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.
The Issue The issues for determination in this case are: Whether the City of Altamonte Springs (City) violated Sections 760.10(1)(a), F.S., by discriminating against Albert Robinson (Robinson) on the basis of his race (Black) or his national origin (Jamaican), with respect to compensation, terms, conditions, or privileges of employment; Whether the City violated Section 760.10(7), F.S., by discriminating against Robinson in retaliation for his opposition to a practice which is an unlawful employment practice under this section or because he assisted or participated in any manner in an investigation, proceeding, or hearing under this section; and If such violations did occur, what relief is appropriate pursuant to Section 760.10(13), F.S.
Findings Of Fact Petitioner, Albert H. Robinson is a black male, over 18 years of age, born in Jamaica, West Indies. Respondent, the City of Altamonte Springs, is a municipal corporation organized and existing under the Laws of the State of Florida, and admits that it is an "employer" for purposes of the Human Rights Act of 1977, as amended, sections 760.01-760.10 F.S. Robinson's account of how he arrived in the United States approximately seven years ago is bizarre, but uncontroverted, and for purposes of this proceeding is deemed true. In Jamaica, Robinson had been affiliated with the ruling People's National Party. He held the government post of Development Director in the "New Development Agency" and was in charge of approximately 300 underprivileged persons. He was also president of a youth organization within the party, and was involved in organizing youth activities and selecting members to visit Cuba as a party representative. At some point he was approached by an American embassy attache from the CIA who recruited him to provide under-cover information on the party. When that involvement became publicly exposed, he was forced to flee the country. Robinson and his family lived for awhile in Panama and other Latin American countries. When they decided to emigrate to the United States, the U.S. Government made arrangements for Mrs. Robinson and the children to enter through Miami and for Mr. Robinson to cross the border "illegally" at Brownsville, Texas. He was given authorization to work and temporary asylum. He is currently awaiting disposition of his petition for a more permanent status. Through other relatives in Florida, Robinson ended up in Altamonte Springs. At the time that he was hired by the City in September 1984, Robinson presented a letter from the INS permitting him to work during the pendency of his asylum petition. The City was thus aware of his national origin and non- citizen status. Robinson was hired as a laborer in the city water distribution division on September 24, 1984. He received two personnel evaluations during his probationary period, both "average," with every factor rated "average," and few comments. On February 7, 1985, he was promoted from laborer to utility serviceworker, a more responsible position. The serviceworker is generally assisted at a job site by the laborer, who does most of the digging. The Dixon Personnel Board hearing In April 1985, Robinson assisted a black coworker, Patrick Dixon, at his hearing before the City Personnel Board. Dixon and another black utilities worker, Carl Wilder, had been accused of making obscene and inappropriate gestures to two white women while the men were on city duty. Wilder was given a one-day suspension. Dixon, who already had a negative performance record, was given a two-day suspension. Dixon appealed the discipline to the Personnel Board. Robinson's involvement at the hearing on April 3rd was to sit behind Dixon and assist with the documents. Robinson, who had no firsthand knowledge of the incidents, did not testify. Carl Wilder did testify on behalf of Dixon. The Personnel Board, in a unanimous decision by all members present, upheld the disciplinary action. Robinson believed that Patrick Dixon had been the victim of a racial vendetta. Dixon testified in this proceeding that he, also, feels that the charge was racially motivated, yet nothing in the written documents related to his appeal supports that contention. The basis for his appeal was the insufficiency of the evidence against him and his contention that he was a bystander while Wilder, the actual perpetrator, received a lesser penalty. Shortly after the hearing Dixon was terminated for absenteeism. He did not file a discrimination complaint nor take any other action against the city. Wilder is still employed by the city, and in 1987, was promoted from laborer to serviceworker. The performance evaluation On May 3, 1985, Robinson received his first performance evaluation as a utility serviceman. His overall rating by his reporting supervisor, George Simpkins, was "average." However, he received "below average" in four categories: "ability to carry out instructions/orders"; "conduct"; "directs the work of subordinates effectively"; and "ability to make decisions within his authority." The comments in explanation of these ratings related to Robinson's failure to follow operating procedures, his temper and conflict with fellow employees, and his dictatorial manner in dealing with subordinates. Robinson was not pleased with the evaluation and wrote a letter to the Assistant Director of Public Works, Ronald Howse, asking to discuss it. Howse suggested that the discussion take place with Larry Alewine and George Simpkins, who were the supervisors responsible for the evaluation. Alewine was Simpkins' immediate supervisor. The discussion took place. Robinson now claims that Larry Alewine asked him why he followed Patrick Dixon to City Hall and claims that Alewine blamed the evaluation on his involvement with Dixon. Alewine denies this and cannot recall any notoriety with regard to Robinson's association with Dixon. Not following procedures and problems with fellow employees Robinson's difficulties in working with others and in following procedures are well-documented throughout his 1985 and 1986 employment with the city. In June 1985, he received a notice of remedial action after placing a water meter in a location where the customer wanted it, rather than where he had been directed to place it. The customer was happy, but under the city's procedures, the serviceman does not have the authority on his own to change the supervisor's direction. On November 4, 1985, Robinson had an altercation with his supervisor, Larry Alewine, regarding a meeting that Robinson wanted with Chris Hill, the recently-appointed director of the city's water distribution division. Alewine attempted to convey Hill's directive that Robinson put his request in writing, but Robinson became loud, yelled at Alewine and started to leave. When Alewine attempted to call Robinson back to discuss the matter, Robinson retorted that he (Alewine) wasn't his daddy. Right after the incident Robinson apologized for getting loud and Alewine explained that he would still have to "write him up," because he had refused to come back in the building and was hollering. Robinson claims that the incident occurred prior to 7:30 A.M., when he was still on his own time, but this claim is unsupported by Alewine or any of the other several witnesses. On November 26, 1985, Robinson and Carl Wilder were at a job site trying to locate a buried water meter. Wilder, as the laborer, was doing the digging. Robinson, his superior, insisted that Wilder keep digging in a place where Wilder did not believe the meter was located. Both men's tempers flared and Wilder called the supervisor to the site to prevent further argument. Because it was near the end of the day, Robinson was excused and Wilder was taken back to the city garage. Chris Hill spoke with both Robinson and Wilder and determined that no disciplinary action was warranted. He told Wilder that if he had any complaints or grievances about Robinson, he would have to put them in writing. Chris Hill asked other employees if they had problems working with Robinson; he did not, as alleged by Robinson, solicit written statements against Robinson from other employees in the division. Chris Hill Most of Robinson's claims of discrimination by the city are directed toward Chris Hill, who, in October 1985, was placed in charge of the city's water distribution division. The City Manager, Philip Penland, was concerned about the management of the division. The Dixon/Wilder incident was an example. Larry Alewine and George Simpkins, both white Americans, were considered to be weak leaders. Robinson and Carl Wilder were identified as employees with whom there had been problems. Chris Hill started working for the City of Altamonte Springs in 1977 as temporary summer help and laborer. He gradually worked his way up through various levels of management and was highly regarded by his supervisors and by Philip Penland as a competent and capable employee, with a positive, "can-do" attitude. He was regarded as a tough manager who could obtain top performance from his employees. In addition to his duties at Altamonte Springs, he also is in charge of water plant operations in the neighboring towns of Eatonville and Maitland. Lack of tact and finesse in dealing with people, including subordinates, have been considered Hill's weak points. Hard times in the Water Distribution Division These characteristics and Hill's direction to shape up the division led to some tense months in the division. Larry Alewine, whose management style was certainly more relaxed, openly referred to Hill as "God" and "asshole." Alewine's position had been downgraded as a result of the reorganization, and he eventually left the city in 1987 after his position was eliminated from the budget. George Simpkins left a bitter resignation notice when he resigned in October, shortly after Chris Hill's appointment. In February 1986, Larry Alewine prepared an evaluation of Robinson which was reviewed, consistent with procedures, by Chris Hill. Hill did not believe the evaluation was strong enough, in light of his knowledge of the incident with Wilder and other minor problems with fellow employees. Both Hill and Scott Gilbertson, the Assistant Director of Public Works, met with Alewine and suggested that the evaluation should be changed. When Alewine declined, Chris Hill changed the evaluation. The evaluation, dated 3/6/86, rates Robinson overall as "Employee needs improvement." The written comments are very similar to those made by George Simpkins on the May 1985 evaluation; that is, the quality of his work was deemed generally good, but his conduct, ability to follow instructions, and ability to get along with fellow employees was noted as the real problems. While it is not apparent from the evaluation itself and the testimony in this proceeding how much of the evaluation was completed by Larry Alewine, it is clear that at least some of the negative written comments were made by him. (Respondent's exhibit #2.) The meeting with management officials and its aftermath Robinson wrote a protest of his evaluation which precipitated a meeting with himself, Chris Hill, Scott Gilbertson, Philip Penland, and the City Personnel Director, Sam Frazee. The evaluation was discussed; Robinson was told that his signing the evaluation only acknowledged its receipt and that he could provide his written notations on the back of the evaluation regarding portions with which he disagreed. The group also discussed an appointment Robinson had made with the city's worker's compensation physician. He had attempted to arrange his own follow-up visit for treatment of a work-related injury. The city's policy required that the appointments with the city's physician be made after notification to the supervisor. While explaining his actions, Robinson gave contradictory versions of what he had been told by the nurse in the doctor's office regarding the procedures. His testimony at hearing was also confused and inconsistent on this point. On direct, he testified that he had been told that authorization from the city is not necessary for follow-up visits. On rebuttal, however, he stated that the nurse had told him that the city personnel department would have to be notified, but not his foreman. (TR, Vol I, p. 77, Vol IV, p. 324-325). In the course of the same meeting, Robinson made allegations of wrongdoing by Larry Alewine, stating that Alewine had a meeting with his employees and encouraged them to write grievances against Chris Hill and had called Hill an "asshole" and "God." The City Manager considered these allegations to be serious and promised Robinson that an investigation would be made. The meeting then broke up. Ed Haven, an officer with the Professional Standards Bureau of the City Police Department was assigned to investigate the allegations of misconduct. This bureau normally conducts personnel-related internal affairs investigations and considers them administrative, not criminal. The investigation was initially inhibited by Robinson's refusal to answer Officer Haven's questions unless the investigation was expanded to include Chris Hill as well. Robinson was then ordered by the City Manager to participate. The inquiry sustained the allegations that Alewine had called Hill "asshole" and "God." This investigation spawned a second investigation as to whether Robinson had ever told another employee that he lied about Alewine in order to get an investigation against Chris Hill. The issue was never resolved, but Officer Haven found that a "preponderance of evidence indicates Robinson was untruthful during this investigation...," that Robinson did have a conversation with an employee, Barry Beavers, but denied it. (Petitioner's composite exhibit #1, Memorandum of Internal Inquiry #86-9998-03, April 15, 1986). The lead Utility serviceworker positions In Spring 1986, the city created two supervisor positions in the Water Distribution Division, titled "lead utility serviceworker," to supervise and oversee the work of the utility workers and their laborers. All three utility serviceworkers applied for the jobs: Robinson, Ronnie