fees when it did. Viewed in the light of hindsight, that business decision was imprudent. Bayside did not notify Respondent that the costs of expanding the system were not reasonably anticipated until six years after Bayside chose to pay the impact fees. The nonrefundable impact fees imposed by Respondent in 1986 were just and equitable. Expansion of the water system pipeline and appurtenant facilities was reasonably required as a result of the development proposed by Bayside at the time that the impact fees were imposed. The costs attributable to such expansion were reasonably anticipated by Respondent at the time that the impact fees were imposed. The use of the impact fees was limited to meeting such reasonably anticipated costs of expansion. The impact fees imposed by Respondent in 1986 did not exceed a pro rata share of reasonably anticipated costs. Expansion of Respondent's water system was necessary irrespective of the proposed hotel. The expansion of Respondent's water system and appurtenant facilities was financed through the sale of debentures. The indebtedness incurred is made good through revenues in the form of rates, fees, and other charges. Under such circumstances, rates and fees were set with a view towards raising the money necessary to repay the loan. The impact fees did not cease to be just and equitable merely because they were set high enough to meet the water system's reasonably anticipated capital requirements.
Findings Of Fact Quality of Service Of more than 250 customers presently served by the utility, only four customers testified at the hearing. Two were concerned that water and sewer rates were already too high and no further increase in rates should be allowed, a third complained of the utility's water having a bad taste and odor, while the fourth objected to an odor emanating from the utility's sewerage treatment plant approximately one year ago. Additionally, a number of deficiencies in the quality of service were identified by the Commission in Order No. 9216, supra. However, all deficiencies have now been resolved to the Commission staff engineer's satisfaction. Based on the entire record, the evidence supports a finding that the utility's water and sewer service is satisfactory. Rate Base Petitioner has proposed a rate base of $10,897 and $36,832 respectively for its water and sewer operations for the twelve months ending June 30, 1979, which is the test period in this proceeding. The Commission staff proposed five further adjustments to water and sewer rate base, none of which were contradicted by the utility. These adjustments affect plant in service, accumulated depreciation, contributions in aid of construction (CIAC), accumulated depreciation on CIAC and the working capital allowance. The adjustments are supported by the record, and should be accepted. The following schedule portrays the adjusted rate base for the utility's water and sewer operations, and the basis for each of the adjustments made in arriving at those amounts. Ponderosa Parks, Inc. Average Rate Base Year Ending June 30, 1979 WATER ADJUST TEST UTILITY ADJUST. YEAR Utility Plant $52,293 9,142 (1) $61,435 Accum. Deprec. (9,335) (1,055) (2) 10,390 CIAC (33,926) (5,938) (3) (39,864) Accum. Deprec.- CIAC -0- 6,742 (4) 6,742 Working Capital 1,865 60 (5) 1,925 Rate Base $10,897 $19,848 SEWER ADJUST TEST UTILITY ADJUST. YEAR Utility Plant $92,962 ($15,631)(6) $77,331 Accum. Deprec. 18,270 5,718 (7) (12,552) CIAC (39,188) 254 (8) (38,934) Accum. Deprec.- CIAC -0- 6,320 (9) 6,320 Working Capital 1,328 (215)(10) 1,113 Rate Base $36,832 $33,270 Adjusts water plant in service by (a) reallocating a portion of sewer plant to water operations, (b) readjusting the cost of certain water meters, and (c) adjusting the plant accounts from a year-end basis to a 13-month average balance. Adjusts accumulated depreciation to (a) reflect the use of a composite depreciation rate of 2.5 percent of all water plant and lines except meters for which a 2.63 percent rate is used, and (b) restate the balance in the account using a 13-month average balance in lieu of year-end balance. Adjusts contributions in aid of construction by (a) restating an amount previously improperly booked as revenues during the years 1970-1974, and (b) restating the year-end balance to a 13-month average. Adjusts the balance in the accumulated depreciation on CIAC account to reflect the use of a 13-month average rather than a year-end balance. Recomputes the working capital allowance to reflect one-eighth of adjusted operating and maintenance expenses. Adjusts sewer plant in service by (a) reallocating certain water lines from sewer to water operations, (b) removing certain non-utility land from the land account, (c) deleting that portion (50 percent) of the sewage treatment costs not used and useful in providing sewer services, and (d) adjusting the plant accounts from a year-end balance to a 13-month average balance. Adjusts accumulated depreciation by (a) using a 2.5 percent composite depreciation rate on all sewer plant and lines except for a 2.63 percent rate on meters, and (b) reflecting the use of a 13-month average in said account. Adjusts contributions in aid of construction by (a) adding to that account contributions previously recorded as revenues in 1970-1974, and (b) using a 13-month average in lieu of a year-end balance. Restates accumulated depreciation on CIAC by using a 13-month average in lieu of a year-end balance. Recomputes the working capital allowance to reflect one-eighth of operating and maintenance expenses. Net Operating Income Petitioner's Exhibit No. 1 shows adjusted test year gross operating revenues of $20,370 for water operations and $14,692 for sewer operations. The utility's net operating income for the same time period on water and sewer services was $1,282 and $48 respectively. Staff Exhibit