Findings Of Fact The Petitioner is a wholly owned subsidiary of Queens Cove Properties, Inc. Mr. Alex B. Cardenas is president of the parent development company as well as the utility. The water system was constructed for the sole purpose of providing water to purchasers of lots in the Queens Cove subdivision. However, the Petitioner obtained certification as a public utility to serve the general area in the belief that it was required to do so. See Section 367.031, Florida Statutes. Lots in this subdivision have sold for $15,000 to $24,000, which includes undifferentiated amounts for availability of water service. The water service is part of a "bundle of rights" which the purchaser obtains with his lot. (e.g. bridge, roads, underground utilities). In addition, existing lot owners have purchased the "bundle of rights" separately from their land (where Queens Cove was not the original property seller) at prices ranging from $4,000 to $8,000. Again, the charge for water service availability was not differentiated from other rights. At the time of the second hearing, the utility had 45 connections--42 single family residences, one developer's office, one model home, and an irrigation outlet. Ten customers testified (five by adoption) at these hearings as to service problems. The water treatment plant is of the reverse osmosis type. This system is complex and costly to maintain, but is useful where as here the raw water contains a high level of natural impurities. The utility has not properly maintained this system and water taste, smell and clarity are generally poor. The customers also experience frequent periods of very low water pressure. Furthermore, they are unable to contact the utility when outages occur after business hours since there is no emergency phone number provided. The testimony of a Department of Environmental Regulation (DER) representative also established that chlorine residuals are not properly maintained and a high coliform reading in June, 1980, will require monitoring by DER. Thus, overall service is unsatisfactory and must be improved before the Petitioner is allowed to receive a return on its investment. See Section 367.081(2), Florida Statutes, which requires the Commission to consider service in setting rates. Profits earned by a utility with service deficiencies such as these would normally be placed in escrow until the problems were corrected. Here, however, the utility does not seek to earn a return on its investment, but only to break even. In addition, there was no competent, substantial evidence adduced by either Petitioner or Respondent to demonstrate what the utility's investment is. Therefore, rate base cannot be determined in this proceeding, and consequently no return can be established. Appendix one hereto details Petitioner's test year expenses as set out in its rate application, with adjustments to correct erroneous entries and to delete or reduce expenses which were not shown to be reasonable and prudent. No controversy exists with the exception of allowances for plant manager compensation, office rent and rate case expense. The Petitioner's request for an annual manager's salary of $20,000 was not supported by the evidence. No salary is currently paid for this function, nor is a plant manager as such required or utilized. Rather, the limited functions of a plant manager can be handled by one of the full time maintenance or administrative employees. This procedure is consistent with management practices in other small, developer-owned water utilities. Such delegation does not, however, relieve the owner from his duty to hire qualified personnel and provide adequate resources. A separate allowance for office rent is not justified. The Petitioner has no office in the immediate area but uses the owner-developer's office in Stuart. There is no need for a separate office under the present organizational structure, and therefore no expense for this item should be authorized. Evidence on rate case expense (attorney and accountant fees) was submitted by post-hearing pleadings pursuant to agreement of the parties. The Petitioner seeks $9,702 rate case expense, amortized over three years, or $3,234 annually. The Respondent proposes to allow $6,000 amortized over five years, or $1,200 annually. As with other expenses, the amount authorized will be paid by customers and any portion disallowed will be borne by the owner of the utility. The rate case expense sought here is $215 per customer, which far exceeds the average water/sewer utility rate case expense of $6.92 per customer. A substantial portion of these expenses were incurred as a result of Petitioner's failure to keep adequate records and its initial decision to proceed without counsel. Therefore, the reduction of authorized expenses to $6,000 proposed by Respondent is appropriate. However, Petitioner's proposed three-year amortization period better represents industry experience and is consistent with current Commission policy. Therefore, the rate case expense authorized is $6,000 amortized over three years, or $2,000 annually. The Petitioner currently bills its customers on a monthly basis using a minimum gallonage charge. This rate design neither encourages conservation of water nor accurately reflects the cost of providing service. Therefore, the utility should be required to adopt the base facility charge rate structure. This charge includes a fixed amount for the customer's share of the utility's fixed costs, as well as a gallonage charge to represent the variable expenses associated with water consumption. Petitioner requested authority to increase its tap-in or meter installation fee from $100 to $200. This increase was authorized on an interim (escrow) basis by Order 9140. The utility has now withdrawn its request for the increase and should return the escrowed amounts to all customers who have paid the $200. In addition, Petitioner should be required to pay interest on customer deposits at the rate of 6 percent prior to July 1, 1980, and 8 percent after that date. See Section 25-10.72, Florida Administrative Code. Since no interest on deposits has ever been paid, the credit must be retroactive to the date of each customer's deposit. Proposed findings of fact were submitted by the Petitioner and the Public Service Commission. To the extent these proposed findings have not been adopted herein or are inconsistent with the above findings, they have been specifically rejected as irrelevant or not supported by the evidence.
Recommendation Based on tide foregoing findings of fact and conclusions of law, it is RECOMMENDED that the petition of Island Services, Inc. be granted in part, and that Petitioner be authorized to file new rates structured on the base facility charge concept, designed to generate gross water revenue of $12,823 annually, based on the average number of customers served during the test year. It is further RECOMMENDED that Petitioner be required to refund $100 to all customers who have paid the interim $200 water connection charge and that its tariff be amended to show that $100 is the authorized charge for this service. It is further RECOMMENDED that Petitioner pay interest on deposits at the annual rate of 6 percent through June 30, 1980, and at 8 percent thereafter, with such payments retroactive to the dates of deposit. DONE and ORDERED this 6th day of August, 1980, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 Marta M. Crowley, Esquire Florida Public Service Commission Fletcher Building, 101 E. Gaines St. Tallahassee, Florida 32301 Douglas E. Gonano, Esquire Citizens Federal Building Suite 200 1600 South Federal Highway Fort Pierce, Florida 33450
Findings Of Fact 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 Whether, and to what extent, petitioner should be authorized to increase the water and sewer rates it charges its customers.
