82-000538RP Florida Waterworks Association, Southern Gulf Utilities, Et Al. vs. Public Service Commission Status: Closed DOAH Final Order on Friday, April 22, 1983.

Summary: Petition dismissed where petitioners & intervenors failed to demonstrate tht the chllgd proposed rules constitute an invalid exerise of deleg legis auth.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA WATERWORKS ASSOCIATION, and )

its member companies; and SOUTHERN )

GULF UTILITIES, INC., CENTRAL FLORIDA )

UTILITIES, INC.; MEADOWBROOK UTILITY )

SYSTEMS INC.; KINGSLEY SERVICE COMPANY; )

ORTEGA UTILITY COMPANY; OSCEOLA SERVICE )

COMPANY, INC.; LAKE COUNTY UTILITIES, )

INC.; and LONGWOOD UTILITIES, INC., )

)

Petitioner, )

and ) CASE NO. 82- 538RP

)

FLORIDA HOME BUILDERS ASSOCIATION, )

)

Intervenor, )

)

vs. )

)

FLORIDA PUBLIC SERVICE COMMISSION, )

)

Respondent. )

__________________________________________)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D.

Tremor, Hearing Officer with the Division of Administrative Hearings, on

December 15, 16 and 17, 1982, in Tallahassee, Florida. The issue for

determination in this proceeding is whether certain rules relating to service

avail ability policies and charges proposed by the Florida Public Service

Commission constitute invalid exercises of delegated legislative authority.

APPEARANCES

For Petitioners: Ben E. Girtman

Madigan, Parker, Gatlin,

Swedmark & Skelding

Post Office Box 669

Tallahassee, Florida 32302

For Intervenor: Stephen W. Metz

Post Office Box 1259

Tallahassee, Florida 32302

For Respondent: Susan F. Clark

Fletcher Building

101 East Gaines Street

Tallahassee, Florida 32301

INTRODUCTION

Petitioners and intervenor challenged the following proposed rules, or

portions thereof, as constituting invalid exercises of delegated legislative

authority:

a. Rule 25-30.51. Applicability.

b. Rule 25-30.57. Imputation of Contributions-in-aid-of Construction

( CIAC).

c. Rule 25-30.58. Guidelines for designing service availability

policy.

d. Rule 25-30.585. Developer service availability charges.

e. Rule 25-30.515(3). Definitions ( CIAC).

f. Rule 25-30.54(4). Agreements for service, performance under

agreements.

g. Rules 25-30.53 and 25-30.545 which delete prior language relating

to the collection of certain expenses and the recovery of certain costs.

h. The repeal of Rules 25-10.120 through 25-10.144.

In summary form, the challenged proposed rules provide guidelines to water

and sewer utilities for designing service availability policies in terms of

minimum and maximum levels of CIAC. If actual amounts of CIAC are not recorded

or substantiated by the utility, they are to be imputed. The guidelines and

imputation provisions may be waived in cases of unusual hardship or unreasonable

difficulty. The proposed rules become applicable to a utility only when it

files for a change in its service availability policy or charges or when the PSC

initiates a show cause proceeding to require the utility to change its policies

or charges. The proposed rules repeal prior rules relating to service

availability policies.

In support of their position of invalidity, the petitioners presented the

testimony of seven witnesses, each of whom was accepted as an expert witness in

the area stated. These witnesses were Jerry Gregg, rate regulation and

management and operation of water and sewer systems in Florida; Dr. Robert G.

Turner, economics and preparation of economic impact statements and economic

data in support of rules; Dr. Elton Scott, finance and statistics; Allen W.

Potter, operation and management of water and sewer systems in Florida; Ray O.

Avery, financial aspects of management and construction of water and sewer

utility systems; Munipali Sambamurthi, water and sewer capital expenditure

programs and management of water and sewer systems; and Phillip Heil, management

and operation of water and sewer utilities in Florida. Petitioners' Exhibits 1

through 10 were received into evidence.

The intervenor Florida Home Builders Association adopted the testimony

presented by the petitioners and also presented the testimony of Myer O.