Oliver (Black American) and Barry Beavers (White American). Robinson was never considered a viable candidate and was interviewed as a matter of courtesy. Oliver and Beavers were chosen. Robinson concedes that Beavers was qualified and properly promoted, but he disputes Ronnie Oliver's qualifications. Ronnie Oliver began work one month after Robinson, in October 1984. He worked under Robinson as a laborer for some time and he freely acknowledges that Robinson taught him a lot. Oliver also had considerable personal initiative and taught himself with the use of materials he acquired from Larry Alewine. Oliver's performance evaluations were substantially better than Robinson's; by May 1986, the time of the promotion, he was evaluated as an "Outstanding" employee. Robinson had, in fact, been on the job less than Oliver, as he had sustained a work-related injury in December 1985, and was out for weeks at a time. He had not been cleared for full-time duty when he was interviewed and was absent from work when the positions were filled. Light duty Robinson alleges that he was given "make-work" light duty when he was returned to work after his injury, and was later denied light duty. The city furnishes injured employees with light duty on a case-by-case basis, depending on the capabilities and physical condition of the individual and the needs of the employer. Robinson was first assigned floor sweeping duties in June after his recurring back problems. Later he was given the task of painting an area near Hill's office. An assistant was assigned to paint the high and low portions of the wall. He was also given a chair to sit on and rest his back. This was the lightest duty available at the city at time. Other employees including a black who had cancer, were also given routine maintenance chores. While painting, Robinson injured his neck, shoulder and hands. He never returned to work after this injury in June 1986. The city informed him in July and August that it did not have light duty available. In September 1987, the City agreed to pay Robinson $47,000.00 (including $7,000.00 to his attorney), to settle his worker's compensation claim of permanent back injury. He has since applied for reemployment. As of the hearing in this proceeding, the city was reviewing his request for reemployment. This request is not at issue here. Various grievances In Spring 1986, as the result of some publicity about the arrest of illegal aliens, the city reviewed the work authorization status of its employees. Since Robinson had initially given the city a letter from INS stating that he was eligible to work pending an application for political asylum, he was asked again for authorization. He refused at first, and claimed this was harassment. He also claimed that he was subject to derision for being a CIA spy. He had told some fellow employees about his past and the news circulated. The employees mostly did not take the matter seriously, but in an employee meeting, someone asked Chris Hill whether it was true that Albert was a CIA spy. He replied that this was what Robinson claimed. At the same employees' meeting, Hill also stated that he did not think that Robinson was going to be around much longer. He made this remark based on his knowledge of Robinson's disciplinary problems. Hill was strongly reprimanded for this remark. He did not have the authority to terminate Robinson, and management had not taken steps to terminate him. Robinson has attributed various derogatory statements and epithets to Chris Hill. He claims that Hill said that no one would take the word of a "nigger" against him and that he didn't want Americans to take orders from a Jamaican. Hill vigorously denies these statements and no credible evidence was produced to support Robinson's claims. Nor was credible evidence presented of Robinson's claim that on July 3, 1986, Hill lost his temper and spat in his face. At hearing on November 2, 1987, Robinson, through his attorney, withdrew his allegation that he was defrauded of sick leave through a forged signature. (TR Vol IV, p. 293-294.) Summary of Findings Beyond his own unsubstantiated claim that Alewine told him so, there is no evidence that Robinson's problems with the city were the result of his rather inconspicuous involvement at the Patrick Dixon hearing. His problems clearly began when he was promoted to a position of some authority over others and his temper, loud mannerisms and difficulty working with others became an issue. Beginning with his response to his first slightly negative personnel evaluation, Robinson's reaction to every event in his employment, major and minor, was lengthy, rambling, confused and confusing written grievances, memoranda and letters. Robinson also carried a tape recorder to memorialize his encounters and (in his words) "...to intimidate people from molesting me..." (TR, Vol I, p. 243). Robinson's inconsistent accounting and mixing of facts in his scenario of alleged discrimination fail to make sense. Pressure was applied to blacks and whites, alike; of the four employees targeted as "problems," the two whites are gone (Alewine and Simpkins) and one black (Wilder) has been promoted. Evidence is clear that there were serious management problems in the city's Water Distribution Division in 1985, and the atmosphere which prevailed with reorganization of the division and Hill's arrival could very well have fueled Robinson's paranoia. His vehement protestations and repetitious and rambling litany of wrongs are either a sincere confused perception, or a deliberate attempt to manipulate a situation, which because of justifiable criticism of his job performance, was becoming increasingly uncomfortable. Nevertheless, his myriad allegations of discriminatory harassment, retaliation and of unlawful failure to promote, are unsupported by competent evidence.
Recommendation Based on the foregoing, it is, hereby RECOMMENDED: That Albert Robinson's charges that the City of Altamonte Springs violated subsections 760.10(1)(a) and (7), F.S., by harassment failure to promote, and retaliation, be DISMISSED. DONE and RECOMMENDED this 16th day of February, 1988, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of February, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-2482 The following constitute my specific rulings on the findings of fact proposed by the parties: Petitioner's Proposed Findings of Fact 1-5. Addressed in summary form in paragraph 3. Adopted in paragraphs 4. and 5. Addressed in paragraph 5. Adopted in part in paragraph 8. The account of discussion with Alewine is rejected as contrary to the weight of credible evidence. Adopted in part in paragraphs 6.-8., otherwise rejected as contrary to the weight of credible evidence. Adopted in paragraphs 6.-15. Addressed in paragraph 12. The characterization of Simpkins' motives and the mandate to fire the four employees are rejected as contrary to the weight of evidence. Addressed in paragraphs 15. and 16. Adopted in part in paragraph 18., otherwise rejected as unsupported by the weight of evidence or immaterial. 14-16. Rejected as contrary to the weight of evidence, except for the comment about Robinson being terminated. See paragraph 34. Rejected as cumulative, unnecessary and argumentative (rather than factual). Addressed in paragraph 14.; otherwise rejected as contrary to the weight of evidence. Rejected as unnecessary. Addressed in paragraph 13., otherwise rejected as contrary to the weight of evidence and unnecessary. Adopted in substance in paragraph 19. Addressed in paragraph 21. Rejected as contrary to the weight of evidence. Addressed in paragraph 21. Addressed in paragraph 22. Addressed in paragraph 25; otherwise rejected as unnecessary and unsupported by the competent evidence. Rejected as unnecessary. Addressed in paragraphs 33 and 34, otherwise rejected as contrary to the evidence. Addressed in paragraphs 26. through 28. Addressed in paragraphs 29. through 30. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Addressed in paragraph 31. 34-35. Rejected as irrelevant. The "fraud" charge was withdrawn. See paragraph 36. 36-37. Rejected as irrelevant. Respondent's Proposed Findings of Fact Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 3. Adopted in paragraph 4. Adopted in paragraph 5. 6-12. Adopted in paragraphs 6. through 8. 13-15. Rejected as cumulative. 16-22. Addressed in paragraphs 15. and 16., otherwise rejected as unnecessary. 23. Adopted in paragraph 13. 24-27. Addressed in paragraph 14. 28-34. Addressed in paragraph 19. 35-38. Adopted in substance in paragraph 20. 39-40. Adopted in paragraph 21. Rejected as unnecessary. Adopted in paragraph 22. Adopted in paragraph 23. 44-49. Adopted in paragraphs 24. and 25. in substance. 50-60. Rejected as cumulative and unnecessary. 61-66. Addressed in paragraph 32. 67-69. Addressed in paragraph 33. 70-72. Addressed in paragraph 34. 73-89. Addressed in paragraphs 26.-28.; otherwise rejected as unnecessary. Adopted in substance in paragraph 35. Adopted in paragraph 28. Adopted in paragraph 29. 93-94. Adopted in substance in paragraph 29. 95-96. Adopted in substance in paragraph 30. Rejected as cumulative. Adopted in paragraph 30. 99-102. Adopted in substance in paragraph 31. 103-110. Rejected as irrelevant. The "fraud" charge was withdrawn at hearing. See paragraph 36. COPIES FURNISHED: Tobe Lev, Esquire Egan, Lev & Siwica, P. A. Post Office Box 2231 Orlando, Florida 32802 David V. Kornreich, Esquire Muller, Mintz, Kornreich, Caldwell, Casey, Crossland, & Bramnick, P. A. Suite 1525, Firstate Tower 255 South Orange Avenue Orlando, Florida 32801 Donald A. Griffin Executive Director Commission on Human Relations 325 John Knox Road Building F, Suite 240 Tallahassee, Florida 32399-1925 Dana Baird, Esquire General Counsel Commission on Human Relations 325 John Knox Road Building F, Suite 240 Tallahassee, Florida 32399-1925 Sherry B. Rice, Clerk Commission on Human Relations 325 John Knox Road Building F, Suite 240 Tallahassee, Florida 32399-1925
Findings Of Fact Based upon the evidence presented, the following facts are determined: The UTILITY is owned by Florida Land Company, a Florida corporation, which is a wholly owned subsidiary of The Continental Group, Inc., a New York corporation. In 1975, the UTILITY constructed a water and sewage treatment system to serve a residential and commercial development known as Greenwood Lakes. The UTILITY's water and sewer rates and charges have not changed since the COMMISSION's approval of initial tariffs in 1976. (Testimony of Crosby; P.E. 1.) I. Elements of Ratemaking In fixing the water and sewer rates to be charged by a public utility, the COMMISSION must consider: (1) the value and quality of the service, (2) the utility's rate base, (3) the cost of providing the service, and (4) a fair return on the utility's rate base. Section 367.081(2), Florida Statutes (1979). Each element is addressed separately below. Quality of Service The UTILITY's water supply is provided by two deep wells with a total capacity, based on present pumps, of 2.376 million gallons per day. Treatment is provided by aeration and chlorination. The water system operates under an operating permit issued by the Department of Environmental Regulation. Water samples and reports are made monthly, and the water system presently meets all drinking water standards of the Department. (Testimony of Crosby, Heiker; R.E. 1.) The UTILITY's sewage treatment system consists of a .10 million gallon per day package plant; treatment consists of extended aeration followed by gravity flow to evapo-percolation ponds providing on-site disposal. It operates under an operation permit issued by the Department of Environmental Regulation, and complies with Department's sewage collection and treatment standards. (Testimony of Crosby.) Rate Base Rate base consists of the UTILITY property that is used and useful in providing the service for which rates are charged. In its application, the UTILITY proposed a rate base; after review, the COMMISSION suggested several adjustments, which are not opposed by the UTILITY. Use of a year-end test year is appropriate because of the extraordinary growth experienced by the UTILITY during 1979. For the test year ending December 3l, 1979, the UTILITY's adjusted water rate base is $135,977; the adjusted sewer rate base is $131,764. They are calculated as follows: RATE BASE Test Year Ending December 31, 1979 WATER SEWER Utility Plant in Service $190,969 $225,722 Construction Work in Progress 1,214 4,297 Accumulated Depreciation 18,920 2/ 14,801 2/ Contribution in Aid of Construction (CIAC)-Net of Amortization -48,831 -86,458 Working Capital Allowance 3,030 3,198 Income Tax Lag -0- - 194 RATE BASE $135,977 $131,764 (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) Operating Statement The following Operating Statement reflects the UTILITY's revenue earned, costs of operation, and not-operating income during the test year. It shows that the UTILITY suffered a loss of $26,429 in its water operations and a loss of $19,101 in its sewer operations. OPERATING STATEMENT Test Year Ending December WATER 31 , 1979 SEWER Operating Revenues: $10,172 Operating Expenses: Operatic 25,314 $14,365 22,436 Maintenance -0- -0- Depreciation 18,199 10,132 Amortization -0- -0- Taxes Other Than Income 1,088 898 Other Expenses -0- -0- Income Taxes -0- -0- TOTAL OPERATING EXPENSES $44,601 $33,466 Operating Income ($26,429) (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) ($19,101) The UTILITY requests an annual water revenue increase of $36,154, and a sewer revenue increase of $31,715, which would produce gross annual revenue of $54,326, and $46,080, respectively. The adjusted Operating Statement, constructed to reflect this additional requested revenue, is as follows: CONSTRUCTED OPERATING STATEMENT Test Year Ending December 31, 1979 WATER SEWER Operating Revenues: Operating Expenses: $54,326 $46,080 Operation 30,634 25,580 Maintenance -0- -0- Depreciation 3,812 2/ 3,436 2/ Amortization -0- -0- Taxes Other Than Income 2,280 1,941 Other Expenses -0- -0- Income Taxes 1,424 968 TOTAL OPERATING EXPENSES $38,150 $31,925 Operating