Palm Coast Utility Corp. v. State

Decision Date10 May 1999
Docket Number1,971720
Parties24 Fla. L. Weekly D1182, Palm Coast Utility Corp. v. State, Florida Public Service Com'n, (Fla.App. 1 Dist. 1999) NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL. PALM COAST UTILITY CORPORATION, Appellant, v. STATE of Florida, FLORIDA PUBLIC SERVICE COMMISSION, Appellee. First District
CourtFlorida District Court of Appeals

An appeal from an order of the Public Service Commission.

Arthur J. England, Jr. of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, for Appellant.

B. Kenneth Gatlin and Wayne L. Schiefelbein of Gatlin, Schiefelbein & Cowdery, Tallahassee, for Appellant.

Robert D. Vandiver, General Counsel; Christiana T. Moore, Associate General Counsel, Tallahassee, for Appellee.

Albert J. Hadeed, County Attorney and Mary Elizabeth Kuenzel, Assistant County Attorney, Bunnell for Flagler County.

Jack Shreve, Public Counsel and Stephen C. Reilly, Office of Public Counsel, Tallahassee, for Citizens of The State of Florida.

Patrick K. Wiggins of Wiggins & Villacorta, P.A., Tallahassee, for Amicus Curiae.

PER CURIAM.

Palm Coast Utility Company (Palm Coast), which provides water and wastewater service to customers in Flagler County, appeals a final order of the Florida Public Service Commission which granted Palm Coast a rate increase in an amount substantially less than requested by the utility. Palm Coast raises seven issues on appeal. For the reasons that follow, we reverse in part and affirm in part.

Used and Useful Property

Palm Coast argues that the Commission erred in determining various components of the utility's rate base. A regulated utility is entitled to an opportunity to earn a fair rate of return on its "rate base"--the capital prudently invested in the utility's facilities that "are used and useful in the public service." § 367.081(2)(a), Fla. Stat. (1995); Citizens v. Hawkins, 356 So.2d 254, 256 (Fla.1978). For each component of the utility's water and waste water system, the Commission is required to determine that portion which is "used and useful."

Lot count methodology. Palm Coast first contends that the Commission erred in utilizing a so-called "lot count" methodology in determining that portion of the Palm Coast's water transmission and distribution system and its wastewater gravity mains which are deemed used and useful in the public service. § 367.081(2)(a), Fla. Stat. (1995). The Commission acknowledges that the lot count methodology represented a departure from the methodology previously employed, in which used and useful plant was determined based upon the number of equivalent residential connections.

We recognize that the Commission is to be accorded "considerable discretion and latitude in the rate-fixing process," Gulf Power Co. v. Bevis, 296 So.2d 482, 487 (Fla.1974), and its determination of the applicable "used and useful" considerations should be given great weight since such considerations are infused with policy considerations for which the Commission has special responsibility and expertise. Citizens v. Florida Pub. Serv. /Comm'n, 488 So.2d 112 (Fla. 1st DCA 1986). The Commission's discretion, however, is limited by chapter 120, Florida Statutes (Supp.1996). As we observed in Southern States Utilities v. Florida Pub. Serv. Comm'n, 714 So.2d 1046, 1057 (Fla. 1st DCA 1998),

For the most part, the Legislature has committed used and useful calculations to the expertise and discretion of the [Public Service Commission].... It is not for the reviewing court to dictate methodology or other policy with the PSC's "statutorily delimited sphere." As regards used and useful calculations, our concern thus far has been only that the PSC comply with the procedural requirements of the Administrative Procedure Act, chapter 120, Florida Statutes (1997), in making changes in policies governing these calculations. The PSC is, after all, subject to the Act.

(Citations omitted).

We note that when the order under review was entered, the Commission did not have the benefit of our decisions in Florida Cities Water Co. v. State, Pub. Serv. Comm'n, 705 So.2d 620 (Fla. 1st DCA 1998), and Southern States. We stated in Florida Cities Water, and reaffirmed in Southern States, that, under chapter 120, Florida Statutes (Supp.1996), a shift in rate-making policy must be supported by expert testimony, documentary evidence or other evidence appropriate to the nature of the issue involved. See also Manasota-88, Inc. v. Gardinier, Inc., 481 So.2d 948, 950 (Fla. 1st DCA 1986). As was the case in Southern States and Florida Cities Water, we reverse and remand with directions that the Commission provide explanation, with record support, for the change in methodology in determining the used and useful portion of Palm Coast's water transmission and distribution mains and its wastewater gravity mains are used and useful in the public service. The record before us lacks an adequate basis for the change in methodology.

In so holding, however, we reject Palm Coast's suggestion that it was denied notice that the lot count methodology was an issue below. The prehearing order indicates that the staffs of both the Commission and the Office of the Public Counsel had proposed using the lot count methodology. This proposal was also explored in prehearing exhibits and pre-filed testimony. Thus, Palm Coast was on clear notice that this methodology would be considered by the Commission.

Fire Flow Allowance. Palm Coast also argues that the Commission erred when, in determining used and useful plant, it eliminated a fire flow allowance for the wells and water treatment plant. We agree. When Palm Coast's rates were previously set by the Commission, an allowance for fire flow was included for the wells, water treatment, and storage facilities. Despite this previously granted allowance for the source of supply, the Commission refused to continue such an allowance because, "from an engineering design perspective" the allowance was not cost effective. Again, such a decision constituted a departure by the Commission from its previous treatment of Palm Coast, and such a departure is not justified on the record. Southern States, supra. Accordingly, we reverse and remand for further proceedings on this issue.

Annual Average Daily Flow. Similarly, Palm Coast argues that the Commission erred when it used an annual average daily flow, rather than a three-month average daily flow measurement, when calculating the used and useful portion of the wastewater treatment plant. The use...

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