Findings Of Fact I. The Utility and its Application The Utility, a wholly owned subsidiary of Gulfstream Land and Development Corporation, owns and operates water and sewer systems serving residents of "Jacaranda Community," a development located within the city limits of Plantation, Florida. The Utility's water treatment plant uses a lime- softening process; its sewage treatment plant uses a contact stabilization mode. During the test year ending September 30, 1980, the Utility supplied water service to an average of 3,162 residential, 662 general service, and 14 private fire-line customers; during the same period it supplied sewer service to an average of 3,162 residential and 276 general service customers. By its February 5, 1981, application, the Utility alleged that it was authorized a rate of return of 9.87 percent, yet during the test year it earned only a 7.20 percent rate of return on its water rate base, and a 6.58 percent return on its sewer rate base. It proposed new rates which would generate $1,271,841 in water operating revenues and $1,381,401 in sewer operating revenues--constituting a rate of return of not less than 12.42 percent. (Testimony of Fabelo; Petitioner's application dated January 30, 1981, R-4.) II. The Elements of Rate-Making In setting utility rates, the Commission must determine: (1) rate base; 2/ (2) the cost of providing the service, including debt interest, working capital, maintenance, depreciation, tax, and operating expenses; (3) a fair return on the rate base; and (4) the quality of service provided. If the Utility is providing service of acceptable quality, it is entitled to rates which will produce revenues sufficient to cover its reasonable costs of operation and allow it an opportunity to earn a fair return on its rate base. There are three major issues in this case: two involve the determination of rate base and the other involves whether several Utility expenditures should be expensed or capitalized. These issues are addressed below with the the appropriate rate-making element. Rate Base The two issues involving rate base are: (1) what portion of the Utility's sewer treatment plant is used and useful in the public service; and what method should be used to calculate working capital allowance. Used and Useful Plant A public utility is entitled to a return only on Utility property which is "used and useful in the public service." 3/ At hearing, the Utility contended that 100 percent of its sewage treatment plant was used and useful; the Commission contended that the correct figure was 76 percent. 4/ The Utility's contention is accepted as more credible because it is based on a professional engineering analysis of actual wastewater flows through the sewage treatment plant during the test year and eight months thereafter. In contrast, the Commission's contention is based on application of a formula which relates total rated capacity of a plant to the number of Equivalent Residential Connections 5/ ("ERCs") it is capable of serving. Here, actual must prevail over theoretical fact. The Utility's sewage treatment plant has a rated capacity of 2.5 million gallons per day ("MGD"). During the test year, average daily flows, calculated monthly, fluctuated between 63.6 percent and 75.2 percent of the rated capacity; the average three-day peak flow, calculated monthly, ranged from 73.2 percent to 86.4 percent of capacity; and one-day peak flows ranged from 74.4 percent to 87.2 percent of capacity. During the eight months following the test year, sewage flow steadily increased. The greatest flow was during February, a relatively dry month; average daily flow was 2.20 MGD, 88 percent of rated capacity; the average three-day peak flow was 98.8 percent of capacity; and the peak flow day was 100.4 percent of capacity. If, on that peak flow day, the plant had only 76 percent of its present capacity, sewage would have overflowed the plant. The parties agree 6/ that a margin of reserve or allowance for growth of approximately 24 percent should be used in calculating the Utility's used and useful plant; they also agree that the Utility's future growth in ERCs is expected to range from 700 to 800 ERCs a year. The Commission argues that the 24 percent growth allowance should be added to average ERCs during the test year, and not to actual February, 1981, flows. This argument is unpersuasive. The test year period is a tool for predicting conditions which will exist during the period in which the new rates will be effective; rates are set prospectively, for the future--not the past. Thus, rates must take into account known changes and conditions occurring subsequent to the test year in order to accurately reflect conditions expected for the future. Here, the Utility's actual sewage flows indicate that 100 percent of its existing plant is used and useful and necessary to satisfy the immediate and anticipated future needs of its customers. In an attempt to rebut or overcome the effect of the sewage plant's actual flow conditions, the Commission contends that the sewage system is experiencing ground water infiltration of sufficient magnitude to cast doubt on the use of total flow figures. However, the infiltration does not exceed the amount which is ordinarily planned for in constructing sewage treatment plants. Infiltration which will continue to take place--despite the Utility's best efforts to ameliorate it--cannot be separated from the wastewater stream. Since the plant must be capable of handling the combined flow, including infiltration, total flow figures must be considered. The Commission also contends that the system is not 100 percent used and useful because it can serve more connections. This contention is inconsistent with the acknowledged requirement that a sewage treatment plant must be capable of accepting increased sewage flows reasonably anticipated in the near future. That is the purpose of including an allowance for growth in the used and useful calculation. Lastly, the Commission contends that the Utility's failure to consult with Department of Environmental Regulation officials about future plant expansion is inconsistent with its 100 percent used and useful claim. But the Utility, recognizing its present limits and future needs, has actively pursued an interlocal agreement which will allow it to pump approximately 700,000 GPD to Broward County's regional sewage facility. The agreement is in its final stages and approval is eminent. (Testimony of Ring, Farina, Walden; P-1, p-2, R-1.) Cash Working Capital Allowance Cash working capital is the amount of investors' supplied cash needed to operate a utility during the interval between rendition of service and receipt of payment from the customers. By including it in rate base, a utility is allowed to earn a return on this portion of its investment. A utility's working capital requirements may be calculated by using: a standardized formula; (2) the utility's balance sheet; or (3) a lead-lag study. Until June, 1981, the Commission routinely used the formula approach; working capital was calculated by multiplying 12.5 percent (equivalent to one- eighth of a year) times the utility's annual adjusted operations and maintenance expenses. This method is also facilitated by Commission Rule 25- 10.176(2)(a)2.g., Florida Administrative Code which requires that water and sewer rate adjustment applications include a schedule showing: g. Allowance for working capital (1/8 of annual operations and maintenance expenses for the test year.) Id. In this case--consistent with the Commission's rule and custom--the Utility seeks a working capital allowance derived by using the standard Commission formula. However, the Commission seeks to use, instead, the balance sheet approach--an approach which it contends is more precise than the standard formula and results in a closer correlation between the Utility's rate base and its capital structure. The Commission's contention is accepted