Florida Cities Water Co. v. Board of County Com'rs of Sarasota County
| Decision Date | 30 June 1976 |
| Docket Number | No. 75--1547,75--1547 |
| Parties | FLORIDA CITIES WATER COMPANY, Appellant, v. BOARD OF COUNTY COMMISSIONERS OF SARASOTA COUNTY, Florida, Appellee. |
| Court | Florida District Court of Appeals |
B. Kenneth Gatlin and John W. Costigan of Madigan, Parker, Gatlin, Truett & Swedmark, Tallahassee, for appellant.
Robert L. Hesse of Nelson, Hesse, Cyril & Weber, Sarasota, for appellee.
This case involves the proper setting of a utility company rate base.
Florida Cities Water Company (Florida Cities) operates a water and sewer utility within Sarasota County pursuant to a franchise issued by the Board of County Commissioners. The rates for the utility are set by the Board in accordance with a utility franchise ordinance. In 1973, Florida Cities filed an application with the Board for authorization to increase its rates for water and sewer services. Following public hearings, the rates were increased but not to the extent requested. Florida Cities then petitioned the circuit court for a writ of certiorari to the Board of County Commissioners. The court denied the petition. Florida Cities now seeks a review of the court order upholding the rate order entered by the Board.
Under the ordinance, the Board is supposed to 'fix and determine a rate which allows for reimbursement of operating costs and a fair and reasonable net return on the original cost of the system to the person first dedicating it to public service, which shall not include contributions in aid of construction or customer contributions.' Florida Cities contends that the Board improperly limited its rate base in three particulars, each of which shall be discussed in turn.
Florida Cities originally acquired its water and sewer plant and system by the purchase of stock of existing water and sewer companies. At that time, a firm of consulting engineers made an independent survey for the purpose of appraising the value of the system and of providing a basis for properly classifying the plant according to the National Association of Regulatory Utility Commissioners Uniform System of Accounts. The consulting engineers concluded that the cost of plant in service as shown on the records of the purchased utilities failed to include the capitalization of certain engineering overheads incurred in the construction of the system. While the prior owners failed to carry these overheads as costs of plant in service, there is no doubt that the expenditures were made and that they should have been capitalized as part of the cost. Even the county's own expert witness testified that he felt the engineering charges were reasonable and proper and should be included in the rate base.
On this appeal, the only argument made by the county in support of its position is that the utility, by failing to include the engineering overheads in its rate base in previous years, has acquiesced in this exclusion and cannot now complain. We cannot see how acquiescence can preclude Florida Cities from adding these items to its rate base, since the only parties injured by the failure to include them in previous years are Florida Cities and its predecessor companies. A public utility is entitled to a fair return upon its investment. Keystone Water Company, Inc. v. Bevis, Fla.1973, 278 So.2d 606. Since all of the evidence demonstrates that the engineering overheads were properly includable in the rate base, it was incumbent upon the Board to add these items. See Florida Crown Util. S., Inc. v. Utility Regulatory Bd., Fla.App.1st, 1973, 274 So.2d 597.
The Board declined to include the cost of certain water and sewer facilities in Florida Cities' rate base because they were deemed to be contributions in aid of construction. These particular water and sewer facilities had originally been built by a company in the land developing business and conveyed to the utility companies ultimately purchased by Florida Cities in exchange for stock in those companies. The owners of the land development company were also the owners of the predecessor utility companies, and these were the persons who ultimately sold their stock in the utility companies to Florida Cities. In the contracts for the purchase by Florida Cities of the stock of these utility companies, the sellers were required to specify all advances or contributions in aid of construction made by customers or prospective customers. The cost of the water and sewer facilities in question was not so specified. Nevertheless, the Board construed the cost of these facilities to be contributions in aid of construction and left it out of the rate base. However, the Board did grant some relief by permitting Florida Cities to include within its rate base some additional expenses incurred as a result of the purchase of the stock of the predecessor utilities.
Florida Cities contends that since the water and sewer facilities in dispute were furnished by a corporation owned by the same parties who owned the utility companies in exchange for stock in those companies, the cost of such facilities was equivalent to stockholders' equity which should be included in the rate base. Florida Cities poses the question of whether the Board would have treated the cost of these facilities differently 'if the prior owners had sold themselves stock for cash and then have the utilities pay the same money back for the cost of the plant.'
In recent years, a number of similar disputes have occurred in other jurisdictions. The position taken by the Board in the instant case has been sustained almost without exception. In Killarney Water Co. v. Illinois Commerce Com'n, 1967, 37 Ill.2d 345, 226 N.E.2d 858, the court held that where a land developer transferred a certain portion of the purchase price of each lot to his companion utility company for the purpose of building a water plant, such funds were contributions in aid of construction rather than stockholder investment since it would be unfair to require the consumers to pay rates based upon the value of a facility for which they themselves...
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