Income $16,176 $14,155 Rate Base $135,977 $131,704 Rate of Return 11.90 percent 10.74 percent (Testimony of Lowe; P.E. 1, 2, 3, R.E. 3.) Rate of Return The capital structure of the UTILITY is as follows: AMOUNT PERCENT TO TOTAL Debt 4/ $1,450,000 60.90 Customer deposits 6,389 .27 Common Equity 924,550 30.83 TOTAL $2,380,947 100.00 The proposed annual gross water revenues of $54,326, and sewer revenues of $46,080 will allow the UTILITY to earn a rate of return of 11.90 percent on its water rate base, and 10.74 percent on its sewer rate base. With debt service costs now in excess of 12.50 percent, the return on equity will be nominal; however, there is no evidence that this will cause the UTILITY's service to suffer. (Testimony of Smith; P.E. 6.) II. Capitalization of Interest on Non-Used and Useful Equipment The UTILITY's plant is larger than necessary to serve its present customers. In its application, the UTILITY seeks COMMISSION approval to capitalize its interest costs on that portion of the UTILITY's plant which is non-used and useful, and excluded from rate base. Capitalization will allow the UTILITY to recover its interest expenses over the useful life of the property involved. The COMMISSION has previously allowed capitalization of interest under similar circumstances, Docket No. 760054-WS, Application of North Orlando Water and Sewer Corporation, Order No. 7455, dated October 4, 1976. Here, the UTILITY's request is reasonable, concurred in by the COMMISSION, and should be granted. (Testimony of NewIon, Cooke, Lowe; P.E. .) III. Rate Structure The UTILITY currently uses a conventional two-tier rate structure. A base facility charge (BFC) rate structure is a more equitable method of distributing costs associated with providing a utility service. Under a BFC structure, customers pay a base charge which covers their pro-rata share of the UTILITY's fixed costs, and a gallonage charge which covers the costs of pumping, treating, and distributing the actual water gallonage used. Such a structure would require the UTILITY to alter its current customer service policy to insure that the base charge is paid during temporary discontinuances of service. (Testimony of Washington.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the UTILITY's application for increased sewer rates and charges be granted and that it be authorized to file revised tariff pages containing rates designed in accordance with the base facility charge concept to produce gross annual water revenues of $54,326 and annual sewer revenues of $46,080; That the UTILITY be required to notify each customer of any rate increase authorized, explaining the reasons for such increase. A letter of explanation should be submitted to the COMMISSION for prior approval; That the UTILITY be allowed to retain all interim revenues collected pursuant to COMMISSION Order No. 9416 and cancel the rate refunding bond previously submitted; and That the UTILITY be allowed to capitalize interest on non-used and useful equipment which is excluded from rate base. DONE AND ENTERED this 5th day of December, 1980, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
Findings Of Fact The Petitioner is a utility regulated by the Commission that is in the business of acquiring and operating water and sewer systems in Florida, principally in Central Florida. It now operates 39 systems, of which at least 30 water systems and 5 sewer systems are located in Orange, Lake and Seminole counties. In this case, the utility serves 547 water customers and 528 sewer customers in a subdivision known as University Shores. Southern commenced operating these systems in June, 1978, purchased them from University Shores Utilities, Inc. in September, 1978, and applied to the Commission for a transfer, which application was approved November 1, 1978, by Order 8550. The rates for service by these systems were granted by Order 6822 on August 6, 1975. Notwithstanding customer complaints of the quality of the water service (smell, taste, excess chlorine, sediment and no-noticed interruptions), the systems are in compliance with governmental standards. No customer complaints had been made to regulatory agencies, and the utility had handled only five for 1979 and to date in 1980. Due to a large increase in number of customers, a year end, rather than average, test year is appropriate; and the facilities are used and useful. Petitioner's rate bases are computed as follows: WATER SEWER Year end test year plant $526,737 $957,176 Construction Work in Progress 2,500 -0- Acquisition adjustment (net of amortization) (41,490) (78,300) Accumulated depreciation (67,172) (128,393) CIAC (net of amortization) (186,470) (489,438) Working Capital 5,476 6,386 Income tax lag (2,951) (4,225) $236,630 $263,214 The following capital structure and rate of return is that agreed to by the Petitioner and Respondent prior to intervention by the customers: WEIGHTED TYPE AMOUNT RATIO COST COST Common Stock $1,882,055 60.44 14.0 percent 8.46 Long Term Debt 1,037,372 33.31 8.89 2.96 Cost Free 194,768 6.25 0 0 TOTAL $3,114,195 100.00 11.42 percent The above rate bases and rate of return provide an authorized constructed net operating income from water service of $22,523 and from sewer service of $30,059. Although the return on water service is only 9.52, the revenue is limited to that in the application. This results in the following constructed statement of operations for year ended June 30, 1979: WATER SEWER Operating Revenue $94,550 $117,814 Operating Expense Operation 41,853 49,838 Maintenance 1,950 1,244 Depreciation 5,964 7,451 Amortization (860) (1,598) Taxes, other than income 8,363 9,726 Income taxes 14,757 21,124 TOTAL $ 72,027 $ 87,785 Net Operating Income $ 22,523 $ 30,059 Rate Base $236,630 $263,214 Rate of Return 9.52 11.42 percent It is noted that the above revenue requirement is more than the interim authorized revenue of $68,841 for water and $81,720 for sewer. The staff proposed that the rate structure should be changed from the present block structure for water and flat rate for sewer to a base facility charge for both water and sewer. This concept is appropriate since it serves to conserve water and insures that each customer pays his fair share of the costs of providing service. No evidence opposing this type rate structure was presented.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Southern States Utilities, Inc., University Shores Division, be granted and that the utility he authorized to file new tariffs to be approved by the Florida Public Service Commission that would have provided for the test year ending June 30, 1979 annual gross revenues of $94,550 for water service and $117,814 for sewer service. It is further RECOMMENDED that the refund bend be returned to utility. DONE and ORDERED this 25th day of November, 1980, in Tallahassee, Florida. H. E. SMITHERS Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: R. M. C. Rose, Esquire 1020 East Lafayette Street Tallahassee, Florida 32301 William H. Harrold, Esquire Florida Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301 Jack Shreve, Esquire Stephen C. Burgess, Esquire Benjamin H. Dickens, Jr., Esquire Office of Public Counsel Holland Building - Room 4 Tallahassee, Florida 32301 Steve Tribble, Clerk Florida Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301 Robert T. Mann, Chairman Public Service Commission 101 East Gaines Street - Fletcher Bldg. Tallahassee, Florida 32301
Findings Of Fact 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
The Issue Whether the Respondents violated Section 112.313(6), Florida Statutes, by including certain letters in an official mail-out paid for by the taxpayers of the Flagler Estates Road and Water District and, if so, what penalty is appropriate.
Findings Of Fact Stipulated Facts Respondent Holman was appointed as a member of the Board of Supervisors of the Flagler Estates Road and Water Control District (the District) on March 20, 1998. She was appointed to complete the second year of another Supervisor's three-year term. Respondent Holman was elected to serve the remainder of that Supervisor's term on June 20, 1998. A letter from Respondent Holman to the District's property owners was included in the District's mail-out prior to the June 20, 1998, election. Respondent Holman provided Ms. Wendy Wilhelm, the District's secretary, with a copy of the subject letter. Ms. Wilhelm integrated the letter into the District's mail-out by typing it into the District's computer. Respondent Rousseau was appointed to the District Board of Supervisors on November 3, 1994. He was later elected to the position on June 18, 1995, and then re-elected on June 20, 1998. Respondent Rousseau acknowledged that he provided a copy of the subject letter to Ms. Wilhelm for the express purpose of including it in the District's office mail-out. The cost of the subject mailings were paid for with funds that were derived from assessments paid to the District by its property owners. The aforementioned mail-out was the last District mailing issued before the June 20, 1998, District election. Findings of Fact From Documentary Evidence On or about May 11, 1998, the District mailed a Notice of Annual Meeting of Landowners of Flagler Estates Road and Water Control District. The notice advised landowners within the District that the annual meeting would be held on June 20, 1998, at 10:00 a.m., at the District office. Moreover, the notice stated that the purpose of the meeting was to elect supervisors, receive annual reports, and consider other business that may properly be brought before the meeting. Enclosed in the aforementioned mail-out were three letters, one from each of the three members of the District's Board of Supervisors, including Respondent Rosseau and Respondent Holman. In his letter, Respondent Rousseau advised property owners of problems faced by the District during the year; provided information about his background; and stated that his "term expired in June" and that he was seeking reelection. In her letter, Respondent Holman provided information about her background, advised landowners that she had only served as a District Supervisor for four months, and detailed the activities in which she had been involved on behalf of the District. Lastly, Respondent Holman wrote, "I have enjoyed my short time on the Board and hope to be elected to fulfill Gerrit Stewart's one-year term." Ms. Calvert Hanson, the District's general counsel, suggested to Respondents Rosseau and Holman that the above- referenced letters be included in the District's official mail- out. Prior to the letters being mailed out to the property owners, Ms. Hanson reviewed the letters but made no modifications, except for correcting some grammatical errors. Ms. Hanson did not believe that the letters were solicitations for votes for Respondents' election or reelection to the District's Board of Supervisors. Respondent Holman's and Respondent Rousseau's decision to include their respective letters in the District's official mail-out was based solely on the suggestion of the District's general counsel. Prior to the letters being sent out, Respondents provided Ms. Hanson with copies thereof for her review. Having received no recommendations for substantive modifications to the letters, Respondents Holmon and Rousseau did not believe that the contents of the letters constituted an improper solicitation for support in the District's election for Supervisors. Notwithstanding Respondents' subjective belief to the contrary, a portion of each of their letters constituted a solicitation for support in the June 1998 election for the District's Board of Supervisors. While Respondents' letters included information regarding the District, the letters also clearly indicated that Respondents were seeking to be elected or reelected to the District Board of Supervisors. Based on the content of the letters and the fact that they were included in the mail-out noticing the annual meeting at which supervisors would be elected, it appears reasonable that Respondents were seeking support for their election. Thus, although the letters did not expressly request that landowners "vote" for Respondents, such request was implicit in the letters.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that a Final Order and Public Report be entered finding that Respondent Robin Holman and Respondent Thomas Rousseau did not violate Section 112.313(6), Florida Statutes. DONE AND ENTERED this 26th day of May, 1999, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 26th day of May, 1999. COPIES FURNISHED: Eric S. Scott Assistant Attorney General Attorney General's Office The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Linda Calvert Hanson, Esquire 3501-B North Ponce de Leon Boulevard Suite 342 St. Augustine, Florida 32095 Sheri Gerety Complaint Coordinator and Clerk Ethics Commission 2822 Remington Green Circle Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Phil Claypool, General Counsel Ethics Commission 2822 Remington Green Circle Post Office Drawer 15709 Tallahassee, Florida 32317-5709