as persuasive. Under the balance sheet method, working capital allowance is the difference between a utility's current assets and current liabilities. Thus, the working capital component of rate base is derived, by simple adjustments, from a utility's balance sheet; it originates in the balance sheet's capital structure, just as do the other components of rate base. In comparison, the formula approach originates from a utility's income statement, i.e., one-eighth of its annual operating and maintenance expenses. The one-eighth factor equates to a 45-day lag--a period of time assumed to cover the lapse between the rendering of service and payment by the customer. But this assumption, while generally useful, may not accurately depict the working capital requirement of a given utility. In this case, the balance sheet approach is a more precise method for determining the Utility's working capital requirements. The Utility poses two objections to calculating working capital allowance by the balance sheet method: (1) it deviates from the Commission's prior practice in water and sewer rate cases, and (2) it may result in a negative allowance when a utility has insufficient cash to pay its current bills; thus a utility in greatest need of working capital would receive the least allowance. As to the objection that the balance sheet method represents a departure from past practice, the Commission has flexibility to expand, refine, and alter its policy through individual case decisions provided its action is explained and justified by record evidence. 7/ The Commission has not, by rule, limited that flexibility. Rule 25-10.176(2)(a)2.g. only requires applicants for rate adjustments to show their working capital requirements by applying the formula method; it does not preclude the Commission or utilities from using an alternative method more suitable to the facts of a given case. For example, it is generally recognized that, if a lead-lag study is conducted, it will prevail over the formula method. The Utility's second objection (that a cash-poor utility receives a lesser working capital allowance), is based on a hypothetical case and has no application to the facts here; the Utility has sufficient current assets and the balance sheet method results in a positive working capital allowance. This finding in favor of the balance sheet method is based on the evidence presented; its effect is thus necessarily limited to this case. Should the Commission--in future cases--advocate the balance sheet method, as opposed to the formula method, it must again explain and justify its position, insofar as possible, by conventional proof. 8/ Unless its policy is adopted by rule, an agency must repeatedly establish and defend it. 9/ The other components of the Utility's rate base, as adjusted, are not in dispute. Water and sewer rate base are therefore $3,369,160 and $4,099,887, respectively, and are depicted below: RATE BASE Test Year Ending September 30, 1900 Water Sewer Utility Plant in Service $5,919,833 $9,210,212 Utility Plant Held for Future Use (145,384) (644,429) Construction Work in Progress 265,300 -0- Accumulated Depreciation (616,835) (954,300) Contributions in Aid of Construction--Net (2,293,690) (3,579,118) Working Capital Allowance 39,936 59,522 Materials and Supplies -0- -0- TOTAL $3,369,160 $4,099,887 (Testimony of Davis, Asmus; P-6, R-2, R-3.) Net Operating Income The Commission opposes several operation, maintenance, and depreciation expenses which the Utility proposes to include in the test year statement of operations. The Hardy Gross Analysis The Hardy Cross Analysis is a computer analysis of the entire water distribution system. It indicates loss of pressure, balances water flows, and determines residual pressure at the end points of the system. It is a useful and necessary informational tool in designing additions to water distribution systems: it allows the designer to properly size new pipes added to the system. Growth, such as that experienced by the Utility, requires that such an analysis be updated at least once a year. The parties do not dispute the value of such an analysis, its cost, or the necessity for its actual updating. They dispute only who should bear the cost: the existing rate-payers or the developers which require and benefit from the continued expansion of the water system. It is concluded that the recurring cost of updating the Hardy Cross Analysis should be borne by developers, and, indirectly, the future customers who are the primary beneficiaries of the annual updating; without the growth associated with new developments, the annual updating of the Hardy Gross Analysis would be unnecessary. It would be unfair to require existing customers to pay for services--through higher rates--which they do not require and from which they receive no significant benefit. (Testimony of Farina, Walden.) Review of City of Plantation Utility Standards In 1969, the City of Plantation, where the Utility's water and sewer systems are located, enacted an ordinance containing detailed technical standards governing the construction of water and sewer systems. Historical experience has indicated that the standards incorporated in the ordinance require annual review, and periodic revision; the Utility's participation in that process is reasonably necessary to its continued efficient operation. A necessary expense of $1,000 should be allowed and charged as an operation expense to each system--water and sewer. (Testimony of Farina.) Diesel Fuel On June 16, 1980--during the last quarter of the test year--the Utility installed two auxiliary power units which utilize diesel fuel. Since the two power units were not in service during the entire test year, the Utility seeks to annualize the cost of the diesel fuel consumed during the 3 1/2-month period and include it as a recurring operating expense. 10/ The Commission opposes annualizing the fuel costs on the ground that sufficient documentation was not presented by the Utility to justify the actual consumption of fuel by the power units and establish that such consumption represented normal operation of the Utility, i.e., that it is reasonably expected that such annual consumption will repeatedly occur in the future. The Commission's contention is accepted as persuasive. The Utility has the burden of supporting its claimed expenses with adequate documentation. 11/ Here, no evidence was presented to establish the actual periods of operation of the auxiliary generators or the conditions under which they were used; nor were rated consumption of fuel figures supplied. The alternate treatment suggested by the Commission--amortize initial diesel fuel fill-up cost over three years, placing one-third of it in expense and adding the other two-thirds to materials and supplies 12/ --is a reasonable method of treating the fuel expenditures. (Testimony of Davis, Walden, Asmus; R-2, R-3.) Amortization of Legal Expense Relating to Proposed CIAC Rules The Utility contends that the Commission is contemplating further CIAC 13/ rule making thus necessitating the expenditure of recurring legal expenses in the total amount of $778. However, although the Commission is now considering the adoption of CIAC rules, recurring revisions in the future are not reasonably expected. In the last ten years, the Commission has had one rule docket pertaining to CIAC rule making. Amortization of this expense is therefore unjustified. (Testimony of Davis.) Adjustment for Increased Chemical Costs Because of escalating costs of chemicals, the Utility proposes to adjust the water and sewer chemicals account by applying June, 1981, prices to the quantity of chemicals consumed during the test year. The Commission opposes the proposed adjustment, contending that the Utility's new lime-feeding equipment will result in lower lime costs. The Utility's adjustments 14/ are accepted as credible; since a new Zeolite treatment plant will soon be