Nos. 2 and 4 make adjustments to operating revenues, operating and maintenance expenses, depreciation expense, and taxes other than income, none of which were contested by the utility. The record supports a finding that these adjustments are appropriate, and should be accepted. The following schedule shows the net operating income of the utility for the year ending June 30, 1979 and the derivation of those amounts. Ponderosa Parks, Inc. Average Rate Base Year Ending June 30, 1979 WATER ADJUST TEST UTILITY ADJUST. YEAR Operating Revenues $20,370 2,083(1) $18,287 Operating Expenses: Operation 16,137 (736)(2) 15,401 Depreciation 1,663 (1,119)(3) 544 Taxes other than 1,228 (52)(4) 1,236 Income Net Operating Income $ 1,282 $ 1,106 SEWER ADJUST TEST UTILITY ADJUST. YEAR Operating Revenues $14,692 4,293 (5) $10,399 Operating Expenses: Operation 10,121 (1,216)(6) 8,905 Depreciation 2,741 (1,781)(7) 960 Taxes other than 1,783 (107)(8) 1,675 Income Net Operating Income $ 48 $ 1,141 Adjusts test year water revenues by (a) removing that amount requested by the utility to show actual results of operations, and (b) reflecting a new surcharge rate (66/1000 gal.) charged by Pasco Water Authority. Adjusts operating and maintenance expenses by (a) removing costs associated with excessive unaccounted for water, (b) disallowing purchased water costs related to a prior accounting period, and (c) annualizing the new cost of water ($1.03/1000 gal.) purchased from Pasco Water Authority. Adjusts depreciation expense by (a) reflecting a composite depreciation rate of 2.5 percent for plant and lines and 2.63 percent for meters, and (b) removing depreciation expense on CIAC from operating expenses in accordance with Section 367.081(2) Florida Statutes (1980). Adjusts taxes other than income taxes by removing gross receipts taxes associated with the requested revenues previously removed in item (1)(a) above. However, an appropriate amount of taxes ($52) should be added back after the new revenue requirements are determined. Adjusts test year sewer revenues by removing the revenues requested by the utility to show actual results of operations. Adjusts operating and maintenance expenses by amortizing the cost of nonrecurring repair work over a 3-year period instead of charging the total cost to test year operations. Adjusts depreciation expense by (a) recomputing the balances using a 2.5 percent composite depreciation rate for all sewer plant and lines except for a 2.63 percent rate on meters, and (b) removing depreciation expense on CIAC in accordance with Section 367.081(2), Florida Statutes (1980). Restates taxes other than income by removing gross receipts taxes associated with the requested revenues previously removed in item (5). However, an appropriate amount of taxes ($107) should be added back after the new revenue requirements are determined. Cost of Capital Ponderosa has not requested a specific rate of return on utility investment. However, the requested revenues on water operations equate to a rate of return of 11.76 percent on water rate base while the requested amount of sewer revenues produces a rate of return on sewer operations of 9.15 percent. The utility and Commission staff agree such returns are reasonable given the circumstances of this proceeding. These rates of the returns are supported by the record, and should be used. Revenue Requirements The application of a 11.76 percent rate of return to the adjusted rate base for water operations reflects the utility is entitled to increase its water revenues by $1,260 in order to achieve that return. Similarly, it is necessary to increase sewer revenues by the amount requested, or $4,293, to produce the requested return of 9.15 percent. The utility should be permitted to revise its tariffs to generate these amounts of additional revenues. Rate Structure The utility's present rate structure imposes a minimum charge for the first 3,000 gallons of water used, and a gallonage charge for each 1000 gallons thereafter. Sewer charges for residential customers are presently assessed on a flat rate basis irrespective of the usage of the individual customer. This type of rate structure has two inherent deficiencies. First, it offers no means by which a customer may control the amount of his bill by consuming more or less amounts of water. Second, it fails to allocate in a fair and impartial manner the minimum costs associated with providing water and sewer service. A base facilities charge will remedy these deficiencies. Under this structure, a minimum charge will be imposed for the purpose of recovering the fixed or base costs of providing water and sewer service, such as depreciation, taxes and a portion of billing and customer accounting expenses. Thereafter, a charge for each thousand gallons used will be made. The latter charge will cover costs relating to purchased water, transmission and treatment expenses, and a portion of billing, collecting and customer accounting expenses. This type of rate structure is supported by the evidence, and should be used.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Ponderosa Parks, Inc., 301 Embassy Boulevard, Port Richey, Florida 33568, be granted and that the utility be authorized to file new tariffs to be approved by the Florida Public Service Commission that will generate additional annual gross water revenues of $1,260 and additional annual gross sewer revenues of $4,293. It is further RECOMMENDED that the utility be required to implement a base facility charge in structuring its water and sewer rates. THIS RECOMMENDED ORDER entered on this 21st day of July, 1980, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