Soforenko, a builder and developer of residential subdivisions and water and

sewer companies. Exhibits 1 through 3 were received on behalf of the

intervenor.

The respondent Public Service Commission ( PSC) presented the testimony of

the following five witnesses, each of whom was accepted as an expert witness in

the field following his/her name: Martin R. Crowson, utility financing and

accounting; Marshall W. Willis, accounting and financial aspects in water and

sewer matters; Bill Lowe, water and sewer accounting and finance; Daryl Nall,

economist; and John D. Williams, rate design and service availability policies

and charges. Respondent's Exhibits 1 through 9 were received into evidence.

Also received into evidence were Joint Exhibits 1 through 12.

Subsequent to the hearing, counsel for all parties filed proposed findings

of fact and proposed conclusions of law, along with memoranda of law. To the

extent that the parties' proposed findings of fact are not incorporated in this

Order, they are rejected as either not being supported by competent substantial

evidence adduced at the hearing, irrelevant or immaterial to the issues in

dispute or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the

hearing, as well as the stipulation of facts contained in the parties'

Prehearing Stipulation, the following relevant facts are found:

STANDING

1. The Florida Waterworks Association ( FWA) is comprised of fifty water

and/or sewer companies, forty-four of which are regulated by the PSC. The

subject matter of the challenged rules is within the FWA's general scope of

interest and activity on behalf of its members. The eight named petitioners,

five of which are FWA members, are all regulated by the PSC. Several of the

utility members of the FWA have applications pending before the PSC for changes

in rates, service availability and the issuance of new certificates. Statistics

compiled from Annual Reports filed with the PSC by members of the FWA and the

three non-member petitioners reveal that eight utilities have CIAC in levels

exceeding 75 percent and thirty-one have less than 55 percent CIAC, through it

was not established whether these companies were operating at designed capacity.

2. The intervenor Florida Home Builders Association ( FHBA) is a statewide

organization representing the building industry in Florida. Some 54 percent of

residential building in Florida is performed by members of the FHBA. Numerous

members of local homebuilder associations are serviced by water and sewer

utilities regulated by the PSC, and many members own and operate water and sewer

companies regulated by the PSC.

3. The PSC staff presently reviews the service availability policy and

charges for compliance with maximum and minimum CIAC levels in applications for

rate increases and for original certificates. If a utility is found to be not

in compliance with the minimum and maximum guidelines and declines to

voluntarily come within the guidelines, the matter may be referred to the

Commissioners for review. The maximum and minimum CIAC requirements have been

applied by the PSC to utilities which have not specifically requested a change

in service availability charges or policies.

CIAC--Definition (Proposed Rule 25-30.513(3))

(4) CIAC is defined by statute as including

any amount or item of money, services, or

property received by a utility, from any

person or governmental agency, any portion

of which is provided at no cost to the utility,

which represents a donation or contribution to

the capital of the utility, and which is utilized

to offset the acquisition, improvement, or

construction costs of the utility property,

facilities, or equipment used to provide utility

services to the public. Section 367.081(2)

Florida Statutes.

4. The challenged proposed rule utilizes the same definition, but

substitutes the words "addition or transfer" for "donation or contribution."

Proposed Rule 25-30.513(3).

5. Within the water and sewer industry, the term "addition" generally

means an increase in plant and a "transfer" can be a transfer of property for

which a utility itself might pay. On the other hand, the words "contribution or

donation" generally mean property, money or services with no liability on the

utility's part.

6. By substituting the words "addition or transfer" for "donation or

contribution," it was the intention of the PSC to clarify the latter two words

and not to change the statutory definition of CIAC. Inasmuch as the words

"donate or contribute" have a connotation of being a gift or something

voluntarily given to a charity, the words "addition or transfer" to the capital

of a utility, when qualified by the prior words "at no cost to the utility" more

clearly characterize CIAC. CIAC is given to obtain service. It is not

necessarily voluntarily given.