coming on-line, it is reasonably expected that lime requirements, associated with the water-softening process, will--if anything--increase. (Testimony of Farina, Davis, Asmus; R-6.) Maintenance Expenses: Amortization of Post Test-Year Gearbox Repairs The Utility proposes to include in sewer maintenance expense amortization of the cost of a gearbox repair incurred subsequent to the test year. The Commission proposes to amortize--for three to five years--all major repairs incurred during the test year. The Utility has not amortized such extraordinary repairs during each of the last five years; it contends that such historical amortization is necessary to arrive at a representative figure for extraordinary repair on an on-going basis, that the Commission cannot begin--for the first time--to amortize such repairs during the test year. The Utility proposes to simply adjust sewer maintenance expense by $3,386--an admittedly rough estimate. The Utility's accountant admits: It would be a lot more exact to go back five years and apply it [amortization of extraordinary repairs] down the line. . .but that's very time-consuming. (Tr. 192.) It is undisputed that the Utility--to properly account for extraordinary maintenance repairs--should amortize such expenses through the expected life of the repairs. The Utility has not done so to repairs incurred during the last five years. The substitution of an "estimate" of expected future repair costs for a preferable and more exact accounting method is unacceptable and should be rejected. (Testimony of Davis, Asmus.) Depreciation Expense The finding, infra, paragraph A(1) that the Utility's sewer plant is 100 percent used and useful necessarily requires an adjustment to the Commission's proposed depreciation expense. The adjustment increases depreciation, for sewer operations, by $11,897. (Testimony of Asmus; R-6.) The net operating income which a utility should be allowed the opportunity to earn is reached by multiplying rate base by a fair rate of return. 15/ Operating expense and taxes (income and gross receipts tax) are then added to net operating income to calculate gross revenue requirements. In this case, the Utility's net operating income should be $414,743 from water operations and $504,696 from sewer operations. Before gross revenue requirements can be determined, operating expense and taxes should be recalculated consistent with the above findings; such recalculation should be conducted by the Commission, verified by the Utility, and included as part of the Commission's final order entered in this proceeding. Rate Structure, Allocation, and Rate Design The Utility's present rates are structured in accordance with what is commonly referred to as the base facility rate design. The purpose of this design is to require customers to pay their pro rata share of the Utility's cost of providing the service. It is objectively determined and results in an equitable and consistent distribution of the costs involved. Both parties agree that the new rates should also be structured in accordance with the base facility rate design. However, the new rates should eliminate the present 25 percent rate differential between commercial and residential rates--a differential that has not been justified and which the Utility no longer seeks to impose. Motorola, Inc., a large industrial customer of the Utility, requested more favorable rate treatment because of the large volume of water it consumes. However, insufficient cost of service information was submitted to justify a "volume discount." A cost of service study is necessary to accurately allocate costs of service among customer classes. (Testimony of Fabulo, Asmus; R-4.) Quality of Service Several customers complained that the Utility's water had offensive color and taste. Eight complaints were filed with the Broward County Health Department during 1980. However, the preponderance of evidence establishes that the Utility's water and sewer systems are in compliance with local and state standards. Neither system is under any citation or enforcement action instituted by a regulatory agency. The quality of the water and sewer service provided is, therefore, determined to be satisfactory. (Testimony of Farina, Walden; P-11)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Utility be authorized to file rate tariffs consistent with the provisions of this Recommended Order. DONE AND RECOMMENDED this 21st day of August, 1981, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of August, 1981.
The Issue Whether the objections of the City of Pembroke Pines and the Green Meadows Civic Association to South Broward Utility, Inc.'s, proposal to extend its water and sewer service area should be sustained.
Findings Of Fact South Broward Utility, Inc. (South Broward), is a corporation engaged in the business of providing water and wastewater service to the public in Broward County, Florida. That business is subject to regulation by the Florida Public Service Commission (PSC). South Broward's water and wastewater treatment facilities are located in the Town of Davie, and it currently provides water and sewer services to residents of that municipality. Included within the area of the Town of Davie currently served by South Broward are the lands bordered on the north by Sterling Road, the south by Sheridan Street, and the west by Dykes Road (S.W. 160th Avenue). On February 4, 11, and 18, 1989, South Broward published a notice of extension in the Florida Lauderdale News/Sun-Sentinel, a daily newspaper of general circulation published in Broward County, Florida, in accordance with Rule 25-30.030(2), Florida Administrative Code. The notice provided that South Broward would file an application with the PSC pursuant to Section 367.061, Florida Statutes, to amend its certificates of public convenience and necessity to allow South Broward to provide water and sewer service to the east half of Section 5, Township 51 South, Range 40 East, Broward County, Florida. Such area may commonly be described as those lands lying immediately west of Dykes Road to S.W. 166th Avenue, and from Stirling Road on the north to Sheridan Street on the south. On February 24, 1989, South Broward mailed a copy of the aforementioned notice to all local, county and state governmental agencies and all other persons required by Section 367.041(4), Florida Statutes, and Rule 25-30.030(2), Florida Administrative Code. Objections to the notice were filed with the PSC by the City of Pembroke Pines (Pembroke Pines) and the Green Meadows Civic Association (Green Meadows). In its objection, Pembroke Pines contended that it had invested over 30 million dollars to expand its municipal water and sewer service west to the Conversation Area from Sheridan Street on the north to Pembroke Road on the south, that this expansion project was anticipated to provide water and sewer service for its existing municipal boundaries as well as the area proposed to be served by South Broward, that it was preparing an annexation report for the proposed area, and that if South Broward's application were approved it would be precluded from servicing its own residents should annexation occur. At hearing, the proof demonstrated that Pembroke Pines had expanded its municipal water and sewer service such that its water and wastewater treatment plants and related facilities have adequate present capacity to meet the current and anticipated future water and wastewater needs in the disputed service area. The Pembroke Pines water lines are currently located on the south side of Sheridan Street, which street forms the southerly boundary of the disputed service area. Its wastewater treatment lines are, however, located approximately one and one-half miles south of Sheridan Street and would require several months and considerable expense to extend them to the disputed service area. Notably, however, no proof was offered that Pembroke Pines had any current intention