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 Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner GDU is a wholly-owned subsidiary of General Development Corporation and has eight operating divisions. At the end of the 1979 test year, the petitioner's Port Malabar Division had 3,899 water connections and 3,760 sewer connections. At the end of July, 1981, the system was serving 4,852 water customers and 4,332 sewer customers. During the test year, petitioner's Port Malabar water system consisted of 16 shallow wells, 47 miles of distribution and transmission lines, and a three million gallon per day lime softening treatment plant with two storage facilities. The sewer system consisted of 17 lift stations, about 44 miles of collection and force mains and a treatment plant-rated at two million gallons per day. During the test year, 28 employees were assigned to the water and sewer operations. At the time of the August hearing, petitioner had 34 employees. Quality of Service The water and sewer service customers of petitioner who testified at the hearing were primarily concerned about the magnitude of the proposed rate increase and its impact upon persons with fixed incomes. Many customers testified that they were satisfied with the water and sewer service provided to them. The few complaints voiced about service included odor from a new lift station, the high mineral content of the water, water lost during construction projects, interruptions in service without notice, and, on occasion, dirty water. Petitioner maintains a customer service and local billing office in the Port Malabar area. It is the customary practice of petitioner to give its customers advance notice of any interruption in service. Water utilized for construction purposes is metered and billed to the individual contractors. The odor problem from the recently installed lift station has been resolved. Petitioner has an ongoing program for monitoring water quality and compliance with state and federal water quality standards. All drinking water requirements and standards for sewage treatment plant effluent have been complied with by petitioner. Petitioner presently has 3 sewage treatment plant operators and is attempting to secure one more operator to meet the Department of Environmental Regulation's requirement of four. Used and Useful The term "used and useful" is a ratemaking term to establish that portion of investment upon which a utility is entitled to earn a return. Facilities which are used and useful are those used to serve present customers, with a reasonable reserve added for future customers. A knowledge of engineering principles is necessary to perform a used and useful analysis. The used and useful analysis performed by petitioner resulted in a determination that the water treatment plant is 100 percent used and useful. The methodology utilized was to take the maximum day's water production during the test year and add an allowance for 18 months' growth based on an average of the prior three years growth rates. The actual growth rate of 953 water customers between the end of the test year and July, 1981, a 24.4 percent increase, closely matched the increase used in petitioner's calculations. The eighteen month period is representative of the period of time required for a utility to design, receive approval, complete construction and place the facility in usage. The utility's methodology made no allowance for fire demand and thus the results are conservative. Using a similar methodology, the PSC engineering expert also found the water plant to be 100 percent used and useful. The Office of Public Counsel's accounting expert determined that the petitioner's water plant was only 81 percent used and useful. His methodology utilized a peak day flow different than that utilized by petitioner for the reasons that he felt it was more representative of actual customer demand and did not reflect excess water loss. This witness also felt that the use of the marginal reserve or growth factor resulted in the inclusion of plant associated with future customers and allowed the utility to over-recover its depreciation expenses. Petitioner's used and useful analysis of water distribution mains resulted in the determination that $162,501 should be deemed held for future use and therefore excluded from rate base. For purposes of this calculation, petitioner utilized as-built plans and excluded those mains in sparsely settled areas unless they fronted on an occupied lot or on a fire hydrant located within 500 feet of an occupied lot. The PSC expert witness determined that the water distribution system was 100 percent used and useful. The OPC's witness determined that the used and useful portion of the water distribution system was 80.96 percent. His analysis was apparently based on the actual billings during the test year as compared to the total potential connections. By averaging the average daily flow and the average maximum flow days, and then adding an eighteen month allowance for future growth, the petitioner determined that the sewage treatment plant was 60.5 percent used and useful. Maximum flow days are more significant than average days from an engineering design perspective, and thus petitioner's calculations are quite conservative. The PSC witness determined that the sewage treatment plant was 100 percent used and useful. Based upon average daily flow and making no allowance for growth, the OPC's witness determined that the sewer plant was only 40 percent used and useful. His rationale for using the average daily flow was not adequately explained. Comparing the actual connections plus an eighteen month allowance for growth to potential connections, petitioner determined that the sewage collection and distribution mains are 100 percent used and useful. The PSC witness agreed. The witness for the OPC calculated the sewage collection line system as being only 73.4 percent used and useful, apparently giving no weight to a growth allowance. Water Loss Petitioner calculates its unaccounted for water