Findings Of Fact The Petitioner is a wholly owned subsidiary of Florida Land Company which is, in turn, a wholly owned subsidiary of the Continental Group, Inc., a New York corporation. The parent developer companies are providing and will continue to provide the required financial backing. The Utility served 421 primarily residential customers at the end of 1979, the test year agreed to by the parties. This was the first rate proceeding involving the Utility since it was established in 1975. Service The Utility is providing satisfactory water and sewer service. There were no service complaints presented at the public hearing by the customers, nor were there any citations or corrective orders outstanding. Rate Base The Utility experienced rapid growth during the 1976 - 1979 period, increasing the number of customers served from 62 to 421. Therefore, year end rate base rather than average rate base should be utilized. 1/ The water and sewer rate bases are $155,920 and $179,360 respectively. These amounts are based on the computations detailed below and incorporate proposed Commission adjustments to which the utility stipulated. In addition, reductions to plant in service and construction work in progress (CWIP) were made by the Utility to reflect excess plant capacity which is of no benefit to current customers. The Utility replaced its reverse osmosis water treatment plant with a lime softening system in 1979. The new facility will be somewhat more expensive to operate but will improve water quality and fire flow (pressure). Because of the reverse osmosis water treatment plant retirement, the $3,615 in building and $34,541 in treatment plant assets remaining on the Utility books should be removed. This is a total adjustment to Utility Plant in Service of $38,156. A further reduction in both water and sewer rate base is needed to adjust the working capital allowance to the standard authorization, which is one-eighth of operation and maintenance expenses. The proper amounts to he authorized in these accounts are $5,338 water and $2,931 sewer. TEST YEAR PER UTILITY UTILITY ADJ. TEST ADJ. TO YEAR PER COMM. ADJ. & CORRECT. TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR $820376. $-551059. $269317. $-38156. $231161. 57866. -57866. 0. 0. 0. -18841. 17155. -1686. 0. -1686. -238419. 159526. -78893. 0. -78893. Water Rate Base Plant in Svc. C.W.I.P. Accum. Depr. C.I.A.C. Net of Amort. Working Capital Allowance 4755. 1421. 6176. -838. 5338. Income Tax Lag 0. 0. 0. 0. 0. Rate Base $625737. $-430823. $194914. $-38994. $155920. Sewer Rate Base UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT. YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR Plant in Svc. $591945. $-205690. $386255. $0. $386255. C.W.I.P. 77919. -77919. 0. 0. 0. Accum. Depr. -2815. 2551. -264. 0. -264. C.I.A.C. Net of Amort. -321611. 112049. -209562. 0. -209562. Working Capital Allowance 2558. 401. 2959. -28. 2931. Income Tax Lag 0. 0. 0. 0. 0. Rate Base $347996. $-168608. $179388. $-28. $179360. Operating Revenues The Utility is seeking water revenue of $41,429 and sewer revenue of $35,550. Computations and adjustments in support of these amounts along with test year expenses are detailed below. Because of the extraordinary expenses associated with replacement of the water treatment plant, it would not be appropriate to utilize test year data to determine operating costs. Therefore, a projected or pro forma operating expense of $42,789 removing replacement expenses is proper. A further adjustment to water operations is required to eliminate $1,987 of depreciation expense on contributed property as not authorized by current law. 2/ In addition, the useful life of various items of equipment should be increased to periods of 20 to 40 years. These extended depreciation periods are based on an engineering study which the Utility does not challenge. Finally, the requested revenue increase of $27,432 and the associated gross receipts tax of $686 are reversed to show test year operating results. The requested sewer revenue increase of $19,413 and gross receipts tax of $485 are also reversed on the sewer operating statement to show test year operating results. As with the water plant, depreciation on contributed sewer plant is disallowed, reducing depreciation by $5,261. Water Operating Statement UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT. YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR $ 14006. $ 27423. $ 41429. $-27423. $ 14006. 38039. 11368. 49407. -6678. 42789. 0. 0. 0. 0. 0. 6325. 3762. 10087. -5525. 4562. 0. 0. 0. 0. 0. 1979. 500. 2479. -686. 1793. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. Oper. Revenues Oper. Expenses Operation Maintenance Depreciation Amortization Taxes Other Than Income Other Expenses Income Taxes UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT. YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR Total Operating Expenses $46343. $15630. $61975. $-12889 $49084. Oper. Income -32337. 11793. -20544. -14534. -35078. Rate Base $ 825737. $ 194914. $ 155920. Rate of Return -5.17 pct. -16.54 pct. -22.50 pct. Oper. Sewer Operating Statement UTILITY COMM. ADJ. TEST UTILITY ADJ. TEST & CORRECT. YEAR PER ADJ. TO YEAR PER TO UTILITY ADJ. UTILITY TEST YEAR EXHIBIT BALANCE TEST YEAR Revenues $16137. $19413. $35550. $-19413. $16137. Oper. Expenses Operation 20462. 3208. 23670. -233. 23437. Maintenance 0. 0. 0. 0. 0. Depreciation 619. 9060. 9679. -5261. 4418. Amortization 0. 0. 0. 0. 0. Taxes Other Than Income 1747. 630. 2377. -485. 1892. Other Expenses 0. 0. 0. 0. 0. Income Taxes 0. 0. 0. 0. 0. Total Operating Expenses $22828. $12898. $35726. $-5979. $29747. Oper. Income $-6691. $6515. $-176. $-13434. $-13610. Rate Base $847996. $179388. $179360. Rate of Return -1.92 pct. -10. pct. -7.59 pct. Capitalization Debt $ 555,624. 60.96 percent Customer Deposits 6,195. .68 The capitalization of the Utility is as follows: Amount Percent to Total Common Equity 349,627. 38.36 $ 911,446. 100.00 percent Rate Design Both parties seek adoption of a base facility charge rate structure. This rate design provides a fixed charge to each customer served computed 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 design provides an equitable method of allocating service costs and has been adopted in virtually all recent water and sewer rate proceedings. The base facility charge should also be utilized where there is a temporary discontinuance of service. The Commission proposes a tariff revision incorporating a monthly standby charge equal to the base facility charge. Again, this method allocates the Utility's readiness to serve costs equitably among both active and temporarily inactive customers.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the petition of Sugar Mill Utility Company 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 $41,429 annually, and gross sewer revenue of $35,550 annually, based on the number of customers served at the end of the test year. It is further RECOMMENDED that the Petitioner be permitted to retain interim revenues collected pursuant to Respondent's Order No. 9392, and that tie rate refunding bond requirement of said order be cancelled. DONE and ENTERED this 20th day of November, 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 The Petition herein was filed by Petitioner with PERC on February 14, 1975. (Hearing Officer's Exhibit 1). The hearing in this cause was, scheduled by notice dated May 23, 1975. (Hearing Officer's Exhibit 2). The City of Port St. Joe, Florida, is a Public Employer within the meaning of Florida Statutes, Section 447,002(2). (Stipulation TR 6). The Laborers' Local Union No. 1306 is an employee organization within the meaning of Florida Statutes, Section 447.002(10). (Stipulation, TR 6). There is no contractual bar to hold an election in this case. (Stipulation, TR 6, 7). There is no pertinent bargaining history which affects this matter. (Stipulation, TR 7). PERC has previously concluded that the Petitioner is a duly registered employee organization (See: Hearing Officer Exhibit 3). No evidence was offered at the hearing to rebut the administrative determination previously made by PERC. PERC has previously concluded that the Petitioner filed the requisite showing of interest with its petition (Hearing Officer's Exhibit 4). No evidence was presented to rebut the administrative determination. Petitioner and the Public Employer stipulated and agreed that all employees of the City of Port St. Joe employed at the hospital, or in the Fire and Police Departments should be excluded from any unit ultimately certified. The parties further stipulated that Mr. Brook, the City Clerk-Auditor, and Mr. R. F. Simon, Manager of the Waste Water Treatment Plant, should be excluded from the unit; and, that Mr. Joe Badger, the Janitor at City Hall, who is not identified in the proposed unit designations, should be included within the unit. (Stipulation TR 10, 11). The City of Port St. Joe operates under a city commission form of government with a mayor and four commissioners. The, City has approximately 80 to 85 employees. The functions of government are not rigidly departmentalized in Port St. Joe. The, largest City Department is the Water and Waste Water Treatment Plant. This department is headed by a manager, Mr. R. E. Simon, who answers to the City Commission. Approximately 40 of the city's employees are in this department. The city's other two departments are more vaguely defined. There is a department concerned with parks and Cemeteries, and Water and Sewers, which employs approximately 20 persons; and a department concerned with Roads and streets, garbage and Trash Collection, and Warehouse and Garage, which employs approximately 18 - 20 persons. Each of these latter two departments is headed by the City Auditor-Clerk, Charles W. Brock. Mr. Brock answers to the City Commission. (TR 12-14, 29, 34-35). The Public Employer argued that all city employee other than those employed at the hospitals or in the Police or Fire Departments should be included within an appropriate unit. Only the manager of the Water and Waste Water Treatment Plant, and the City Auditor-Clerk would be excluded. Petitioner asserts that Supervisory employees and clerical employees should be excluded from the unit. Petitioner would exclude from the unit persons who fill the following positions: Assistant Manager of the Waste Water Treatment Plant; Work Superintendent of the Department concerned with streets and Highways, Trash and Garbage Collection, and Garage and Warehouse; Work Superintendent of the Department concerned with Water and Sewers, parks and Cemeteries; Leadmen or Chiefs at the Waste Water Treatment plant; Chief Mechanic; Chief of Instrumentation and Electric; Chief Operator; Chief of the Laboratory; Chief of Sewer Collection; The Inventory and Warehouse Clerk; and the city's seven clerical employees The Public Employer would include the persons holding these positions within the unit. The present Assistant Manager of the Waste Water Treatment Plant is Curtis Lane. Mr. Lane answers directly to Mr. Simon, the Plant Manager. Mr. Lane is charged generally with carrying out the instructions of Mr. Simon, and he performs some supervisory functions based on these instructions. Mr. Lane does not have the authority to hire and fire other employees. He receives an hourly wage, and the same vacation, pension and insurance benefits as other employees receive. His hourly wage rate is higher than that of the other employees at the Waste Water Treatment plant. He wears the same uniform as the other employees. It does not appear that Mr. Lane exercises any significant budgetary role, nor that he would play any part in the collective bargaining process. (TR 14-16, 37-42). The present work Superintendent of the Department concerned with Streets and Highways, Trash and Garbage, and Garage and Warehouses is Dorton Hadden. Mr. Hadden reports directly to Mr. Brock. Mr. Hadden is charged with supervising the 18 to 20 employees in his department. He receives a salary while other employees are compensated on an hourly rate. He does receive the same insurance, vacation, and pension benefits that other employees receive. Mr. Hadden wears the same uniform as other employees in his department. It does not appear that Mr. Hadden has any significant budgetary role, nor any significant role in the collective bargaining process. (TR 16-18, 31-35, 47, 49). The present work Superintendent of the department concerned with Water and Sewers and Parks and Cemeteries is G. L. Scott. Mr. Scott supervises 10 to 12 employees. He answers directly to Mr. Brock. Mr. Scott is paid a salary while all other employees of his department, except one, are paid at an hourly rate. He receives the same insurance, vacation, and pension benefits as other employees. Mr. Scott wears the same uniform as other employees in his department. It does not appear that Mr. Scott has any significant budgetary role, nor any significant role in the collective bargaining process. (TR 18-20, 42-45). Other positions within the Waste Water Treatment Plant Department about which there is a dispute as to inclusions within the bargaining unit are the leadmen or chiefs at the Waste Water Treatment Plant, the Chief Mechanic, the Chief of Instrumentation and Electric, the Chief Operator, Chief of the Laboratory, and Chief of Sewer Collection. These employees are charged with supervising specific aspects of the Waste Water Treatment Plant operation Each of these employees answers to Mr. Simon. Each is compensated at an hourly rate of pay, which is generally higher than that of other employees at the plant. They wear the same uniform and have the same insurance, vacation, and pension benefits as other employees. It does not appear that these employees perform a significant budgetary role, nor play a significant role in the collective bargaining process. (TR 20-24, 59-69). The Inventory and Warehouse Clerk at the Waste Water Treatment Plant is George Padgett. Mr. Padgett answers to Mr. Simon. He is charged generally with maintaining the inventory at the warehouse. He is paid on the same wage scale, and receives the same insurance, vacation, and pension benefits as other employees. He wears the same uniform as other employees. It does not appear that Mr. Padgett exercises any significant budgetary role, nor that he has any significant role to play in the collective bargaining process. (TR 24-26, 47- 49). The Public Employers clerical employees are supervised either by Mr. Brock or by Mr. Simon. These employees do not work directly with other employees in the unit described in the Petition. They are paid on the same wage scale, and receive the same insurance, vacation, and pension benefits as the other employees. It does not appear that these employees play any significant budgetary role, nor that they will have any significant role in the collective bargaining process. (TR 26-29,49-56). ENTERED this 12th day of August, 1975 in Tallahassee, Florida. G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675
The Issue Whether, and to what extent, Respondent S.E. Morris and Sons, Inc., should be allowed to increase its sewer rates.