to annex the disputed service area, or that it had otherwise evidenced any intent to, or taken any action to, provide service to the area. Green Meadows is an association of residents of this area of unincorporated Broward County, some of whom reside within the service area in dispute. The gravamen of Green Meadows' objection is its concern that sewer lines for a centralized sewer system would leak into its member's ground water supply, and that the increase in population density caused by a centralized water and sewer system would adversely affect the area's ecosystem. Neither Green Meadows nor Pembroke Pines contended, however, that the subject extension of service would violate any land use plan, zoning ordinance or other state or local law, and no credible proof was offered that, if built consistent with existent law, the sewer lines would adversely impact the ground water supply or ecosystem. Until recently, all of the lands lying in the disputed service area were located in unincorporated Broward County. However, in September 1988 a parcel of approximately 15 acres which abutted Dykes Road was annexed into the Town of Davie, and in May 1989 a parcel of approximately 80 acres, which abutted the previously annexed parcel on the east, Sterling Road on the north, and S.W. 166th Avenue on the west, was annexed into the Town of Davie. These lands comprise approximately 30 percent of the lands within the disputed service area, and it is the desire of the Town of Davie that water and sewer service to such lands be provided by South Broward. To date, South Broward has entered into a developer's agreement with the owner of the 80-acre parcel to provide such services, and is in the process of executing such an agreement with the owner of the 15-acre parcel. Pembroke Pines does not object to South Broward's expansion into these areas. As to the remaining acreage within the proposed service area, the owners of the vast majority of those lands have expressed a preference for South Broward to provide water and sewer service to their properties, and South Broward has expressed its desire and ability to provide such services. South Broward's water plant has an existing capacity of 500,000 gallons per day (GPD), and has sufficient capacity to address the current need for water service in the proposed area. Upon completion of its current expansion, which is anticipated in October 1989, South Broward's water plant will have a capacity of 1,250,000 GPD, and adequate capacity to address any future demand for water service in the proposed area. South Broward's wastewater treatment plant, with a capacity of 500,000 GPD, currently has sufficient capacity to satisfy the present and future demand for such services in the proposed area. An expansion of that plant is expected to be in service by 1991, which will double the plant's capacity and provide additional capacity. Currently, South Broward has water and sewer lines adequate to serve the proposed area in place, and located under Dykes Road at the eastern edge of the service area. Such lines are adequate to meet all present and anticipated future needs for such service in the area, and the water lines are adequate to provide fire protection to the area. South Broward has the present financial, managerial, operational, and technical ability to provide the present and anticipated needs for water and wastewater service in the proposed area, and the public interest will be best served by the extension of South Broward's water and wastewater systems to that area. Such expansion will not be in competition with or a duplication of any other system in the area.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the objections filed by Pembroke Pines and Green Meadows be denied. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st day of August 1989. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2900 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of August, 1988. APPENDIX The proposed findings of fact filed by South Broward are addressed as follows: Addressed in paragraph 1. Addressed in paragraph 3. Addressed in paragraph 4. Addressed in paragraph 5. 5-10. Addressed in paragraph 9. 11-14. Addressed in paragraphs 10-13. 15 & 16. Addressed in paragraphs 6 and 7. Addressed in paragraph 13. To the extent pertinent, addressed in paragraph 8. Addressed in paragraph 8. 20 & 21. Addressed in paragraph 13. The proposed findings of fact filed by the PSC are addressed as follows: 1 & 2. Addressed in paragraph 3. Addressed in paragraph 9. Addressed in paragraph 3, and paragraphs 2 and 3 of the conclusions of law. Addressed in paragraph 8. 6-12. Addressed in paragraphs 9-13. Addressed in paragraph 7. Addressed in paragraph 9. Addressed in paragraph 8. Addressed in paragraph 12. COPIES FURNISHED: Mitchell S. Kraft, Esquire Josias & Goren, P.A. 3099 East Commercial Boulevard Suite 200 Fort Lauderdale, Florida 32308 Deborah Simone, President Green Meadows Civic Association 5831 S.W. 162nd Avenue Fort Lauderdale, Florida 33331 James L. Ade, Esquire Martin, Ade, Birchfiled & Mickler, P.A. 3000 Independent Square Post Office Box 59 Jacksonville, Florida 32201 Randy Frier, Esquire Public Service Commission Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399-0870 Mr. Steve Tribble, Director Records and Reporting Public Service Commission Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399-0870 David Swafford, Executive Director Public Service Commission Room 116 101 East Gaines Street Tallahassee, Florida 32399-0870 Susan Clark General Counsel Public Service Commission Room 116 101 East Gaines Street Tallahassee, Florida 32399-0870
Findings Of Fact Quality of Service: Twelve customers testified at the hearing in opposition to the proposed rate increase. The major customer objection is the size of the increase sought. Other objections are directed at the utility's rate structure, and the required tie-in to the PWA pipeline. Some customers desire to have separate rates set for the two areas served by J. C. Utilities, Inc., (Timber Oaks and San Clemente East), and one customer objected to the taste and smell of the water being provided. Nevertheless, an engineer from the Florida Public Service Commission presented evidence that the utility is meeting all state standards and is not under citation by the Department of Environmental Regulation. On the basis of the entire record, the evidence supports a finding that the utility's water and sewer service is satisfactory. Used and Useful Plant in Service. The utility contends that 33.72 percent of its sewer plant is not used and useful in the public service, and has deleted this amount from its sewer rate base. The Florida Public Service Commission engineer agrees, based on the actual recorded flows of the sewer plant and the growth of the system. The water plant in service is 100 percent used and useful in the public service. Acquisition Adjustment: The utility calculated an addition to rate base of $17,370 for San Clemente East (net of 1978 amortization) for acquisition costs, and presented evidence to demonstrate that this acquisition is in the public interest. Based on the entire record, the evidence supports a finding that this acquisition benefits the customers of J. C. Utilities, Inc., and is in the public interest. Thus, the adjustment is warranted. Income tax expense: Several questions are raised in the area of income tax expense. These deal with whether to treat the utility as a separate entity or part of a group filing consolidated tax returns, the appropriate computation of state income taxes, and the effect the capital structure of the utility has on taxable income for ratemaking purposes. All of these questions except one address the ultimate dollar amount of tax expense. The exception addresses the appropriateness of the expense. Only if income taxes are determined to be appropriate can the dollar amount of such taxes be considered. When net operating