GUIDELINES (Proposed Rule 25-30.58)

7. The challenged proposed guideline rule (Rule 25-30.58) sets a limit on

the amount of CIAC in the amount of 75 percent of the total original cost, net

of accumulated depreciation, of the utility's facilities and plant when they are

at their designed capacity. While a specific minimum percentage figure for CIAC

is not stated in the proposed rule, the minimum amount of CIAC is not to be less

than the percentage of the facilities and plant represented by the water

transmission and distribution lines and the sewage collection systems. In other

words, the percentage of the utility plant represented by the water transmission

and distribution system and/or the sewage collection system is the guideline for

the minimum percentage of CIAC under the proposed rules. For the average

Florida water and sewer company, this minimum CIAC level will be approximately

55 percent for water systems and approximately 65 percent for sewer systems. A

utility may be exempt by the PSC from compliance with these minimum and maximum

guidelines in cases of "unusual hardship or unreasonable difficulty" and where

it is shown that it is not in the best interests of the customers to require

compliance.

8. A utility may earn a fair rate of return only on its own investment.

Since CIAC is contributed or donated, it is excluded from the rate base of a

utility. The utility is not entitled to earn a return on the value of its CIAC,

nor is a regulated utility entitled to collect a depreciation expense on CIAC.

9. CIAC is virtually synonymous with service availability charges. The

acceptance of CIAC by a utility is beneficial to both the utility and the

customer. It is a cost-free source of capital for the utility and, because it

is not included as a part of the utility's rate base, it reduces the long-run

monthly or periodic cost of utility service to the customer.

10. Excessive amounts of CIAC can be detrimental to the operation of a

utility in two respects. First, since CIAC is not included in rate base, the

utility may not earn a return on the amount it receives from CIAC. Thus, if the

utility faces an increase in operating and maintenance expenses, and it is

heavily financed by CIAC, it may find itself in a cash-flow crisis with no

income to cover increased expenses. The absence of a rate of return on rate

base leaves the utility more vulnerable to the negative effects of operating

attrition. Such a cash-flow problem could affect the utility's ability to

provide adequate service and could cause abandonment of the plant. A second

negative effect of very high levels of CIAC, and consequently very low levels of

owner investment, is that the owners, with no opportunity to earn a return on

the system, may lose their incentive and commitment to maintain and operate the

system in a quality, cost-efficient manner.

11. The appropriate maximum level of CIAC, and the consequent appropriate

level of owner investment, was the subject of a study and recommendation made by

Theodore Barry and Associates, a consulting firm hired by the PSC. Based upon

discussions with members of the industry, a review of PSC statistics and

records, and a simulation of the effects of a 10 percent increase in

unreimbursed costs on a utility, it was recommended that a minimum owner

investment level of 20 percent to 25 percent would be appropriate to maintain

quality of service and to alleviate the effects of operating attrition.

12. While there is evidence that very high levels of CIAC may have

contributed to the abandonment of two small utilities in Florida, there is no

concrete statistical data from existing utilities which conclusively illustrates

that a high level of CIAC, by itself, adversely affects owner incentive or

quality of service or which supports the direct relationship between higher

invested capital and greater efficiency.

13. There are other methods to prevent operating attrition from

diminishing funds necessary for the operation of a water and/or sewer utility.

Other means of increasing the cash flow of a utility include indexing

adjustments, provisions for the "pass through" of increases in taxes and

purchased electricity, water or sewer services, the allowance of depreciation on

CIAC and the allowance of a management fee on CIAC.

14. As noted above, the minimum level of CIAC established as a guideline

in the proposed rule is not a stated percentage figure but is, instead, the

amount of plant represented by the utility's transmission, distribution and/or

collection system. The rationale for a minimum level of CIAC based upon the

distribution or collection system is that these systems have a longer useful

life than the treatment facilities and that the customer or developer should

bear the costs of these systems since they primarily determine the location and

consequent costs of the distribution and collection lines.

15. Numerous factors affect the decision as to the appropriate capital

structure and management of water and sewer companies in Florida. These include

the geology of the area, the size of the plant, the size and configuration of

the service area, usage patterns, population densities, the degree of applicable

environmental or governmental regulation, operation and maintenance expenses and

the authorized rate of return on investment. Also, levels of investment and

CIAC may vary over the life cycle of a single water or sewer utility. For these

reasons, a specified numerical CIAC percentage requirement for every regulated

water and sewer utility would be unreasonable, and a range is preferable.