loss at 9 percent, though a little over 1 percent is due to meter slippage because of mechanical design. Petitioner's meters are read on a monthly basis and are calibrated by a private firm once a year for the water meters and twice a year for the sewer meters. A range for water loss between 10 percent and 15 percent is considered reasonable in the industry. Pointing to the facts that many Florida water utilities have water losses at 5 percent or lower and that petitioner's own water losses were less in 1980, the OPC witness felt that the unaccounted for water should be calculated at a 5 percent rate. Construction Work in Progress A portion of the assets carried on the petitioner's books as construction work in progress (CWIP) were actually completed, paid for, in service and generating revenues during the test year. These assets--$246,9l6 of water mains and $1,053,476 of sewer mains--were reflected as CWIP because the bookkeeping process of classifying them to the proper plant accounts had not been completed. The assets were subjected to the petitioner's used and useful analysis, and they should be reclassified as utility plant in service. A utility is entitled to recover the cost of carrying its construction program. The two alternative methods of recovery are to allow the average balance of CWIP to be included in rate base or to allow the interest or other return on the construction balances to be capitalized as part of the cost of the asset and amortized over its useful life. This latter method is referred to as allowance for funds used during construction (AFUDC). If AFUDC is not added to the rate base and if the amount of construction is reasonable based upon engineering standards, CWIP should be includable in rate base. Over the long run, this method is less costly to customers than charging AFUDC. Petitioner did not charge AFUDC on the assets claimed as CWIP and the amounts claimed were less than in previous years and met the standard of reasonableness. The witness for the OPC was of the opinion that CWIP should be excluded from rate base because the assets benefited the utility rather than the current customers, and current ratepayers should not be required to finance the utility's investments. He further felt that if these funds were included in rate base, the result would be a mismatch between rate base and the utility's income statement. Contributions-in-Aid-of-Construction Petitioner has properly excluded from its rate base those moneys which represent CIAC. However, it has included in rate base accumulated depreciation on CIAC. Petitioner has done this by adding back to rate base that portion of total accumulated depreciation associated with CIAC after subtracting both total accumulated depreciation and CIAC from plant in service. The PSC method reaches the same result by subtracting from plant in service both total accumulated depreciation and net CIAC (CIAC less accumulated depreciation on CIAC). If the depreciation expense on contributed property has already been included as an above-the-line expense and re- covered through rates, accumulated depreciation corresponding to such expenses should be removed from rate base. Petitioner has never recovered depreciation on contributed property as an expense for ratemaking purposes. Working Capital An allowance for working capital should be included in rate base. Petitioner utilized the formula approach for calculating its working capital needs. This methodology is recognized by PSC rule and is a simplistic, rule-of- thumb approach. It is calculated by taking one-eighth or 12 1/2 percent of the utility's annual operation and maintenance expenses. It does not reflect some items which provide a source of working capital and it does not necessarily measure the actual working capital requirements or investment of any particular company, The result obtained from using the formula approach must be reduced by an amount for federal income tax lag. The balance sheet approach to determine working capital requirements is generally preferred by the PSC staff and its use is urged by the Office of Public Counsel in this proceeding. This method involves deducting current liabilities from current assets to determine the amount of funds the utility has currently available to meet its working capital needs. The balance sheet approach more accurately addresses the specific working capital variables of the company to which it is applied. The PSC's accounting witness recommended use of the formula approach in this case because of the absence of a staff audit of the petitioner's balance sheet, In actuality, the difference in terms of dollars between the two approaches, as calculated by the petitioner and the OPC, is an immaterial amount. On cross-examination and rebuttal, the intervenor's calculation of working capital requirements by use of the balance sheet approach was shown to be incorrect and the result obtained was therefore understated. Federal Income Tax Petitioner GDU is a wholly-owned subsidiary of General Development Corporation which is a wholly-owned subsidiary of GDV, Inc. GDU files its federal income tax returns as part of the consolidated group which contains no other public utilities. Using this subsidiary approach, each member of the group computes its tax liability as if it were a freestanding company. Petitioner computed its federal income tax liability at the full statutory rate of 46 percent. While the petitioner's actual capital structure is almost 100 percent equity, its tax was computed by recognizing its parent company's capital structure. Petitioner did not contribute any tax losses that could be used by the group on its consolidated return. A certified public accountant with the PSC staff agreed with the petitioner's use of the subsidiary approach and the 46 percent statutory rate for calculation of petitioner's