income is equal to or less than interest expense, there is no taxable income. This is generally true whenever a company's capital structure consists largely of debt or of debt only. The capital structure of J. C. Utilities, Inc., is comprised entirely of debt, according to the company's financial statements. The annual report shows capital stock of $10, a deficit in retained earnings of $68,834, and additional paid-in capital of $490. The utility's financial witness verified that J. C. Utilities, Inc. has no externally financed debt and relies for funds on its parent, U.S. Homes Corporation. The application reflects that the company's capital structure consists of customer deposits (debt), and loans and advances from the parent company (debt). This evidence supports a finding that the utility's capital structure is 100 percent debt. Accordingly, there can be no allowance for either state or federal income taxes in making a determination of revenue requirements for this utility. (See Order No. 9256 in Docket No. 790027-W) and all questions relating to the dollar amount of income tax expense are irrelevant. Cost of capital: J. C. Utilities, Inc., is financed totally by its parent company, U.S. Homes Corporation. The application originally requested a rate of return of 11.5 percent. At the hearing, various witnesses for the utility suggested rates ranging from 13.2 percent to 25 percent. However, since the utility has no equity, no return on equity can be provided. In calculating an appropriate rate of return to be granted to the utility, the original cost of debt rate of 11 percent and the recently revised rate of 8 percent on customer deposits can be used. These cost of capital components and rates thereon yield a weighted average cost of capital of 11.32 percent. This rate is supported by the evidence, and should be granted. Depreciation on Contributed Property: Appropriate adjustments have been made to the utility's water rate base and sewer rate base, and operating statements, to reflect the practice of the Florida Public Service Commission to add back accumulated depreciation on contributed property in rate base, and remove these items from operating expense. These adjustments appear on the attached schedules. Rate Base and Operating Statements: The attached schedules 1 through 6 detail the utility's rate base for water, rate base for sewer, and the water and sewer operating statements. Appropriate explanations for the various adjustments also appear in these schedules. Construction water: During the test year, the utility did not bill for construction water in the months of January, February, and March. Starting in April construction water ,and line flushing was metered and billed to the various construction companies connected with the Timber Oaks development. During the final nine months of the year when the construction water was accounted for a total of 28,626,903 gallons were sold which generated $17,590 in water revenue. In order to estimate the unaccounted for construction water, the nine months billing can be annualized. This amounts to an additional 9,542,301 gallons, which increases test year revenue by $5,725. Rate Structure: In order to structure rates that will be fair to all customers, they must not only generate the approved revenue, but should also assure that all classes of customers share in the cost to provide service. The base facility type of rate structure establishes a monthly minimum service charge, which covers fixed costs such as depreciation, property taxes, and allocated portions of billing, collecting, and customer accounting expenses. Meter size is still used to determine the demand factor. After the base charge is established, a charge per 1,000 gallons is determined. This charge recovers costs related to transmission and treatment, and allocated portions of billing, collections, accounting expense, plant labor, etc. Customers then pay a gallonage charge based on use. This allows each customer some control over the amount paid for service. This form of rate structure should be used in setting rates for J. C. Utilities, Inc. Separate rate structures: J. C. Utilities, Inc. provides water service to the separate, unconnected systems serving San Clemente East and Timber Oaks. An appropriate rate structure should be established to provide separate water rates for San Clemente and Timber Oaks, so that the customers of each system pay rates to cover only the costs associated with these systems. P.W.A. surcharge: Because permanent rates are to be established, the utility should no longer be permitted to make a separate surcharge for PWA water purchased. This expense should be incorporated into the other costs of J. C. Utilities, Inc. Connection charges: In its application, the utility requested an increase in water and sewer connection charges. The company used the current number of customers served by the water system to arrive at the customer hydraulic share. The correct way to establish the hydraulic share is to divide the number of customers that can be served by the system into the cost of the water plant. However, there is other information needed in order to accurately and fairly set connection charges, which was not presented by the utility. Rather than deny the request for an increase in water and sewer connection fees, an investigation docket should be opened for the purpose of determining whether increases are warranted.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of J. C. Utilities, Inc., 2001 Ponderosa Avenue, Port Richey, Florida 33568, be granted in part, and that the utility be authorized to receive gross annual water revenues of $28,731 for San Clemente East, and $203,725 for Timber Oaks, and gross annual sewer revenue of $99,473, by rates to be approved by the Florida Public Service Commission. It is further RECOMMENDED that an acquisition adjustment of $17,370 be allowed for San Clemente East. It is further RECOMMENDED that the utility be required to implement a base facility charge in structuring its rates, in the manner set forth above. It is further RECOMMENDED that a separate investigation docket be opened for the purpose of resolving the matter of the utility's request for increased water and sewer connection charges. THIS RECOMMENDED ORDER entered on this 8th day of July, 1980, in Tallahassee, Florida. WILLIAM B. THOMAS Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER ================================================================= BEFORE THE FLORIDA PUBLIC SERVICE COMMISSION In re: Application of J. C. DOCKET NO. 790399-WS (CR) Utilities, Inc. to amend its ORDER NO. 9808 rates and charges. ISSUED: 2-23-81 / DOAH CASE NO. 80-1184 The following Commissioners participated in the disposition of this matter: JOSEPH P. CRESSE, CHAIRMAN GERALD L. GUNTER JOHN R. MARKS, III KATIE NICHOLS Pursuant to Notice, an administrative hearing was held before William B. Thomas, Hearing Examiner with the Florida Public Service Commission, on May 6, 1980, in Port Richey, Florida, on the application of J. C. Utilities, Inc., for increased rates and charges for water and sewer service provided to its customers in Pasco County, pursuant to Section 367.081, Florida Statutes. On July 1, 1980, the matter was transferred to the Division of Administrative Hearings, but continues to be assigned to William B. Thomas, as DOAH Hearing Officer, for a recommended order. APPEARANCES: Jack H. Geller, Esquire, Suite 200, Clearwater professional Center, 600 Bypass Drive, Clearwater, Florida 33156, for J. C. Utilities, Inc., Petitioner. Samuel H Lewis, Esquire, 101 East Gaines Street, Tallahassee, Florida 32301, for the Florida public Service Commission and the public generally. The Hearing Officer's Recommended Order was filed on July 8, 1980. Timely exceptions to the Hearing Officer's recommended order were filed by the petitioner. Now after consideration of all of the evidence in the record, we enter our order.