16. If every utility were required, without exception, to maintain a

maximum level of CIAC in the amount of 75 percent and a minimum level in the

amount of 55 percent (water) or 65 percent (sewer), various problems could be

encountered. For example, there may be occasions where the minimum required

level of CIAC exceeds the authorized maximum level. This could occur if the

utility were connected to a regional facility and a portion of its plant is no

longer in use. Utilities which have more than 75 percent of their total capital

involved in water distribution and sewer collection lines do exist. Another

problem could result where the utility already has 25 percent owner investment

and additional funds are needed to replace or repair contributed property. If

the owner could obtain borrowed money, he would not be permitted to earn a

return on this money. Also, if a utility system is 100 percent "built out," its

CIAC level will gradually diminish and, if there are no more customers, a small

utility would have no means of increasing its level of CIAC.

17. As noted above, the proposed rule which sets guidelines for minimum

and maximum CIAC levels also provides an exemption for utilities where it is

illustrated that compliance would introduce an unusual hardship or unreasonable

difficulty and that compliance would not be in the best interest of the

customers of the utility.

IMPUTATION (Rule 25-30.57)

18. Challenged proposed rule 25-30.57 provides for the imputation of CIAC

in cases where the actual amount of CIAC has not been recorded on the utility's

books and the utility does not submit competent substantial evidence as to the

amount of CIAC it has received. In such cases, the amount imputed will be the

amount of plant costs charged to the cost of land sales for tax purposes, if

available, or the proportion of the cost of the facilities and plant

attributable to the water transmission and distribution system and the sewage

collection system. Again, the proposed rule provides for the waiver of

imputation where there is unusual hardship or unreasonable difficulty and where

such imputation would not be in the best interest of the utility's customers.

19. Water and sewer utilities regulated by the PSC are required to keep

records according to the NARUC Uniform Systems of Accounts. The NARUC system

requires the recording of CIAC, and records kept according to that system will

satisfy the

requirements of the proposed rule. Also, almost all utilities have records

which establish rate base. Since rate base is investment, the remaining plant

and facilities would be CIAC. Almost all regulated water and sewer utilities in

Florida accept CIAC.

20. If CIAC were imputed to a utility which previously claimed little or

no amounts of CIAC, its rate base and revenues would be reduced. Likewise, if

CIAC were the sole source of plant acquisition, the rule would impute investment

where there was none.

APPLICABILITY (Rule 25-30.51)

21. The challenged proposed rules become applicable to a utility when the

utility files for a change in its service availability policy or charges or when

the PSC initiates a show cause proceeding to require the utility to change such

policy or charges. The rules are not applicable to policies implemented or

contracts entered into prior to the effective date of the rules.

22. All regulated water and sewer utilities are presently required to have

their rates, charges and service availability policies on file with the PSC.

Absent an approved change in the tariff on file with the PSC, a utility is

required to follow what is outlined in the tariff on file.

REPEAL OF PRIOR RULES AND DELETION OF CERTAIN

PROVISIONS ( PSC Order No. 11006 and Rule

25-30.53(3)(b) and 25-30.545(3)(b)

23. The PSC's repeal of prior existing Rules 25-10.120 through 25-10.144,

in connection with the wording of the applicability section of the challenged

proposed rules, has the effect of leaving those utilities which have not filed

for a change in their service availability charges or policy or which have not

had a show cause proceeding instituted against them with no rules relating to

service availability charges and conditions.

24. The original draft of the proposed rules authorized the collection of

costs of compliance with an ordinance, regulation or other specification of a

public authority and the collection of costs of relocating facilities after a

determination of final grades of a right-of-way. These provisions were deleted

in the final revision to the proposed rules. (Rule 25-30.53 (3)(b) and (e) and

Rule 25-30.545(3)(b)) The deletion of these provisions does not necessarily

preclude recovery of such costs. Specific areas of recovery were not enumerated

in the proposed rules because such an enumeration would carry the inference that

other costs associated with compliance with ordinances or regulations, extension

of services or relocations of plant could not be collected. To be consistent

with the remaining proposed rules, it must be determined whether the customer or

the utility bore certain costs and the ratios of investment and CIAC to total

plant must be considered. The cause of the cost does not determine the party

which initially pays the cost.