federal income tax expense. During the 1979 test year, the consolidated group actually paid taxes to the Internal Revenue Service at less than the 46 percent statutory rate. This was the result of losses at the parent company level. The witness for the OPC was of the opinion that the petitioner's tax expense should be calculated so as to recognize the actual tax expense of the corporation as a whole and that only those taxes which are eventually flowed through to the Internal Revenue Service should be claimed. He would calculate petitioner's effective tax rate by use of a "payout ratio" methodology which involves adjusting the statutory rate by the ratio of taxes actually paid to the IRS to the total taxes paid by all subsidiaries. Depreciation Rate On the basis of an estimation of the average service lives for each of its primary plant accounts, petitioner has calculated an overall depreciation rate of 3.43 percent for water assets and 3.11 percent for sewer assets. This component method of depreciation has been used by petitioner for over twenty years. In estimating the service lives of its assets, petitioner relied upon its experience with its own water and sewer assets in Florida and recognized that such assets are affected by Florida's high temperatures and humidity levels and the flat topography. The composite 2.5 percent depreciation rate customarily utilized by the PSC assumes a forty year service life of assets. In actuality, petitioner has retired two of its wells in less than twenty years and most of its meters have been replaced. The service lives used by petitioner are comparable with other depreciation data from the PSC, a National Association of Regulatory Utility Commissioner's (NARUC) survey and a Texas Public Service Commission survey on average service lives. The petitioner's witnesses were of the opinion that the 2.5 percent rate or forty year composite service life is not appropriate because it does not consider the unique physical characteristics of water and sewer systems in Florida. The OPC urges the application of the 2.5 percent overall depreciation rate on the basis that petitioner did not produce sufficient evidence that a change from Commission policy was necessary. Inflation Adjustment Petitioner proposes to adjust certain operating and maintenance expenses upward by 8.3 percent as an allowance for the effect of inflation on those expenses. No adjustment is proposed for those items which were the subject of other adjustments or for those items not expected to increase directly with inflation. The figure of 8.3 percent was derived from a three- year average of percentage increases in the Consumer Price Index (CPI) from 1976 through 1979. The CPI is a "market basket" approach to measuring inflation on the average consumer, and includes such items as foodstuffs and home mortgages. Based upon its 1980 expense figures and discounting increases in expenses attributable to growth in customers, petitioner experienced a 10 percent inflationary increase for water operations and a 9 percent increase for sewer operations for 1980 over 1979. Since at least 1976, petitioner has never earned its authorized rate of return, primarily due to the effects of inflation. The PSC staff has not audited the petitioner's 1980 expense figures. Such figures have been audited by an outside CPA firm for financial purposes, but not for regulatory purposes. The 10 percent and 9 percent increases in water and in sewer operations measure only increased costs and do not account for increased revenues. Pursuant to a 1980 amendment to Chapter 367, Florida Statutes, public utilities are now entitled to automatically adjust their major categories of operating costs incurred during the previous calendar year by applying a price increase or decrease index to those costs. Section 367.081(4)(a), Florida Statutes. The PSC has established an 8.99 percent index for application by utilities in 1981. Highland Shores/Knecht Road Adjustments It is anticipated that the City of Palm Bay will purchase petitioner's water distribution system serving one commercial and 54 residential customers in the Highland Shores subdivision and 8 customers on Knecht Road. Petitioner eliminated certain amounts from its revenues, variable expenses and rate base to reflect this transaction, but did not adjust non-variable fixed costs which would not be affected by loss of these customers. Adjustments were made to chemical and electrical expenses and depreciation and property taxes associated with the plant serving those areas. No adjustments were made to payroll or other labor expenses. Petitioner presented evidence that the loss of those customers would not reduce personnel requirements or labor costs. The witness for the OPC proposed across-the-board adjustments for all operating and maintenance expenses based upon percentages of consumption and usage figures associated with these areas. Cost of Capital In actuality, the capital structure of petitioner consists almost entirely of equity invested in the utility by its parent, General Development Corporation. With adjustments for funds not available to petitioner, petitioner used its parent's capital structure in performing its cost of money analysis since the ultimate source of its equity funding consists of a mixture of debt and equity at the parent company level. All parties agreed that the proper capital structure to use in this case is that of petitioner's parent, General Development Corporation. Employing a discounted cash flow method and a risk premium analysis, petitioner has determined tat its cost of equity capital ranges from 18.06 percent to 22.32 percent, with a midpoint of 20.19 percent. Under the discounted cash flow method, the five year annual growth rates of ten water utilities were averaged and added to the average dividend yield for those utilities, to