Findings Of Fact Petitioner provides electric, gas and water utility service at various Florida locations. During the 1979 test year, its Fernandina Beach Water Division served an average of 2,500 residential customers, 523 general service customers and nine private fire line customers. In addition, it maintained 210 fire hydrants for the City of Fernandina Beach. Service The Utility is providing satisfactory water service. There were no service complaints presented at the public hearing, nor were there any citations or corrective orders outstanding. Rate Base The Utility seeks recognition of a $1,332,178 rate base. This amount includes $82,128 for an office building completed in the last month of the test year, a $7,600 chlorinator building completed after the test year (March, 1980) , and a pumphouse still under construction at an estimated completed cost of $106,000. Neither the amounts nor their completion dates are in dispute. However, the Commission seeks to utilize a 13-month average year rate base which would result in the exclusion of all the above facilities except for the office building investment during the final month of the test year. Both parties cite Citizens of Florida v. Hawkins, 356 So.2d 254 (Fla. 1978) in support of their positions. Although the Court discusses the various methods of computing a utility rate base, it concludes that unusual or extraordinary growth is a prerequisite to use of a year end rate base. The Utility did not demonstrate unusual or extraordinary growth. Rather, customer growth during the test year was only about two percent, mandating use of an average rate base. The Utility suggests that construction of the chlorinator was required by the federal government under the provisions of the Safe Drinking Water Act. If so, the Utility would be permitted to include this Investment in its rate base. 1/ However, the Utility was in compliance with the Safe Drinking Water Act prior to construction of the pumphouse and made no showing that it was required to undertake this project by government authority. Capitalization of interest on the funds used in construction of new facilities should be authorized. However, this amount will not be subject to inclusion in the rate base until the facility itself is included. The Utility plant was shown to be 100 percent used and useful in the public service. In view of this, and the adjustments discussed above, the Utility's average rate base for the test year is $1,103,201. See Schedule 1 for detail. Operating Revenues The Utility seeks a test year revenue authorization of $581,037 based on expenses of $456,184 and a 9.39 percent return on its proposed rate base. It seeks to include an expense item of $2,400 for tank maintenance, basing this amount on the five-year amortization of a projected $12,000 expenditure. Although this procedure is proper, since tank maintenance is periodically required, the $12,000 is the anticipated cost of future maintenance rather than an actual cost. Therefore, this figure must be adjusted to one-fifth of the last actual maintenance cost, or $1,105. Prior to December, 1979, when its office building was completed, the Utility rented the required space. Since the new building was not recognized for rate making purposes until the final month of the test year, it is proper to include the rent expense actually involved during the preceding 11 months. Therefore, an upward adjustment in expenses of $1,524 is required. Authorized expenses should also include $45,281 proposed by the Utility to meet known increases in the cost of purchased electrical power. The limitation on test year expenses is not the same as that on test year investment. Rather, Chapter 367, Florida Statutes, specifically provides for recognition of outside test year increases in electrical power costs. See Section 367.081(4)(b), Florida Statutes (1980). The Utility supported its proposed rate case expense of $5,100 by late filed exhibit. Neither the amount nor the proposed three-year amortization period were opposed by the Commission and are appropriately included herein. In view of the above findings and a 9.10 percent return on investment (discussed below) , the Utility is entitled to revise its rates to produce annual revenue of $536,970. See Schedule 2 for detail. Cost of Capital The parties agreed that 15 percent is an appropriate return on equity investment. This amount, when weighed against the current cost of debt, supports an overall 9.10 percent rate of return. Rate Structure The parties propose adoption of a base facility charge rate structure. This rate design includes a fixed charge to each customer served based on that customer's share of fixed operating costs. The second element of the base facility charge represents -- the variable cost of water actually used. This rate structure provides an equitable method of allocating service costs and is consistent with statutory requirements that rates be just and nondiscriminatory. See Section 307.081(2), Florida Statutes (1980). The Utility proposes to increase its fire hydrant charge from $8 to $12 monthly and to include this amount in its regular service rates to all customers rather than as a separate charge to the City of Fernandina Beach. The amount of the increase is consistent with overall revenue needs and was not opposed by the Commission. The procedure to include fire hydrant charges in customer charges was requested by the City Commission of Fernandina Beach and would not discriminate against any customer or group of customers, since all benefit from the fire protection represented by these charges.
Recommendation Based on the foregoing Findings of Fact and Conclusions A, of Law, it is RECOMMENDED that Florida Public Utilities Company be authorized to file revised rates structured on the base facility charge concept, designed to generate annual gross revenue of $536,970 based on the average number of customers served during the test year. DONE and ENTERED this 18th day of December, 1980, in Tallahassee, Leon County, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact In light of the aforementioned stipulations entered into by the parties, the parties agreed that the only remaining disputed issue was the quality of service being provided by Petitioner. In this connection, the record establishes that Petitioner operates nine water systems in Duval County, one of which is known as the "Milmar Plant." Water furnished through this plant has, in the past, violated applicable regulatory standards with regard to high iron levels and corrosivity, to such an extent that the system was the subject of a Corrective Order entered by the Duval County Public Health Division of the Department of Health and Rehabilitative Services in 1980. However, as a result of Petitioner's agreement to connect to the City of Jacksonville water system, these problems should be alleviated when the switch-over and connection are accomplished. Accordingly, as a condition to approval of the requested rate increase, Petitioner should be required to complete the switch-over and connection to the City of Jacksonville water system prior to the entry of a Final Order granting the requested rate increase.
The Issue Whether Respondent committed the violations alleged in the Administrative Complaint. If so, what action should be taken against him.