COMPLAINTS AND DEVELOPER'S

AGREEMENTS (Rules 25-30.54(4) and 25-30.585)

25. Proposed Rule 25-30.54(4) authorizes an applicant for extension of

service to file a complaint with the PSC if it believes that the charges

required by a utility are unreasonable. No competent substantial evidence was

offered by the petitioners or intervenor in support of the claim in their

petition that this proposed rule is discriminatory in favor of developers or an

invalid exercise of delegated legislative authority. The PSC is statutorily

charged with the responsibility to investigate agreements or proposals for

conditions and charges to be made by a utility for service availability.

Section 367.101(1), Florida Statutes.

26. As presently proposed, Rule 25-30.585 makes reference to a Rule 25-

30.11. No such rule exists. Prior to the renumbering, the rule containing the

guidelines for designing service availability policy (Rule 25-30.50) was

numbered 25-30.11. Petitioners' complaints regarding the vagueness of the terms

"basic principles" and "potential impact" of Rule 25-30.585 were not supported

by competent substantial evidence.

ECONOMIC IMPACT STATEMENT

27. The Economic Impact Statement ( EIS), as revised, prepared for the

challenged proposed rules notes that the

implementation of the proposed rules will involve the cost of reviewing

information to determine compliance with the new CIAC guidelines and the cost of

show cause proceedings requiring new service availability policies of those

companies not compliance. Inasmuch as the PSC presently has the responsibility

of reviewing service availability policies and charges, it is anticipated that

existing resources of the PSC will be sufficient to implement the proposed

rules.

28. The EIS notes the economic effect upon the water and sewer industry of

the proposed rules relating to applicability of the rules and the "grandfather"

provision, the reporting of original cost information, the limitations on the

minimum and maximum CIAC levels, the imputation of CIAC and further notes that

the impact upon the industry will be mitigated by the waiver and/or exemption

provisions in cases of undue hardship. The economic effect of the proposed

rules upon potential new entrants into the industry are also recognized. The

EIS makes reference to the economic costs and benefits of the proposed rules'

CIAC requirements upon existing customers and new customers. While specific

dollar figures are not provided in the EIS, the Statement notes the overall

economic effects of the minimum and maximum CIAC guidelines upon the industry

and customers of water and sewer utilities.

29. The proposed rules' impact on competition and employment is addressed

in the EIS. It is estimated that, inasmuch as entry into the industry would be

restricted to those companies which can finance at least 25 percent of the

required investment, competition in the industry will be decreased. Because of

the restrictions upon wells and/or septic tanks in some areas, it is noted that

housing development in those areas could be limited if no water and sewer

company desires to enter the market. It is further concluded that the smaller

utilities may be more financially stable as a result of the rules. The EIS

notes that the proposed rules would have "no apparent direct effect on

employment."

30. In preparing the EIS, the PSC relied upon data collected as a part of

the Theodore Barry & Associates ( TB&A) study of the water and sewer industry in

Florida and additional data collected from annual reports on file with the PSC.

In its statement of methodology, it was recognized that the data utilized was

limited in scope and duration.

31. The TB&A study does contain several statistical errors and the

statistics included therein do not conclusively establish a numerical

relationship between the level of CIAC and the viability or efficiency of a

utility. Other reasons for problems within the water and sewer industry are

noted in the study. The TB&A study, while referenced in the EIS, is not a part

of the EIS and is not the EIS.

32. It is logical to assume that if housing development is limited in

certain areas, competition and costs for existing housing may be increased and

employment in the housing industry may be affected. These effects are more in

the nature of "ripple," rather than "direct," effects of the proposed rules.