obtain an 18.06 percent return on equity. Under the risk premium analysis, petitioner analyzed utility debt costs by considering the current costs and yields of bonds, and then added a 4 percent risk premium to reflect the higher yield associated with equity as compared to debt. This analysis resulted in equity ranges between 20.59 percent and 22.32 percent. These figures are comparable to the combination of dividend yield and price appreciation of the Fortune 500 companies. The OPC witness concluded that a reasonable return on equity for petitioner would be between 14 percent and 14.5 percent. In measuring this cost of equity for petitioner, the comparable earnings method and a discounted cash flow method was employed. The former method involves an observation of the equity returns achieved by companies of comparable risks. Mr. Parcell examined the earnings of unregulated companies and large public utilities. His discounted cash flow method combined dividend yield and growth in retained earnings for nine water companies. The petitioner presented evidence that its current cost of debt is 15.3 percent instead of the 10.89 percent originally indicated in its application. Rate Case Expenses Petitioner originally estimated its rate case expenses at $25,000 based upon the assumption that there were only two issues in dispute between the utility and the PSC staff and that the proceedings could be handled by in-house personnel. Following the intervention of the Office of Public Counsel, the corresponding increase in the number of issues to be litigaged and the six additional days of actual hearing, petitioner is claiming that rate case expenses are $105,787. This figure is based upon the hourly rates of various professionals and the actual expenses incurred for the hearings. Petitioner expects the rates which will result from these proceedings to be in effect for no more than two years. This is consistent with petitioner's past history. Petitioner therefore seeks to amortize its rate case expenses over a two-year period and to divide them equally between the water and sewer operations. The OPC presented testimony expressing the opinion that the expenses claimed by petitioner in this proceeding were unreasonable and entirely out of line. It was pointed out that the expenses requested amount to about 20 percent of the total proposed revenue increase. It is contended that the hourly rates charged by petitioner's witnesses are excessive and that it was unreasonable to engage more than one witness per issue in a case of this magnitude. The hourly rates charged by the OPC's witnesses were set pursuant to an annual contract between those witnesses and the Office of Public Counsel. The OPC also believes that rate case expenses should be amortized over a three to five year period to properly take into account the newly enacted automatic pass-through provisions of Chapter 367, Florida Statutes, which should increase the time between rate cases. One witness testifying for the OPC did not feel that rate case expenses should be recovered at all through rates. The PSC staff witness did not feel that the rate case expenses claimed by petitioner were excessive when compared with other utilities of similar size.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that the issues in dispute in this proceeding be resolved as follows: That the quality of water and sewer service provided by petitioner to its customers be found satisfactory; That 100 percent of petitioner's water treatment plant, 60.5 percent of its sewage treatment plant and 100 percent of its sewage collection and distribution system be found to be used and useful in the public service and that $162,501 attributable to petitioner's water distribution lines be excluded from rate base; That petitioner's water loss of 9 percent is not excessive; That those assets in service during the test year carried on the utility's books as construction work in progress be transferred to utility plant in service and the remaining amount of CWIP proposed by petitioner for inclusion in rate base is reasonable; That accumulated depreciation on contributions-in-aid-of-construction not be excluded from petitioner's rate base; That the formula approach utilized by petitioner in determining its working capital requirements is appropriate in this case; That the petitioner's federal tax expenses be calculated at the 46 percent statutory rate; That the composite rates of depreciation of 3.11 percent on petitioner's sewer division and 3.43 percent on its water division be adopted; That petitioner's proposed 8.3 percent inflation adjustment for certain operation and maintenance expenses be rejected; That the adjustments proposed by petitioner for loss of its Highland Shores/Knecht Road customers are appropriate; That the capital structure of General Development Corporation be utilized to determine petitioner's cost of capital; that petitioner's cost of debt is 15.3 percent and that petitioner's cost of equity is 18.06 percent; and That rate case expenses in the amount of $105,787 are reasonable. Respectfully submitted and entered this 8th day of December, 1981, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of December, 1981. COPIES FURNISHED: Gary P. Sams, Esquire and Richard D. Melson, Esquire Hopping, Boyd, Green & Sams Suite 420 Lewis State Bank Building Tallahassee, Florida 32301 Nancy H. Roen, Esquire General Development Utilities, Inc. 1111 South Bayshore Drive Miami, Florida 33131 Gregory J. Krasovsky, Esquire Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301 Jack Shreve, Esquire Stephen C. Burgess, Esquire and Suzanne S. Brownless, Esquire Room 4, Holland Building Tallahassee, Florida 32301 Steve Tribble, Clerk Florida Public Service Commission 101 East Gaines Street Tallahassee, Florida 32301