Findings Of Fact Based upon the evidence adduced at hearing and the record as a whole, the following findings of fact are made: The Department is a state government licensing and regulatory agency. Respondent is registered with the Department as a septic tank contractor. Gayle Gibson owns and resides in a three-bedroom, two- bath single-family home located at 2425 Riverlane Terrace in Fort Lauderdale, Florida (Gibson's property). In late 1993 or early 1994, Gibson was experiencing problems with the septic system on her property (in the form of sewage backup and resultant unpleasant odors). Gibson contacted Respondent (who is the son of Gibson's former mailman) and asked him to come to her property to ascertain what was wrong and to take whatever remedial action was necessary. Respondent complied with Gibson's request and went to her property. After examining the situation, he told Gibson that she needed to have the septic tank on the property pumped and a new drainfield installed. Respondent recommended that the new drainfield be installed on the side of Gibson's home, instead of in the front yard (where the existing drainfield was located). Gibson made arrangements for Respondent to perform these services in exchange for money and art work. These arrangements between Gibson and Respondent were not reduced to writing. On or about January 20, 1994, Respondent pumped out the septic tank on Gibson's property and Gibson paid him $200.00, by check, for having performed such work. In late February of 1994, Respondent installed a new drainfield on the side of Gibson's home and Gibson paid him $500.00, by check, for having performed such work. At no time did Respondent obtain a permit to install the drainfield. The heavy equipment that Respondent used to perform the work was unloaded in Gibson's front yard. The unloading of the heavy equipment damaged the front yard. It cost Gibson a total of $175.00 to have the damage repaired. The drainfield that Respondent installed was an EEE ZZZ Lay Drain system comprised of Styrofoam material. Considering the size of Gibson's home, the drainfield was grossly undersized, as Respondent should have realized. It was approximately one-third the size it should have been. Predictably, shortly after this undersized drainfield was installed, Gibson again experienced sewage backup and related problems on her property. Gibson informed Respondent of the reoccurrence of these problems. Respondent told Gibson that he would take remedial action if Gibson paid him another $500.00. Gibson refused to make any additional payments to Respondent. Respondent never returned to Gibson's property to correct the error he had made in installing an undersized drainfield. Gibson contacted the Department and advised it of the problems she was experiencing with her septic system. Following an investigation of the matter, the Department issued the Administrative Complaint described in Preliminary Statement of this Recommended Order. Subsequently, on January 13, 1998, in an unrelated case, the Department issued and served on Respondent a citation imposing a $500.00 fine against Respondent for abandoning, without good cause, a septic system installation project he was contractually obligated to complete. The citation contained a "Notice of Appellate Rights," which indicated that "[t]his citation becomes a Final Order of the Department if you have not contested the Citation within thirty (30) days of the date which the Citation was served upon you." Respondent has neither "contested" the citation, nor paid the $500.00 fine it directed him to pay.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order finding Respondent guilty of the unlawful conduct alleged in the Administrative Complaint and disciplining him therefor by suspending his septic tank contractor's registration for 90 days and fining him in the amount of $1,000.00. DONE AND ENTERED this 29th day of June, 1998, in Tallahassee, Leon County, Florida. STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 29th day of June, 1998.
Recommendation That pursuant to Article 12.1.2, General Conditions of the Contract for construction of State Project Number HSMB-6115, Drivers License facility, Hillsborough County, Florida, a change order be approved and issued increasing the total contract sum in the amount of $6,788.00 as authorized under Paragraph 8.5 of the aforesaid contract. DONE AND ENTERED this 7th day of April 1976 in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 530 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: May Jo Carpenter, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida Stephen C. Cheeseman, Esquire Gordon and Maney 2919 First Financial Tower Tampa, Florida
The Issue The issue for consideration in this case is whether Respondents should pay two fines of $500 each for allegedly violating Section 386.041, Florida Statutes (1997). (All chapter and section references are to Florida Statutes (1997) unless otherwise stated.)
Findings Of Fact Petitioner is the state agency responsible for issuing citations under Chapter 386. Respondents own an apartment complex located at 1202 Shadow Drive, Lakeland, Florida. In the two weeks preceding December 29, 1997, Respondents received complaints from several tenants regarding an overflowing sewer system in their rental units. On December 29, 1997, Respondents responded to the complaints by pumping sewage from the dosage chamber in the septic tank onto a vacant lot adjacent to the apartment complex. On December 30, 1997, Petitioner received a complaint that sewage was being discharged onto the neighboring lot of the apartment complex. Petitioner inspected the site on December 30, 1997, and advised Respondent, Shirley Crawford, and an employee named "Fred" that it was illegal to dump untreated sewage onto the open ground. Petitioner ordered them to immediately turn off the pump so that no more sewage could be discharged onto the adjacent lot. Respondent, Shirley Crawford, failed to respond immediately to the order. Respondents were unwilling to cooperate with Petitioner. Petitioner issued a citation to Respondents for violating Section 386.041. Although Respondents did unplug the pump later that same day, the pump was reset to work through the night. They continued pumping discharge onto the adjacent lot during the following day. Petitioner received another complaint on January 5, 1998, alleging that the septic tank at the same address was discharging from the tank onto the ground surrounding the rental units. Petitioner inspected the site. The drain field was breaking out. A probe placed into the drain field verified that the discharge on the ground was coming from the septic tank. It was determined that there was a hole in the drain field. Furthermore, a PVC pipe used to drain the system on December 30, 1997, had not been removed from the system as required on December 30, 1997. A second citation was issued for violating Chapter 386. As part of the citation, Petitioner instructed Respondents to pull a permit by the following week to repair the system so that they could accommodate the needs of the apartment complex. Respondents pulled a permit within the following week. However, they failed to repair or replace the septic system according to the specifications and requirements of the permit. Respondents failed to supply Petitioner with a schedule for pumping sewage out of the tank until the system was repaired according to the specifications and requirements of the permit. The work Respondents performed on the system was completed on March 15, 1998. Respondents modified the faulty system by covering or plugging pipes leading into the faulty system from another older system. It took approximately 45 minutes to one hour to plug these pipes.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that Petitioner enter a Final Order sustaining the two citations issued on December 30, 1997, and January 9, 1998, imposing fines of $1,000, and denying the request to dismiss the citations. DONE AND ENTERED this 2nd day of July, 1998, in Tallahassee, Leon County, Florida. DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of July, 1998. COPIES FURNISHED: Wayne and Shirley Crawford 4732 Highway 98, North Lakeland, Florida 33810 Roland Reis, Esquire Department of Health 1290 Golfview Avenue, 4th Floor Bartow, Florida 33830 Angela T. Hall, Agency Clerk Department of Health 1317 Winewood Boulevard Building 6, Room 136 Tallahassee, Florida 32399-0700 Dr. James Howell, Secretary Department of Health 1317 Winewood Boulevard Building 6, Room 306 Tallahassee, Florida 32399-0700