33. No evidence was presented by the petitioners or intervenor to

establish that the economic impact upon the PSC or upon persons directly

affected by the proposed rules was different than that estimated by the EIS,

that the petitioners or intervenor were prejudiced by any alleged omission or

inadequacy in the Statement or that the PSC did not fully consider the economic

factors and impact of the proposed rules.

CONCLUSIONS OF LAW

32. The evidence adduced at the hearing clearly establishes that the

petitioners, both individually and as an organization, and the intervenor are

substantially affected by the challenged proposed rules. These rules affect the

capital structure, management, revenues and service availability charges and

policies of regulated water and sewer companies. While the rules purport to be

inapplicable to service availability policies implemented and contracts entered

into prior to the effective date of the proposed rules, any requested change in

those policies or charges will trigger an application of the new rules to a

utility. It has been demonstrated that several of the petitioners presently

have applications pending before the PSC and it is not unreasonable to assume

that other applications will follow. Also, the new rules encompass the repeal

of prior rules which were applicable to regulated utilities and petitioners and

intervenor have standing to challenge the repeal of those rules. The proposed

rules are thus potentially applicable to every regulated water and sewer company

in Florida. The individual regulated petitioners, the FWA and the intervenor

(whose members either directly own water and sewer utilities or enter into

service availability contracts with water and sewer companies) have standing to

challenge the proposed rules' validity. The manner in which the policies

embodied in the challenged rules are currently being applied by the PSC is

further evidence of the standing of regulated utilities and those with whom such

utilities do business to challenge the proposed rules.

33. The petitioners and intervenor have challenged the proposed rules on

procedural, substantive and constitutional grounds. It is alleged that the

provisions of the rules which set minimum and maximum guidelines for CIAC levels

and impute CIAC are confiscatory in that they remove an owner's right to invest

and earn a return on investment, remove a utility's right to determine the most

advantageous financing method and mixture of capital which will best serve its

customers and its owners, and require an owner to manage assets upon which he

cannot earn a return. It is further argued that the applicability portion of

the rules, as well as the exemption and waiver provisions of the rules, are

vague, and that the provisions of the rules relating to CIAC levels are

unreasonable, arbitrary and capricious inasmuch as there is no established

correlation between quality and efficiency of service and the level of CIAC.

Petitioners and intervenor contend that the PSC lacks statutory authority to

"change" the statutory definition of CIAC and to set maximum and minimum

percentages for the level of CIAC which is maintained by a regulated utility.

The repeal of existing rules relating to agreements with developers and the

deletion of rules authorizing the recovery of certain costs is alleged to be

invalid and unconstitutional. Finally, it is argued that the EIS is inadequate

and does not comport with the requirements of Section 120.54(2), Florida

Statutes.

34. One who challenges proposed agency rules on substantive grounds has

the burden to prove by a preponderance of the evidence that the agency is

exceeding its statutory authority, that the requirements of the rule are not

appropriate to the ends specified by statute, that the requirements of the rules

are not reasonably related to the purpose of the enabling legislation or that

the provisions of the rule are arbitrary (not supported by facts or logic) or

capricious (action taken without thought or reason) Agrico Chemical Co. v.

State, etc., 365 So.2d 757 (Fla. 1st DCA, 1978)

35. The PSC has the statutory authority to enact rules setting standards

for service availability charges and conditions and it is required, by statute,

to set just and reasonable conditions for service availability. Section

367.101(1), Florida Statutes. The same statutory provision requires the PSC,

upon request or its own motion, to investigate agreements or proposals for

charges and conditions to be made by a utility for service availability. A

service availability charge is virtually synonymous with a contribution-in-aid-

of-construction inasmuch as it is provided to a utility at no cost to the

utility and is utilized to offset the acquisition, improvement or construction

costs of utility services to the public. Thus, the PSC has statutory authority

to enact rules, standards and conditions for the receipt of CIAC by a utility.

36. The definition of CIAC contained in proposed Rule 25-30.513 (3) does

not change or enlarge the statutory definition contained in Section 367.081(2),

Florida Statutes. An agency has the authority to interpret the statutes which

it administers. The substitution of the words "addition or transfer" for the

words "contribution or donation," when limited by the words "provided at no cost

to the utility" should pose no problem or source of confusion to members of the

waters and sewer industry, and such substitution of words does not change the

statutory definition of CIAC.