Findings Of Fact On or about July 7, 1980, Timberland Utilities (hereinafter "Petitioner") filed a petition for permanent rate relief and immediate interim rate relief with the State of Florida, Public Service Commission (hereinafter "Commission") seeking authority to increase its authorized rates to realize an increase in authorized revenues from the provision and sale of natural gas to its customers within its service area pursuant to chapter 366, Florida Statutes. Petitioner is a public utility as that term is defined within Section 366.02, Florida Statutes. Petitioner provides and sells natural gas to its subscribing customers within its service area which comprises Cantonment, Florida, and the immediately surrounding rural and unincorporated territory in Escambia County, Florida. Petitioner was last granted permanent rate relief by the Commission on or about June 25, 1975, pursuant to Commission Order No. 6746, Docket No. 74768- GU. For purposes of this proceeding the Commission authorized Petitioner to use the twelve months beginning January 1, 1979 through and including December 3, 1979 as the test year period for this proceeding. During the test period, at its existing rate structure Petitioner experienced a loss in net operating income of $24,680.00. On or about September 4, 1980, the Commission authorized an interim rate increase under bond for Petitioner of $34,644.00, before taxes, pursuant to the Commission's Order No. 9520, Docket No. 800200-GU. Petitioner and the Commission have agreed on the following salient points: Capital Structure and Rate of Return The capital structure as of December 31, 1979, is: WEIGHTED AMOUNT RATIO COST COST Partner's Equity $137,465 55.18 12.34 6.81 Short Term Debt 96,280 38.65 13.46 5.20 Customer Deposits 15,381 6.17 8.00 .49 $249,126 100.00 12.50 The Commission has agreed to accept Petitioner's proposed overall return of 12.50 percent based on the year end 1979 capital structure. Rate Base The Petitioner and Commission agree on the following rate base as proposed by the Petitioner and adjusted by the Commission. Utility's adjusted year end Rate Base: $359,485.00 Commission adjustments (explained below): $ 79,007.00 Rate Base (December 31, 1979): $280,478.00 Calculation of 13 Months Average Plant in Service: Petitioner used a year end rate base in determining its requested rate relief whereas a 13-month average rate base is more appropriate. A 13-month rate base has been calculated which has the effect of increasing the Petitioner's rate base by $24,584.00. Extraordinary Property Loss: During the last month of the test year, Petitioner abandoned certain cathodic protection plant which was not used and useful. This was the result of a show-cause proceeding in Docket No. 79-650-GU, regarding the noncompliance with certain rules and regulations related to the cathodic protection of its distribution system. Since this plant was retired during the last month of the test year, it was not included in Petitioner's rate base but is included in the 13-month average rate base. This plant was not used and useful during the test year, therefore, it would be appropriate to remove it from plant in service together with the related reserve for depreciation which results in a net reduction to rate base in the amount of $19,268.00. Pro Forma Plant Adjustment - 1981 and 1982 Construction Labor: Petitioner included in its pro forma plant adjustment $23,380.00 and $14,476.00 for estimated 1981 and 1982 labor for constructing its replacement of abandoned plant in service related to its cathodic protection system. Since this adjustment relates to estimated expenditures, so far removed from the test year, it should be disallowed from Petitioner's constructed rate base. Meter and Regulator Change Out: Petitioner included in its pro forma plant adjustment $33,523.00 and $9,900.00 for changing out 683 meters and regulators, or virtually all of its meters and regulators. Petitioner is only required by Commission rules and regulations to change out 10 percent of its meters and regulators each year or a complete change out over a 10-year period. Because of the plant replacement program being undertaken currently, Petitioner has deferred this change out. However, in order to make the test period as normal as possible, it would be appropriate to allow at least a 10 percent change out, or approximately 70 meters and regulators, which would require a reduction in Petitioner's constructed rate base of $38,453.00. Plant In Service - Credit Memo Subsequent to its test year, Petitioner received a credit memo from Sherrod and Associates for work performed during the test year and recorded in plant. Therefore, it is appropriate to reduce test year plant in service by $600.00. Plant In Service - Misclassified Expenses: During the test year, Petitioner classified certain expenditures totalling $1,213.00 which more appropriately should have been expensed. This adjustment also affects the Company's Pro Forma Expense Adjustment No. (f), related to annual surveys and is discussed under Net Operating Income Adjustment No. (f). Plant In Service - Radio Tower: Petitioner recorded on its books a radio tower which was owned by a previous partner and not used by the utility. Petitioner and the Commission agreed to reduce Petitioner's rate base by the net cost of $124.00. and Working Capital - 1/8 Operating and Maintenance and Tax Lag: Because of certain adjustments to operating and maintenance expenses together with two items involving taxes other than income taxes, which were improperly classified as operating expenses, it is appropriate to reduce the allowance by $804.00. Also, since adjustments were made to income taxes, it is also appropriate to reduce rate base for the related tax lag in the amount of $273.00. Net Operating Income The Petitioner shows a net operating loss of $24,680.00 for the test year. The commission has made adjustments