Findings Of Fact Based on the evidence presented at hearing, the following facts are determined: Applicant owns and operates a small sewage treatment plant located on Santee Drive in Morris Manner Subdivision, Springfield, Florida. The plant operates on a contact stabilization mode and has a design capacity of 35,000 gallons per day. (Testimony of Addison; R-1.) The plant and collection system were built in the late 1960s to serve a residential subdivision known as Morris Manor, then being developed by the Applicant. There are currently 79 residential customers served by the sewer plant. An additional 22 lots located in Morris Manor subdivision may eventually be sold, developed, and hooked into the existing sewer system. (Testimony of Addison; R-1.) I. Quality of Service Several customers complained of noxious odors emitted from the sewer plant. Prior to July, 1980, the plant was operated in an extended aeration mode, with a design capacity of 15,000 gallons per day. However, the plant's flow frequently exceeded 15,000 gallons per day, a fact which most likely contributed to periodic odor problems. The Applicant's failure to properly clean and maintain the plant's polishing pond also contributed to increasing odor problems, particularly during the summer time. (Testimony of Estler.) On September 12, 1980, Applicant executed a Consent Order with the Florida Department of Environmental Regulation requiring a change in mode to contact stabilization and proper cleaning and maintenance of the polishing pond. Under the changed mode, the plant's design capacity is effectively increased to 35,000 gallons per day. The Applicant has complied with the provisions of the Consent Order. During the past six months, the plant has operated in conformance with Department of Environmental Regulation treatment requirements. The odor problems have been ameliorated, and, with the proper monitoring and maintenance, should not reoccur. In view of the substantial improvement in the plant's operation and maintenance and its current compliance with state standards, it is concluded that the sewer service applied by the Applicant is of acceptable and satisfactory quality. (Testimony of Estler, Addison.) II. Rate Base A utility providing satisfactory sewer service has a statutory right to an opportunity to earn a fair return on its investment in property used and useful in the public service. Section 367.081(2), Fla. Stat. (Supp. 1980). That investment constitutes its rate base. Here, the parties dispute two items concerning the Applicant's proposed rate base: (1) accumulated depreciation, and (2) "used and useful" plant. In the past, the Applicant depreciated its plant using a 15-year serviceable life, 6.67 percent, straight-line depreciation rate. This rate was used by the Applicant for tax purposes, and was indicated on its annual reports filed with the Commission. However, use of a 40-year life, 2.5 percent depreciation rate is more appropriate. The Commission's response is to represcribe the preferred 40-year, 2.5 percent rate as though the company had, in fact, used that rate in the past; the effect is to decrease accumulated depreciation reserve and correspondingly increase net rate base. (Testimony of Lowe, Hale; I-4A, I-4B, I-2, R-2.) If, in the past, the Applicant actually recovered its book depreciation expense (at a 15-year, 6.67 percent rate), the Commission admits that its proposed recalculation of accumulated depreciation reserve would allow Applicant to recover plant costs--to the extent of the add-back--a second time. (Tr. 163.) It is now impossible to discern whether the claimed depreciation expenses were actually recovered through past rates. But if the past rates were insufficient for such purpose, that is a loss which must be borne by the Applicant. Rate payers have no obligation to compensate Applicant for past losses by paying higher rates in the future. (Testimony of Hale, Lowe; I-2.) In the past, the Commission has consistently disallowed recalculation of depreciation reserve which results in customers being required to build depreciation reserve anew. In Re Belvedere Water Company, 83 PUR 3d 202 (1970). The only reason offered in this case for departing from this practice is the small size of the Applicant's utility: ". . .if this were a large utility, my stand would be opposite; but because this is a very small utility, I don't think the company should be penalized." (Tr. 163.) This is an unacceptable basis for deviating from a regulatory requirement. Its application would adversely affect predictability in regulatory decision making and even-handed treatment of utility customers. The Commission's proposed recalculation of accumulated depreciation reserve is therefore rejected. The more appropriate treatment, one which comports with generally accepted accounting principles and the Commission's past practice, is to leave the existing depreciation reserve unaltered. The Applicant's plant should be depreciated at the preferred 40-year, 2.5 percent rate in the future. Those future charges would accumulate and increase the depreciation reserve account. (Testimony of Hale.) A utility is entitled to an opportunity to earn a fair return only on property which is used and useful In the public service. 367.081(2), Fla. Stat. The Applicant's sewer plant, under its current contact stabilization mode of operation, can adequately treat an average flow of 35,000 gallons per day. By applying the standard average flow criteria of 350 gallons per day per residence, it is concluded that Applicant's plant can adequately treat the sewage flow generated by 100 homes. Currently only 79 homes utilize its service. Thus, the plant has excess capacity of approximately 20 percent. The remaining 21 vacant subdivision lots--which the plant is capable of serving--are owned by the Applicant; no definite plan has been made to sell or develop them in the future. Consequently, use of the plant's current excess capacity is neither imminent nor reasonably expected in the foreseeable future. (Testimony of Addison, Estler.) The Commission's engineer treated the plant as 100 percent "used and useful"--its full valuation was consequently included in Applicant's proposed rate base. He based his "used and useful" conclusion on the fact that, several times during the test period 2/ , peak flows exceeded 35,000 gallons per day. Yet, he agreed that average flows are more significant in determining the operating capacity of a plant than peak flows; he gave no engineering reason why peak rather than average flows should be used to calculate "used and useful" plant; and he admitted that the plant has adequate capacity to handle an additional 20 homes. (Tr. 135.) It is concluded, therefore, that, since 20 percent of the plant is neither used and useful now, nor reasonably expected to be so in the foreseeable future, only 80 percent of the plant's valuation should be considered used and useful and included in rate base. (Testimony of Estler, Hale.) In accordance with the foregoing findings, the Applicant's rate base is depicted below: RATE BASE Test Period Ended 12/31/79 Utility Plant in Service $11,940 Accumulated Depreciation (6,676) Contributions in Aid of construction -0- Working Capital Allowance 1,337 Income Tax Lag -0- NET (Adjusted) RATE BASE $ 5,548 3/ III. Net Operating Income Two items remained in dispute concerning the Applicant's net operating income: (1) calculation of depreciation expense, and (2) salary expense. Depreciation Expense Since the Applicant should be allowed to allocate the balance of its plant over its remaining 30-year service life--using a 40-year, 2.5 percent depreciation rate--the Applicant's proposed depreciation expense should be reduced $597. Depreciation expense for the test year should therefore be $175. The Commission agrees that, assuming Intervenor's position on accumulated depreciation revenue is proper, this adjustment is also appropriate. Salary Expense Tom Morris visits the plant for one to two hours on a daily basis and performs essential clean-up and maintenance tasks. For this service he receives an annual salary of $2,600. This calculates to a hourly wage of $5-$6 per hour which is not considered unreasonable for the work performed. This salary should, therefore, be allowed. (Testimony of Morris, Hale; R-2.) Net operating income is thus depicted as follows: ADJUSTED OPERATING STATEMENT Test Year Ended 12/31/79 Operating Revenue: $ 3,479 Operating Expenses: Operation and Maintenance 10,699 Depreciation Expense 175 Taxes O/T Income 73 Income Taxes -0- TOTAL OPERATING EXPENSE $10,947 Operating Income $(7,469) (Testimony of Lowe; R-2.) IV. Cost of Capital The Commission used a 12.16 percent overall weighted cost of capital, including a 12.5 percent return on equity, which was uncontroverted: PERCENT OF TOTAL COST RATE WEIGHTED COST RATE Equity $204,114 94.7 percent 12.5 percent 11.84 percent Debt 11,532 5.3 6.0 .32 TOTAL $215,646 100.0 percent 12.16 percent A fair rate of return on the Applicant's net rate base is determined to be 12.16 percent. (Testimony of Lowe; R-2.) V. Additional Revenue Requirements By applying a 12.16 percent rate of return against a rate base of $5,548, it is concluded that Applicant should be allowed to earn a return, or operating income of $674.64. Annual gross revenues of $11,826 4/ are required to cover operating expenses and produce such a return, resulting in a net increase of $8,348 in gross revenues. VI. Rate Design If economically feasible, the Applicant's flat monthly rates should be replaced by an alternative rate structure known as the "base facility charge rate design." This is a more equitable structure because it contains a commodity charge which varies according to the amount of water consumed. The Applicant currently pays the City of Springfield 20 percent of the sewer fee in exchange for mailing and collecting sewer bills from customers. The costs of converting the city's billing system to the base facility charge rate design is not known. The Applicant should be required to determine the costs associated with converting to the base facility charge rate design, and report its findings to the Commission within 90 days of entry of the final order in this case. VII. Whether Applicant Should be Limited to Rates Originally Requested In order to determine its eligibility for Commission staff assistance in preparing its rate-making application, the Applicant completed and filed the appropriate Commission forms. 5/ In its initial eligibility filing, Applicant included a proposed sewer rate of $11.00 per month. Subsequently, a revised form was filed indicating a proposed rate of $13.00 per month. The Intervenor contends that Applicant should be limited to the $11.00 per month rate originally proposed. (I-1, 1-2.) It would be unreasonable to impose such a rate limit based on initial eligibility information documents. Such documents are necessarily completed before a rate application and supporting documents are completed and analyzed. The request for staff assistance in preparing the rate application, in itself, presupposes that the utility, due to its small size, lacks the expertise and specialized knowledge required to prepare and present a rate application. No contention is made that customers would be unfairly surprised by a flat rate which is more than $11.00 per month. Indeed, the uniform rate approved by the Commission was $13.08 per month; all customers were notified prior to hearing that Applicant proposed to make the interim rate permanent. (I-1, I-2.)
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That S.E. Morris and Sons, Inc., be authorized to file new rates designed to generate gross annual revenues of $11,826 based on the average number of customers served during the test year. To the extent interim rates result in excess revenues, such revenues should be refunded to the customers. That, within 90 days from entry of the final order in this case, S.E. Morris and Sons, Inc., be required to determine and report to the Commission the economic feasibility of redesigning its rates pursuant to the base facility charge rate design system. If such an alternative rate design is not economically practicable, new monthly flat rates designed to produce the required revenue should be filed. DONE AND RECOMMENDED this 24th day of April, 1981, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of April, 1981.