37. The prime purpose for the enactment of rules setting forth guidelines

for CIAC levels is to lend greater stability to the water and sewer industry in

Florida and to improve the quality and efficiency of water and sewer service.

In the promulgation of standards and "just and reasonable charges and

conditions," Section 367.101(1), Florida Statutes, an agency's discretion must

be reasoned and based upon competent and substantial evidence. Agrico Chemical

Co. v. State, etc., supra.

38. The evidence presented at the hearing establishes that regulated water

and sewer utilities in Florida, particularly the smaller companies, experience

difficulties with meeting increased expenses of operation. These problems

result from a variety of causes, including the level of CIAC maintained by a

utility. The fact that the PSC has chosen, in the exercise of its discretion,

to confront one source of the difficulty as opposed to other sources does not,

in itself, indicate arbitrary and capricious action. While other methods of

providing greater cash flow to a utility may be available, the petitioners and

intervenor have not adequately demonstrated that the CIAC level guidelines

proposed by the PSC are without any rational basis.

39. It has been established that a certain level of CIAC is beneficial to

both the utility and the customer. The determination of an appropriate level is

a matter within the discretion of the PSC. It has not been demonstrated that

the levels proposed are not within reason or are not supported by facts or

logic. There was evidence that a 10 percent increase in unreimbursed costs

would consume the net income component attributable to a return on rate base for

a utility with a small amount of owner investment. Given the rate of inflation

during recent years, it is not unreasonable to utilize a 10 percent figure when

considering cost increases. It is also reasonable to assume that a utility

owner who has no prospect of earning any return on his investment or efforts

will not have the same incentive as an owner who has a 25 percent investment to

operate the utility in an efficient manner. Requiring utility owners to invest

25 percent in their company has not been demonstrated to be an unreasonable,

arbitrary or capricious requirement.

40. Turning now to the minimum CIAC guideline, it was established, as

pointed out above, that some level of CIAC is desirable. To require the

customer (or developer) to pay for the distribution or collection system is not

unreasonable, and to utilize the percentage in which those systems relate to

total plant as the minimum allowable figure is supported by logic and reason.

It should also be noted that no evidence was offered by the challengers to the

proposed rules that another figure or method of computing appropriate levels of

CIAC would be more rational or reasonable than the guidelines set forth in the

proposed rules.

41. The proposed imputation rule (Rule 25-30.57) simply addresses the

issue of the amount of plant which will be attributed to CIAC when the utility

fails to maintain adequate records or otherwise support its actual amount of

CIAC by competent substantial evidence. A regulated utility has always been

required to substantiate the amount it claims as rate base, upon which it is

entitled to earn a fair rate of return. In doing so, it must exclude CIAC and

therefore must determine the amount of CIAC. Regulated utilities are also

required to maintain records in accordance with the NARUC system, which requires

the recording of CIAC. Thus, the imputation rule is simply a rule of practice

which sets forth the PSC's method of determining a utility's CIAC amount when

that utility has failed to maintain required records. The utilization of tax

records would be indicative of whether the customer or the utility paid for a

certain portion of the plant. Absent tax records, it is reasonable to assume

that the utility, to which the proposed guideline rule is applicable, followed

those guidelines in establishing its service availability policy and charges.

The imputation rule is thus supported by logic and reason. The risk of having

CIAC imputed to a utility comes not from the challenged rule, but from a

utility's failure to maintain adequate records.

42. Much of the petitioners' evidence related to situations where

compliance with guidelines or the prospect of imputation would present a

hardship upon the utility. The rules themselves provide for a waiver on

imputation and an exemption from the guidelines in cases of undue hardship or

unreasonable difficulty and when the application of these rules would not be in

the best interest of the customer. While the terms "undue hardship,"

"unreasonable difficulty" and "best interest of the customers" have not been

defined in the challenged rule, it is clear that incipient agency policy may be

developed on a case-by-case basis which is subject to the procedural safeguards

afforded by Chapter 120, Florida Statutes. The very inclusion of waiver and

exemption provisions in the proposed rules is evidence that the PSC recognizes

that the guidelines and imputation rules may not be arbitrarily applied to all

regulated utilities.