of $38,616.00 as described below to show an adjusted net operating income of $19,936.00. The utility has accepted these adjustments which are: Interim Increase in Revenues: Petitioner was authorized by Order No. 9520, issued September 4, 1980, to increase its rates on an interim basis, which would generate $34,644.00 in additional annual revenues. N.O.I. was increased by this amount less related revenue taxes of $34,081.00. Insurance Expense: Subsequent to the test year, Petitioner changed insurance agents resulting in lower insurance rates in the amount of $2,453.00. N.O.I. was adjusted by this amount which is proper to reflect known changes. Non-Utility and Out-of-Period Expenses: During the test year, Petitioner recorded as operating expenses $1,118.00 which related to a prior period and non-utility expenses. Therefore, it is appropriate to reduce expenses by this amount. Depreciation Expense: During the test year, Petitioner depreciated certain plant that was abandoned subsequent to the test year. The abandoned plant was removed from plant as a pro forma adjustment but the related depreciation expense was not adjusted. Depreciation expense was accordingly reduced by $1,698.00, since it is nonrecurring in nature. Amortization Expense: Petitioner originally included certain items in its extraordinary property loss account, which more appropriately should have received normal retirement treatment. Since these items were improperly included in the amortization of these property losses, Petitioner and the Commission have agreed to reduce same by $298.00. Pro Forma Survey & Consultant Fees: Petitioner made a pro forma adjustment to this expense to reflect a normal recurring cost of performing annual surveys. Petitioner stated that the annual recurring amount was $1,952.00 but it recorded only $950.00 for the test year, because of $1,213.00 in expenses misclassified as plant in service during the test year. After adjusting the Company's pro forma adjustment, the effect is to reduce this expense by $211.00. State and Federal Income Taxes: Petitioner was originally organized as a partnership and has not been subject to state and federal income taxes. However, effective January 1, 1981, Petitioner plans to incorporate and will be subject to these taxes. Net operating income, therefore, has been adjusted to recognize income taxes as a proper expense in the amount of $1,243.00. Rate Design (a) Petitioner and the Commission have agreed to the use of flat rates for residential and commercial rate schedules. Petitioner and the Commission have agreed to eliminate the net gross billing feature for residential and commercial rate schedules. Petitioner has agreed that its tariff should be revised to comply with current Commission rules, practices and procedures. Petitioner has agreed that revised pages 75, 76, 86, 88, 89 in the "R" section of the MFR's will be filed consistent with discussion with Commission staff at Petitioner-Staff conference. Petitioner has agreed with the Commission to increase the connection and reconnection charges for village and rural service areas to $10.00 and $15.00, respectively. Petitioner and the Commission have agreed that the N.O.I. deficiency, expansion factor and revenue requirements are as follows: Timberland Utilities Revenue Requirements Calculation Staff Adjusted Rate Base: $ 280,478.00 Rate of Return (Requested by Petitioner): 12.5 percent Required N.O.I.: $ 35,060.00 Staff Adjusted N.O.I.: 13,936.00 N.O.I. Deficiency $ 21,124.00 N.O.I. Deficiency at 17 percent Rate: $ 17,570.00 Expansion Factor at 17 percent F.I.T. Rate: :- 78.0888 percent Revenue Requirements: $ 22,500.00 N.O.I. Deficiency at 20 percent Rate: $ 3,554.00 Expansion Factor at 20 percent F.I.T. Rate: :- 75,3553 percent Revenue Requirements $ 4,716.00 TOTAL ADDITIONAL REVENUE REQUIREMENTS: $ 27,216.00
Findings Of Fact Floralino Properties, Inc. is a small utility providing water and sewer service in Pasco County. During the period May 30, 1978 until March 12, 1979, it purchased a substantial portion of its water from the Pasco Water Authority, Inc. (PWA) for resale to its customers. In order to recoup the costs of those purchases, the Public Service Commission authorized the utility to assess a surcharge upon each customer's bill. (See Order No. 7494). However, because the surcharge exceeded the actual charges for water purchased, the utility was required to escrow all excess revenues. Respondent failed to do so thereby precipitating the issuance of Order No. 9320. A subsequent Commission audit reflected the excess revenues to be $2,228.05. Prior to the hearing, but after the issuance of Order No. 9320, the respondent escrowed the funds in a Pinellas County bank. The utility now agrees to make an appropriate refund with interest within 30 days to all customers who received service during the period in question.
Recommendation Based upon the foregoing findings of fact and conclusions of law, the Hearing Officer recommends that respondent be found guilty of violating Order No. 7494, dated November 2, 1976; that a fine of $250 be imposed upon respondent; that respondent make an appropriate refund of $2,228.05 with 6 percent interest to those customers entitled to such refund within 30 days; and that a final report setting forth the disposition of such monies be submitted to the Public Service Commission within 90 days. DONE AND ENTERED this 22nd day of August, 1980, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: M. Robert Christ, Esquire 101 East Gaines Street Tallahassee, Florida 33542 Floralino Properties, Inc. 2320 East Bay Drive Clearwater, Florida 33516 Steve Tribble Commission Clerk 101 East Gaines Street Tallahassee, Florida 32301 Herman B. Blumenthal, III, Esquire 10401 Seminole Boulevard (Alt. 19) Seminole, Florida 33542
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