Findings Of Fact Stipulated Facts Deemed Relevant to Be Found Petitioner is the state land planning agency with the duty and responsibility to enforce and administer Chapter 380, Florida Statutes. The Killearn Lakes project is a planned residential community located north of Tallahassee near Bradfordville in Leon County, Florida. A portion of the Killearn Lakes Project, consisting of Units 1, 2, 3, 4 and 5 (phase I) is vested from Development of Regional Impact (DRI) review pursuant to Section 380.06(20), Florida Statutes. Petitioner recognized the vested rights for said portion of Killearn Lakes in BLIVR-274-037. The vested portion of Killearn Lakes has never undergone DRI review and is not a subject of this administrative proceeding. The remainder of the Killearn Lakes project, consisting of Units 5 (phases II and III), 6 and 7, is not vested from DRI review. Killearn was the sole owner of the non-vested portion of Killearn Lakes during the original DRI review, and is presently the owner and developer of most of the undeveloped portion of the Killearn Lakes DRI. The county is the local government with the jurisdiction to issue DRI development orders, and is the local government with the primary responsibility for administering DRI development orders for the land covered by the Killearn Lakes DRI development order. On November 14, 1974, Killearn filed a DRI application for development approval (ADA) for the non-vested portion of Killearn Lakes. In March of 1976, the Northwest Florida Planning and Advisory Council, District II, issued its Development of Regional Impact Evaluation for Killearn Lakes, Inc. On March 23, 1976, the county held a public hearing pursuant to Section 380.06(7), Florida Statutes (1975), on the Killearn Lakes ADA. The county commission issued a Development of Regional Impact Development Order approving the Killearn Lakes DRI and rejecting the conditions recommended by the Northwest Florida Planning and Advisory Council. No notice of the adoption of the Killearn Lakes DRI development order was, or has ever been, recorded in the Public Records of Leon County. At the time of the adoption of the Killearn Lakes DRI development order, Chapter 380, Florida Statutes, did not require the developer to record a notice of adoption, as is presently required by Section 380.06(15)(f), Florida Statutes (Supp. 1990), which first became effective in 1980. The county has issued every final local permit for the development that has occurred in the Killearn Lakes DRI. The county has not adopted a document entitled "Amendment to the Killearn Lakes DRI Development Order," and no such amendment to the Killearn Lakes DRI Development Order has been rendered to the Petitioner. Development within the Killearn Lakes DRI has not been completed. Central sewer has not been constructed throughout the developed portion of Killearn Lakes DRI. Other Facts Issuance of the Development Order Preliminary to action taken by the county commission which approved the subject development, the Tallahassee-Leon County Planning Commission met on March 18, 1976. It considered the recommendations of the Northwest Florida Regional Planning and Advisory Council related to the project. The recommendations of the Council were: Approval of the project on a phase by phases [sic] basis with necessary permits being granted after review and evaluation of the completed and proposed phases of development; Close monitoring of the drainage methods throughout each phase of development by the Leon County Engineering Department through on-site inspection; Developer is required to obtain a report from the Florida Games and Fresh Water Fish Commission for submission to the Leon County Commission concerning the evaluation of a lake drawdown project before a permit is granted; Developer must provide more information to the Leon County Commission regarding dredge and fill operation prior to the issuing of a permit for each phase of construction; Before the Leon County Commission issues a permit for each phase of development, a review of the upgrading of the Thoamsville [sic] Highway is required from the Florida Department of Transportation; Developer is required to comply with the following two conditions before a permit can be granted: Place hydrants so that all dwellings are within 1000 feet, and commercial property is within 500 feet. Increase water pressure and supply. A phase by phase review of projected growth of the Killearn Lakes Project and a brief impact analysis of Environmental and Natural Resources, Economy, Public Facilities, Public Transportation Facilities, and Housing in the immediate community and region is required before a permit can be issued to continue the Killearn Lakes project on a phase by phase basis. The successful review and evaluation of the above mentioned modifications prior to issuing each phase construction permit is recommended. The local planning group recommended approval of a development order without acceptance of the conditions suggested by the Northwest Florida Regional Planning Council. As mentioned before in Footnote 1, the county rejected all recommendations by that planning and advisory group. According to the minutes of the March 23, 1976 meeting: Mr. Simpson reported that the Planning Commission had recommended granting the development permit of Killearn Lakes without the application of the recommendations of the Northwest Florida Planning & Advisory Council, Inc. Commissioner Vause moved that the report from the Northwest Florida Planning & Advisory Council, Inc. dated March of 1976, be reflected in the minutes as being received and filed and that the Board follow the recommendation of the Planning Commission, Commissioner Marchant seconded the motion. Following very much discussion, Commission Vause amended his motion to adopt the following resolution and to issue a development order as recommended by the Planning Commission, Commissioner Marchant agreed to the amendment and the vote of the Board was unanimous in favor thereof. The Tallahassee-Leon County Planning Commission in its action of March 18, 1976 had not suggested any substantive changes to the ADA. The County Commission did not vote to modify the ADA by changes to the language in the ADA through additions or deletions to the text of the ADA or requirements set forth in the development order or attachments to the development order. Having rejected the recommendations set out by the Northwest Florida Regional Planning and Advisory Council, and offering no other conditions to control the development order other than those contemplated by statutes or rules pertaining to the issuance of the development order, the terms of the development order became those found within the ADA. Deadline for Development Among the topics discussed in the ADA is the date for completing the project. The ADA identifies the project completion date as 1985. This information is provided in accordance with the questionnaire which the consultant to Killearn answered in preparing the ADA. Having examined the Draft Operating Manual for Developments of Regional Impact which had been prepared by the Division of State Planning, the predecessor agency to the Petitioner, it is inferred that the application format/questionnaire recommended by the Division of State Planning was followed in preparing the ADA. The questionnaire contemplates in a number of instances establishment of a concluding date for the project. The evidence presented at hearing did not show that the county made a conscious decision to require submission of the application in the format set forth in the draft operating manual by the Division of State Planning, rather it acquiesced in that protocol on this occasion. There is no evidence that the Division of State Planning had communicated with the county concerning the use of this questionnaire for preparing an ADA, especially as it might pertain to the policy reasons for setting forth a deadline for project completion. Excepting the questionnaire, the Draft Operating Manual for Developments of Regional Impact prepared by the Division of State Planning was not shown to have been made available to the county or the applicant prior to the submission of the application. In particular, the applicant and county were unfamiliar with Section 2.05c. in its statement that all local development orders issued in response to an ADA should include provisions pertaining to the period of effectiveness of the development order and Section 2.07a.(2) pertaining to expiration of the period of effectiveness of the development order as a factor that may require retriggering of the DRI process. By implication, the county was not carrying forward the policy ideas expressed by the Division of State Planning where it urges local government, in the interest of sound planning principles to include a provision in the development order pertaining to the period of effectiveness of that development order and the statement that at the expiration of that period of effectiveness the development order may require a retriggering of the DRI review process. In the abstract, the questions that were answered in the ADA in response to the format contemplated by the Division of State Planning dealing with a concluding date for the project can be seen as associated with the concept of establishing an expiration date for the development order. The answers do not equate to setting out the expiration date as an incorporated requirement countenanced by this development order. Neither does the development order nor the incorporated ADA remind the developer or its successors in interest that there is a deadline for concluding the project beyond which the development order is no longer effective and the possible requirement for retriggering review of the DRI. Under the circumstances, absent some requirement of law not arising from the development order per se, the statements found within the ADA concerning the projects's concluding date are nothing more than an internal planning device for the benefit of the developer and its successors in interests. As an estimate by the applicant it does not express the perception of local government in issuing the development order and is unenforceable. Statutes and rules in effect at the time that the development order was issued, and it is those statutes and rules which control for reasons discussed in the conclusions of law, did not mandate the establishment of deadlines for completing the project, establishment of a period of effectiveness for the development order or a statement setting out the ramifications for not complying with the deadlines for buildout on the possible consequences of operating beyond the period of effectiveness of a development order. More generally stated Chapter 380, Florida Statutes and the rules of the Division of State Planning in existence when the project was considered did not readily explain the application process. It is not accepted that the county in view of the dialogue which took place between various commissioners and representatives of Killearn on March 23, 1976, took official action to extend the deadline set out in the ADA, but the resulting de facto extension of the buildout deadline beyond the effective date set forth in the ADA is irrelevant. The discussion among the commissioners and with representatives of the developer concerning the project completion was inconclusive, because from a parliamentary viewpoint, the county did not act to restate the ADA and by such restatement set forth a project deadline. The county never precluded further development in the DRI area after 1985 absent further DRI review. It did not have to. No deadline was required by law. No legally binding deadline has been imposed. Therefore development may proceed into the future. Sewer Service At The Inception Another item in dispute concerns the need to provide sewer service in the project area and at what point in time. The development order unequivocally requires a sewage treatment system so that units as they are built are connected to that system contemporaneous with their development. The development order does not allow alternative use of septic tanks until a central sewer system becomes available, if it ever does. The introductory portion of the ADA under the report summary speaks of sewer being provided by Talquin Electric Cooperative, Inc. Under the environmental assessments portion of the ADA associated with water quality, Paragraph 19.b.(3)(a), which speaks to possible discharges into ground water of liquid waste states: All units will be connected to a central plant as they are developed. This plant will remove 90 percent of the bio-chemical oxygen demand (B.O.D.) and of suspended solids (Chapter 403, Florida Statutes) and discharge to a land via a land disposal system; no surface discharge, (Figure 19-10). The economic assessments, Paragraph 25, discusses sanitary sewers at pages 59 and 61, as follows: a. Cite amount of sewage expected to be generated by the proposed development and source of treatment facility. Amount generated (added to .04 of Phase I): About 1.4 million gallons per day (mgd) in DRI area. Treatment will be accomplished by Talquin Electric Cooperative for Phases I into IV. The collection system will utilize lift stations (Figure 25-1). Will the design of the sewage system insure that all areas of the development have adequate facilities at all stages of the development? Specify. The Sewage Treatment Plant (STP) and collection system construction will be phased (Table 2) to accommodate this flow as follows: Now ready to start - .040 mgd S.T.P. (Phase (not in DRI area) 1, Unit 5) Until January 1975 - .450 mgd S.T.P. (Phase II, Units 5 & 6) Until mid-1976 - .900 mgd S.T.P. (Phase III, Unit 5+ apt./Condo. & Comm.) 1978 to mid-1982 - 1.800 mgd S.T.P. (Phase IV) or convert .900 mgd S.T.P. to a lift station and pump to City of Tallahassee Talquin Electric Cooperative has a construction permit from the Department of Pollution Control, and operating permit will be issued when the S.T.P. is built, subject to conditions discussed under "discharge to groundwater". The S.T.P. and land disposal site will be located at the northeast corner of Unit 2. Additional acreage, if needed, can be provided at the adjacent school site (Figure 19-10). How does the development's sewage system relate to the county's sewer and water treatment facilities objectives? During Phase IV this responsibility will shift to the City of Tallahassee. 16/ Killearn Lakes sewage then will be treated at the Tallahassee Northeast Treatment Plant (+ 1984). What assurances will the developer provide that such a system will indeed be completed? Construction? Performance bonds? Agreement with Talquin. 15/ Sewer connection to the City of Tallahassee depends on resolution of differences between the City and Leon County. The City/County Technical Coordinating Committee recently passed resolution urging priority action on this matter. Talquin Electric Cooperative builds and operates many total - utilities packages in the area, including sewer systems. It has been in business as a Rural Electric Cooperative for several decades. In addition, in the environmental assessments section, Paragraph 19.b.