43. With regard to both the repealed rules and the deletions from the

original proposed rules, petitioners and intervenor have again failed to

demonstrate that the PSC exceeded its statutory authority or otherwise invalidly

exercised its delegated legislative authority. A person regulated by an agency

has no vested right to the continued existence of any particular rule. Absent

specific rules on a particular subject, a regulated utility continues to have

the benefit of statutory guidance, its approved tariffs on file with the PSC and

the opportunity to seek redress from agency action in the process provided by

the Administrative Procedure Act.

44. The applicability section of the proposed rules (Rule 25-30.51)

emphasizes the intent of the PSC to apply the new guidelines only to new or

changed service availability policies or charges. While the wording of the

proposed rule is not precise as to those instances when the PSC may issue a show

cause proceeding to require the utility to change its service availability

policy or charges, the last sentence of the applicability rule makes it clear

that the rule is to be applied only prospectively. Each regulated utility has,

or will have, a service availability policy in force at the time the new rules

become effective, and the new rules are not applicable to implemented policies

or existing contracts. Further, it should be noted that the guideline rule

itself (Rule 25-30.58) refers to guidelines for "designing service availability

policy." If a policy or contract has already been "designed" and approved by

the PSC prior to enactment of the proposed rules, the "grandfather" provision of

the proposed rule should prevent application of the rules to the previously

implemented policy and executed contracts. Any application of the rules in a

manner not authorized by the rules can be corrected through administrative

proceedings.

45. Finally petitioners and intervenor have failed to sufficiently

demonstrate that the Economic Impact Statement prepared by the PSC for the

proposed rules was inadequate, inaccurate, misleading or that the rules had a

direct impact different than that set forth in the EIS. No prejudice by any

alleged omission in the Statement has been illustrated.

46. The undersigned has fully considered the allegations of vagueness of

certain terms and confiscation of property and finds them to be without merit.

The proposed rules do not result in the automatic removal of owner investment.

The only method provided by the rules for utilities to change their level of

CIAC is through the collection or non-collection of service availability

charges. If this method results in an undue hard-ship or unreasonable

difficulty and compliance with the guide-lines would not be in the customer's

best interest, the rules authorize a waiver and/or exemption. Again, the

procedural remedies guaranteed by Chapter 120, Florida Statutes, are sufficient

to protect a utility from unconstitutional action on the part of the PSC.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, it

is concluded that the petitioners and intervenor have failed to demonstrate that

the challenged proposed rules constitute an invalid exercise of delegated

legislative authority. A correction should, however, be made to proposed Rule

20-30.585 which incorrectly makes reference to Rule 25-30.11.

Accordingly, it is ORDERED that the petitions challenging the validity of

the PSC's proposed rules 24-30.51, 25-30.57, 25-30.58, 25-30.585, 25-30.515(3),

25-30.54(4), 25-30.53, 25-30.545, and the PSC's repeal of existing Rules 25-

10.120 through 25-10.144 are DISMISSED.

ORDERED and ENTERED this 22nd day of April, 1983, in Tallahassee, Florida.

___________________________________

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings

The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 22nd DAY OF APRIL, 1983.

COPIES FURNISHED:

Ben E. Girtman, Esquire

Madigan, Parker, Gatlin,

Swedmark & Skelding

Post Office Box 669

Tallahassee, Florida 32302

Steven W. Metz, Esquire

Post Office Box 1259

Tallahassee, Florida 32302

Susan F. Clark, Esquire

Fletcher Building

101 East Gaines Street

Tallahassee, Florida 32301

Steve Tribble, Clerk

Florida Public Service Commission

101 East Gaines Street

Tallahassee, Florida 32301

Liz Cloud, Bureau Chief

Administrative Code Section

Department of State

1802 The Capitol

Tallahassee, Florida 32301

Carroll Webb

Executive Director

Administrative Procedure Committee

120 Holland Building

Tallahassee, Florida 32301