(2)(a) at pages 7 and 8 dealing with discharges into surface water of detergents and solvents reference is made to commercial and residential sewer service. Figure 19-4, at page 8, related to land disposal speaks of the temporary land disposal site for sewage effluent. Again the section on economics found at page 49 in the ADA comments that Talquin Electric Cooperative is responsible for all utility installation. Table 1, item 25 discusses sewage and notes that all areas to be served by Talquin Electric will be phased into a regional facility in 1984 to meet county objectives. No exception to this requirement is stated. Paragraph 31.c., at page 71, concerning alternative means of providing sewer states: What alternative power, water, sewer and solid waste disposal sources or mixes were considered and evaluated in selecting this particular site? The City of Tallahassee, Leon County, and Talquin Electric Cooperative are the alternative sources and they were selected through a combination of availability, common practice and cost. Contrary to the opinion of the county, this reference is unambiguous and does not contemplate the use of septic tanks at any time as a possible alternative to sewer service. The statement of availability describes the choice between utilities, not the choice between sewer service and septic tanks. Killearn's Agreement With Talquin Electric The sewer service agreement between Killearn and Talquin Electric Cooperative concerning provision of sewer service commented on in Footnote 15 to the ADA addresses provision of sewer service for the entire project controlled by the development order upon request by Killearn with cost or return of the total cost to be guaranteed by Killearn as recited in the agreement. It makes Killearn responsible for depositing funds with Talquin Electric Cooperative as construction work progresses as may be required by Talquin. Those funds must be sufficient to cover Talquin's and Killearn's "actual direct costs related to the installation of said utilities, including engineering and debt service." Killearn is refunded or credited with one-half of all utility revenue received by Talquin in excess of $5 per month per customer. Those excess customer revenues would be credited first to repay amounts borrowed by Talquin for the installation of utilities to meet debt service. The excess of those revenues would be refunded to Killearn to the extent that Killearn had deposited funds with Talquin Electric for project purposes. The refund to Killearn would include any interest paid by Killearn associated with funding. By the agreement Talquin would borrow funds for the installation of the utilities if it could obtain better rates than were available to Killearn. All the funds borrowed by Talquin are subject to Killearn's guarantee on the repayment of all debt service required and if the aforementioned refunds and credits are insufficient to meet that requirement by Talquin, Killearn agrees to deposit with Talquin the amount of that deficiency which would be counted as a cost to Killearn and subject to some future refund. Killearn had agreed to execute the necessary documents for individual loans if requested to do so by Talquin. The agreement has a duration of 20 years beyond the date of completion of the last utility construction. The agreement allows Talquin to place a sewer service tap fee on lot purchasers in the project area at rates which are normal and competitive. Talquin is to deduct the direct cost of installation related to tap fees with agreement to credit or refund the remainder to Killearn. By the agreement Talquin committed to pay Killearn the cost of any land required by Talquin for sewer treatment facilities. Those purchase costs would be included in the total cost of utilities which required deposits or guarantees from Killearn to Talquin. Nothing in the agreement between Talquin Electric and Killearn spoke to the means by which successor developers would assure that sewers were provided for units developed in the DRI area. The development order in addition to not being subject to recording in the Public Records of Leon County, Florida, based upon its own terms or requirements in law, did not obligate Killearn to advise purchasers of parcels in the DRI area who bought those parcels for development purposes, that the subsequent developer would need to provide sewers in accordance with the development order either through Talquin Electric or an appropriate utility. The failure of the development order to require disclosure is not unexpected given the county's willingness to allow the ADA to serve as the development order. The ADA informs the county of the project features. It is not designed to anticipate development controls, in this instance to set out the process by which the initial developer would alert subsequent developers to the terms of the ADA to include the requirement to provide sewer service. Nonetheless, the permission to develop was granted to Killearn as applicant and to the extent that right to develop was assigned to another developer by conveyance which removed Killearn as the responsible developer, it would be reasonable to expect Killearn to give notice of the existence of the development order and its salient features. The need to provide sewer service as development proceeds is among those features. Transactions and Notice to Subsequent Purchasers What did Killearn tell subsequent purchasers about the requirement to provide sewers? J. T. Williams, Jr., CEO and President of Killearn offered testimony on that subject. Williams identified that he had sold by warranty deed to Holt Robinson the Channel 40 television station property. The notice of violation refers to this property as Ton Realty Partnership. Killearn sold parcels to Dennette Rainey on contracts for deed for areas known as Mallard Bluff and Mallard Point. Parcels between Mallard Point and Mallard Bluff were sold to Perry Bodin on contracts for deed. The sales described occurred between 1979 and 1981. The balance of the project which is in dispute has been developed by Killearn and sewer has been installed in those developed areas that Killearn had not sold or agreed to sell. According to Williams the contracts for deed to Rainey and Bodin included references about central sewer. Unfortunately, copies of the contracts for deed were not presented in the hearing to establish the exact nature of those references and the notice they may have given the purchasers concerning their obligations to arrange for sewer service contemporaneous with development (the building of residences). Williams said that the agreement was to provide sewer at the developer's request, meaning to Rainey and Bodin, pursuant to Killearn's agreement with Talquin Electric. As stated, Talquin Electric has no commitment to provide sewer service to a subsequent developer under the terms of its agreement with Killearn. More importantly the agreement with Killearn requires that the developer provide a substantial deposit before installation of sewer service. It is unclear from the record whether Rainey, Bodin or Robinson understood this. Given the arrangement described at hearing which Williams said that he would make between Talquin Electric and Respondents Kinhega Landing and Kinhega Oaks, as liaison, in which the expectation would be that those two developers would be responsible for funding or deposits to move the work forward, the possibility exists that Rainey, Bodin and Robinson had also been made aware that this funding would be needed to bring about the installation of sewer lines in areas to be developed by those purchasers. By contrast they may have understood Williams' explanation to be that Killearn would arrange for provision of the sewer service in the areas to be developed upon their request without the need for initial funding provided by the subsequent developers. The state of the record does reveal that none of the areas described in the contracts for deed between Killearn and Rainey and Killearn and Bodin have sewer service from a central location. Homes in those areas are served by septic tanks. The property conveyed to Ton Realty Partnership may or may not have sewer service based upon proof in this record. Williams stated that he told his immediate purchasers that there was a DRI on the property and bragged that it would not be necessary for those persons who bought from him to go back through a process of project review. This does not signify that those purchasers were familiar with the contract with Talquin Electric which is spoken to under Footnote 15 to the ADA. In a more general sense, the record does not indicate that the immediate purchasers read the ADA. Again, they would not have been aware of the development order and its terms by resort to the Public Records in Leon County, Florida. In addition to Robinson, Killearn gave warranty deeds to other purchasers of parcels within the DRI. Killearn sold the parcel known as Mallard Bluff to Olin Mannheimer while under contract for deed to Rainey. The warranty deed under those circumstances went directly to Olin Mannheimer as developer. The terms of the warranty deed were not identified in the record nor any explanation made of Mannheimer's awareness of the requirement for sewers if he had an impression of that requirement. Williams established that Rainey developed Mallard Point. As Williams describes, for the property between Mallard Point and Mallard Bluff that had been sold to Perry Bodin in which the parcels known as Kinhega Landing and Kinhega Oaks are found, together with Kinhega Estates and the Kinhega Lodge, title was released per warranty deed as acreage was paid off. Except for the last parcel within the Bodin contract for deed with Killearn, that parcel being associated with Kinhega Landing group of Respondents (Southern Heritage Development, Inc., Seay Enterprises, Inc. and Jimmy Boynton Realty, Inc.), Killearn gave warranty deeds directly to persons who purchased property that had been identified under the contract for deed between Bodin and Killearn. Killearn conveyed the Kinhega Landing parcel to Bodin by warranty deed. The terms of that warranty deed were not identified in the record. Killearn conveyed by warranty deed that property known as Kinhega Oaks. That conveyance was subject to restrictions, reservations, covenants and easements of record, if any. The conveyance to the Kinhega Oaks group of Respondents (Stephen John Stoutamire, Lewis Hill, Sr. and Lewis Hall, Jr.) took place on May 19, 1989. Kinhega Landing, Kinhega Oaks and Other Particulars The Kinhega Landing purchase by the present Respondents was based upon a deposit and receipt contract for sale and purchase between Bodin and his wife and James Jarrett followed by a warranty deed from Bodin and his wife to the Kinhega Landing group. No explanation is made concerning Jarrett's understanding of the need to provide sewers. The warranty deed to the Kinhega Landing group of Respondents was executed December 13, 1989, and refers to restrictions, easements, and reservations and covenants that are of record, if any. As with other conveyances and throughout the history of this project no reference to the development order could be found by a search of the Public Records. Neither does the deposit and receipt contract for sale and purchase identify the existence of the development order for the edification of the Kinhega Landing group. Killearn had no direct dealing with purchasers of property contemplated within the agreement for deed between Killearn and Bodin other than the act of preparing and delivering a warranty deed to the Kinhega Oaks group and others similarly situated who took title directly from Killearn based upon the agreement for deed between Killearn and Bodin. To the extent that the agreement for deed with Bodin may have informed the reader that Killearn had disclosed the nature of the requirement for provision of sewer as set forth in the development order, no indication was given in the record that someone other than Killearn may have then made the Kinhega Oaks and Kinhega Landing groups mindful of that caveat or that Bodin or someone that he was affiliated with otherwise disclosed the need to provide sewers for the parcels to be developed by the Kinhega Oaks and Kinhega Landing groups. Bodin is not named as a Respondent nor was he called as a witness in this hearing to explain his position in these matters. Likewise Rainey, Mannheimer and Jarrett are not parties nor were they called as witnesses. In that a warranty deed was given directly from Killearn to Kinhega Oaks, opportunity was presented by that conveyance for Killearn to have alerted the Kinhega Oaks group concerning the DRI and its terms, even if seen from Williams' viewpoint as principally being a favor to Bodin to avoid tax implications of a transfer from Bodin and thus to the Kinhega Oaks group. Although this opportunity was presented to Killearn to describe the existence of the requirements for sewer set out in the development order when making a direct conveyance to the Kinhega Oaks group, the warranty deed did not reveal that information and no discussion was entered into with Kinhega Oaks concerning any aspects of the purchase beyond the conveyance itself. Williams asserts in his testimony in further explanation of the events that Bodin would be responsible for arranging the furnishing of sewer to the Kinhega Landing group, but that Killearn would voluntarily arrange for that sewer service as a matter of a favor, not a matter of contract. This would be upon provision of the payment of 30 per cent of cost of the installation by Kinhega Landing to Talquin Electric. At hearing Williams offered to make a similar arrangement for the Kinhega Oaks group as Williams described as having been done for Rainey under his contract with Killearn, a contract not presented at hearing. Again, this contemplates that Kinhega Oaks would pay 30 per cent of the total costs and that Killearn would get all rebates that pertained for coverage of interest and carrying costs during the rebate period. Notwithstanding Killearn's offer to make these arrangements with Talquin Electric to provide sewer for the benefit of the subsequent developers, those arrangements have not been made. Nothing in the record establishes or suggests that the Kinhega Oaks group and the Kinhega Landing groups were aware of the existence of the development order and its requirement for installation of sewer contemporaneous with development when they purchased their parcels. Had they understood that requirement was incumbent upon them, they would not have undertaken the purchases and incurred debt obligations which they now are experiencing difficulties meeting, in part due to the possible outcome here which could prohibit development absent the contemporaneous installation of sewers. Petitioner argues that no authority exists to allow septic tanks at individual lot sites as an interim condition prior to sewer lines being made available in the areas undergoing development by Kinhega Oaks and Kinhega Landing. This is contrary to the attitude expressed by the county in granting preliminary plats to the two developers and individual permits for septic tank installation until sewer is made available, if that eventuality occurs. Raymond Richard Yates, Jr. testified. He is President of Southern Heritage Development Inc. and together with Jimmy Boynton Realty, Inc. and Seay Enterprises, Inc. owns the property known as Kinhega Landing. Those individuals became involved with the property through contacts between Yates and Jarrett. As alluded to, Jarrett did not tell Yates that the property was subject to the development order and its requirements for provision of sewer. At the inception of their dealings the Kinhega Landing group intended to substitute for Jarrett and his contract and to purchase the property if plat approval could be gained. The record is not clear about Jarrett's position with Bodin and Killearn beyond the previously described deposit and receipt contract for sale and purchase Bodin to Jarrett. The Kinhega Landing group arranged to have a search made of the Public Records of Leon County to discover any easement, development orders and/or restrictions affecting the property in question effective through December 13, 1989. That report of April 22, 1991, did not reveal the existence of the development order. On November 16, 1989, the Tallahassee-Leon County Planning Commission voted to approve the preliminary plat for Kinhega Landing subject to conditions. This was in accordance with the county ordinance on recording subdivision plats that became effective in 1984. (Other developers in the area of Lake Iamonia within the DRI as described had undertaken development before passage of the ordinance.) Among those conditions was the requirement for mound type septic tank systems in lieu of ordinary septic tank systems where subsurface conditions would require the mounded approach. Another condition required that the Kinhega Estates Home Owners Association's covenants and restrictions would apply. A condition was established that homeowners would be required to hook up to a central sewer system if and when it became available. The Kinhega Landing group paid $240,000 for the land or an amount approximating that cost with a fee of $30,000 paid to Jarrett for the assignment of the contract. The Kinhega Landing group obtained a loan for $425,000 to develop the land. In furtherance of the project roads have been installed, clearing has been done and some holding facilities for stormwater runoff put in place. Other permits for development have been acquired to include environmental permits from the county and the State of Florida, Department of Environmental Regulation. After plat approval and purchase, the Kinhega Landing group first discovered that the property was subject to the development order. In addition to the prohibition against the use of septic tanks contemplated by the notice of violation, the county has told the Kinhega Landing group that they may not proceed with development. At present the property in question, which is 29.71 acres with 44 lots and a unit density of 1.65 units per acre lies dormant. No septic tanks have been installed as this developer had anticipated doing. Yates testified that he is not in a financial position to address the sewer requirements in an instance where deposit money would have to be made available for that activity. His other partners have decided they no longer wish to participate and Yates is in jeopardy with his financing institution. On April 20, 1989, the Tallahassee-Leon County Planning Commission voted to approve the preliminary plat for Kinhega Oaks. That parcel has an acreage of 11.87, with 15 lots of a unit density of 1.4 per acre. The preliminary plat has the same conditions that have been described for Kinhega Landing. Kinhega Oaks is owned by Stephen John Stoutamire, Lewis Hill, Sr. and Lewis Hill, Jr. The property was purchased through a real estate agency known as Rae Roeder Realty in the person of Bob Cole. The Kinhega Oaks group did not deal with Perry Bodin directly or anyone other than the realtor. The Kinhega Oaks group bought the property for purposes of development of single-family residential lots of approximately one-half acre size. Improvements intended to be installed included a county maintained road. They did not intend to install a central sewer system. The project contemplated the use of septic tanks. In furtherance of the project the purchasers paid approximately $100,000 and had site evaluations done on two lots that were in the most sensitive area of the project near Lake Iamonia. An engineering firm was hired to gain that preliminary plat approval. Title work was done. Closing on the property was contingent upon activities by the engineering firm, soil samples and title insurance. For the two lots which were the most sensitive in terms of use of septic tanks, soil studies were done and the necessary approvals were gained for the use of septic tanks. In purchasing the property, the Kinhega Oaks group relied upon the conditions for development which were set out in the preliminary plat, including allowances for septic tanks to be used on an interim basis. If the preliminary plat had not been approved, the Kinhega Oaks group would not have purchased the property, nor would they have purchased the property if they had been aware of the existence of the development order. They would not have developed if the studies related to the use of septic tanks had been adverse. Since the purchase of the property, a road has been built, and water service and underground electric service has been provided. A concrete ditch has also been put in place and sod. Approximately $40,000.00 has been expended on improvements. In pursing the project, necessary permits have been obtained. The closest available central sewer is approximately one mile away. To install the sewer system, it would be necessary to tear up the road and lay the sewer line in the middle and T-off on the sides and re-pave the road. Five lots have been sold in the subdivision. Two houses have been constructed and one is underway. All of those houses have septic tanks. The Kinhega Oaks purchasers became aware of the existence of the development order after making improvements and selling the five lots. The Kinhega Oaks group first became aware of the development order when served with a notice of violation. Under the orders for corrective action and the development order, the Kinhega Oaks group and the Kinhega Landing group are confronted with a requirement to provide sewer service within a year of a final order, if Petitioner's position is sustained. The Kinhega Oaks group understands that limits have been imposed on the installation of septic tanks. Had it realized that it would become necessary to place the sewer lines, it would not have purchased the property. If required to make the corrections that are contemplated by the Petitioner, Stephen Stoutamire on behalf of the Kinhega Oaks group, testified that he would "go broke". The County: Application of The Development Order Martin Patrick Black, the present Chief of Land Use Administration for the county, testified. He has held that position since December, 1989. He concedes that the ADA does not mention septic tanks. The person who was principally responsible for considering the applications for plat approval from Kinhega Landing and Kinhega Oaks is Wade Pitt, a planner for the county. He knew of the existence of the development order from when he was initially employed in 1983. He testified that Mallard Bluff, Mallard Point and Kinhega Estates existed before the subdivision regulations were passed in 1984 and did not need to obtain plat approval as was necessary with Kinhega Landing and Kinhega Oaks. This did not excuse development without provision of sewer service. When he reviewed the subject requests for preliminary plat approval after the ordinance was enacted, he referred to the development order and ADA, in addition to the county subdivision regulations. On the issue of sewage disposal, he concluded that the ADA stated that central sewer would be provided by phases in the DRI; however, provision of central sewer was predicated on availability. Given that central sewer was not available at the time that the plat approval was considered, he decided that septic tanks were an acceptable alternative to the installation of sewer until sanitary sewer became available. In effect, he believed septic tanks were an available and appropriate interim measure until sewer became available. His perceptions led to the above described conditions on wastewater treatment which were placed in the preliminary plat approval for both Kinhega Landing and Kinhega Oaks. His interpretation is erroneous. His position, as adopted by the county in the preliminary plat approvals, is incorrect in a setting in which the requirements announced in the development order/ADA are not fairly debatable. There is no allowance for septic tanks as an interim response, especially not when the contingency in the plat approvals is for provision of sewer only when it becomes available, if at all. This is as contrasted with the absolute requirement of sewer service at the project inception, when development commences, found in the development order. The record is devoid of any statement that someone other than the subsequent developers would make the necessary financial contribution to bring about sewer service in those areas which were not developed by Killearn. It appears unlikely that sewer service will become available in substitution for septic tanks under the present circumstances. To the extent that the applicant in responding to the questionnaire which formed the basis of the application considered alternative methods for wastewater treatment, those alternatives did not include septic tanks. The statement of how Killearn would respond to wastewater treatment did not set forth septic tanks as the means, even as an interim measure. For the county to perceive that the ADA/development order would allow septic tanks as an interim condition is contrary to reason and in contravention of the development order which it issued. More About Covenants and Restrictions On November 29, 1979, certain Declarations of Covenants and Restrictions for that portion of the DRI known as Mallard Point were recorded in the Public Records of Leon County, Florida. They are in substance the same as those associated with Kinhega Estates, Unit I, as recorded on December 21, 1982, and those for Kinhega Lodge recorded on February 23, 1987. All were recorded by Killearn as the developer and signed by J. T. Williams, as President of Killearn. The restrictive covenants by Killearn executed in 1979, 1982 and 1987 call for single-family residential development in an area of the DRI which was approved for condominium development. Kinhega Landing and Kinhega Oaks per the terms of the preliminary plats received by those developers must abide by the Kinhega Estates Declaration of Covenants and Restrictions. Pursuant to the definitional section in that document, the term "improvements" includes sewers. Under Article IX, having to do with the preservation of the natural environment, lakes, and Green Areas at Section 5, the developer, Killearn, reserves the right for itself and successors and assigns to go over and around the ground to erect and maintain and use sewers and for other suitable equipment for conveyance and use of sewers in the Green Areas. Right is reserved to locate pumping stations and treatment plants in the Green Areas; however, the rights which may be exercised by the developer and any licensee of the developer, also referred to as the company, shall not be considered as an obligation of the company to provide or maintain the utility, in this dispute, the sewer service. In Section 9 of Article IX, further mention is made of the idea that the granting of the easement in no way places a burden of affirmative action on the developer, and the developer is not bound to make any of the improvements noted or to extend service of any kind. Article XVIII speaks specifically of sewage disposal where it says: "No individual sewage disposal system shall be permitted on any site unless such system is designed, located and constructed in accordance with the requirements, standards and recommendations of the State of Florida's Department of Pollution Control. Approval of such system as installed shall be obtained from such department or departments." These provisions fail to mandate the requirements for provision of sewer service by the original developer or subsequent developers. They also allow septic tanks in contravention of the development order. Other Departures Given the proposed stipulations in law among the parties in which consideration of the factual significance of those other departures from the terms of the development order is not anticipated, intricate treatment of those matters is not undertaken to examine the significance of these deviations from the development order. It suffices to say that the following improvements: the golf course known as Golden Eagle, the single-family residences in the vicinity of Lake Iamonia in lieu of the condominiums identified in the ADA, a school site under the ADA which has been converted to single-family residences in Golden Eagle Units 1 and 3, and the Television 40 site developed by Ton Realty Partnership in an area approved for a single-family residential development or a school site depart from the terms of the development order. Forgiveness Petitioner has not named individual lot owners who purchased property prior to the notice of violation as Respondents.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is recommended that a Final Order be entered which: Requires Killearn to: comply with the requirements of the stipulation requiring an amendment to the development order incorporating the reduction in density from condominiums to single-family residences in the area bordering Lake Iamonia; the elimination of a school site in an area of residential development; the construction of a golf course and the construction of a television station in an area designated for a school site or alternatively for single-family residential development. provide written notice in all it sells for development by others after the date of the final order that a development order exists and that all new development must have contemporaneous sewer service, and if Killearn intends to broker the contract between Killearn and Talquin Electric as a means of meeting the central sewer requirement the purchaser must be made aware that Talquin Electric must be paid a deposit from the subsequent developer before Talquin Electric will undertake the project. record the development order/ADA and its amendments in the Public Records of Leon County, Florida. Requires the County to: amend the development order pursuant to the stipulation between the county and Killearn described at I.A. refrain from issuing any permits which would allow development in the DRI area not served by a central sewer, excepting those situations set forth in the conclusions of law. In those instances development permits could be issued to successors in interest. In the exceptional cases the permit should provide that the lot owner will be required to connect to a central sewer system when made available. faithfully fulfill the terms of its development order. dismisses the notice of violation against Kinhega Landing, Kinhega Oaks and Ton Realty Partnership. RECOMMENDED this 28th day of August, 1991, in Tallahassee, Florida. CHARLES C. ADAMS, 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 28th day of August, 1991.
