Rolling Oaks Utilities, Inc. v. Florida Public Service Com'n, 87-1070

• Decision Date: 13 July 1988
• Docket Number: No. 87-1070,87-1070
• Citation: 13 Fla. L. Weekly 1629,533 So.2d 770
• Parties: 13 Fla. L. Weekly 1629, 13 Fla. L. Weekly 2350 ROLLING OAKS UTILITIES, INC., Appellant, v. FLORIDA PUBLIC SERVICE COMMISSION, Appellee.
• Court: Florida District Court of Appeals

Page 770

533 So.2d 770

13 Fla. L. Weekly 1629, 13 Fla. L. Weekly 2350

ROLLING OAKS UTILITIES, INC., Appellant, v. FLORIDA PUBLIC SERVICE COMMISSION, Appellee.

No. 87-1070.

District Court of Appeal of Florida,

First District.

July 13, 1988.

On Motion for Rehearing--Clarifying

Opinion Oct. 19, 1988.

R.M.C. Rose and John L. Wharton of Rose, Sundstrom & Bentley, Tallahassee, for appellant.

William S. Bilenky, General Counsel, and Debra Swim, Staff Attorney, Florida Public Service Com'n, Tallahassee, for appellee.

Jack Shreve, Public Counsel, and Stephen C. Burgess, Deputy Public Counsel, Office of the Public Counsel, Tallahassee, for the Citizens of the State of Fla JOANOS, Judge.

Rolling Oaks Utilities, Inc. (the Utility) appeals a Florida Public Service Commission (the Commission) order establishing permanent water and sewer service rates. The issues presented concern the value which the Commission placed on a 12-acre sewer pond site, and the Commission's decision to apply its policy of imputing contributions in aid of construction in an amount equal to margin reserve. We affirm.

In August 1980, Beverly Hills Development Corporation purchased a 2,368 acre tract of land for $834 per acre. Because central water and sewer service was not available, the development corporation formed a utility company to serve its development. The utility, Rolling Oaks, is a wholly-owned subsidiary of Beverly Hills Development Corporation. The development corporation deeded approximately forty acres of land to its utility subsidiary, and at the utility's request, the forty acres were included in the utility's rate base at approximately $95 per acre, for a total of $4,034.

The site of the original effluent disposal ponds is the lowest land in the subdivision. After a period of service, an assessment of groundwater impacts revealed that sewage effluent was being discharged to the groundwater. Therefore, the Department of Environmental Regulation directed the utility to relocate the sewer ponds. On the recommendation of an independent engineer retained by the development corporation, the decision was made to relocate the sewer ponds to higher ground. To effect the relocation, the development corporation first secured land use approvals for use of a parcel of its land as a utility site, and then transferred twenty-four acres of its land to the subsidiary utility. There is no record evidence of a transfer of funds from the utility to its parent corporation as payment for this twenty-four acres.

The utility proposed to include twelve of these acres in its rate base at $21,500 per acre. The remaining twelve acres were excluded because they were not necessary to serve the utility's present customers. The development corporation, which has a 20-year development plan, is currently selling 300 to 400 home sites per year. As the development continues to expand, additional sewer ponds will be required. When the remaining twelve acres are put into use for the additional sewer ponds, the developer plans to have the utility include that twelve acres in its rate base at the then existing market rate. The amount requested by the utility for the first twelve acres calls for an immediate increase in rate base from $4,034 to $258,000.

On June 13, 1986, the utility applied for an increase in its rate base. At the hearing on the rate increase request, five witnesses testified regarding the value to be attributed to the land acquired by the utility for its new sewer pond site. According to the expert witness testifying for the Office of Public Counsel (OPC), the utility could transfer the sewer pond lands from the old site to the new site as an even trade. Under this proposal, the developer would receive forty acres for twenty-four acres, and the new site would be placed in the rate base at the $95 per acre value of the old site. However, OPC's expert witness recommended that the new land should be included in rate base at the developer's acquisition cost of $834 per acre. Utilization of this approach would effect an immediate $10,008 increase in the utility's rate base.

The Commission staff witness testified that the land was valued at $1,900 per acre for property tax assessment purposes. He said that raw acreage had sold in the vicinity of the subdivision for $2,000 to $6,000 per acre, and that land on the main highway adjacent to the subdivision had sold for $10,000 an acre.

Testifying for the utility were the president of the development corporation, a competing developer, and a professional land appraiser. The land appraiser valued the land at $21,500 per acre, based on sales of land within the subdivision which already had water and sewer service, in addition to other amenities. According to the president of the development corporation, the land was worth $30,000 per acre. The competing developer stated he thought the land was worth $40,000 per acre.

The Commission determined the land should be valued at its original cost of $834 per acre, adjusted by an inflation factor for the period it had been held since its purchase in 1980. Based on this evaluation, the Commission included $12,408 in the rate base, rather than the $258,000 requested by the utility. In addition to a rate base increase to reflect the value of the new sewer pond site, the utility requested that its rate base increase should reflect a margin reserve allowance that does not include the contributions it will receive during the reserve period. When reserve capacity is included in the rate base, the Commission imputes contributions in aid of construction (CIAC) to reflect the expected contributions from the utility's customers during the margin reserve period. In this instance, the Commission imputed $29,233 to the margin reserve.

The focus of this appeal is the computation of the utility's rate base, and the utility's first challenge in this regard is directed to the value which the Commission placed on the 12-acre sewer pond site. Rate base represents the utility's investment in order to provide service to the public. Citizens of the State of Florida v. Public Service Commission, 435 So.2d 784, 785 (Fla.1983). In other words, rate base represents "the utility property which provides the services for which rates are charged." State v. Hawkins, 364 So.2d 723, 724 (Fla.1978). The rate of return which a utility may earn on its investment "is a percentage figure which is applied to the rate base in order to establish a reasonable return for the utility's investors." Id.; § 367.081(2), Fla.Stat. (1985). ¹ Thus, computation of the rate base is critical to the rate-making process.

A court reviewing a decision rendered by an administrative agency does not undertake to reweigh the evidence. Rather, the court's task is "merely [to] determine whether competent, substantial evidence supports a Commission order." § 120.68(10), Fla.Stat. (1985); Pan American World Airways, Inc. v. Florida Public Service Commission, 427 So.2d 716 (Fla.1983). Moreover, as a general rule, courts will not review conflicting evidence, or make any determination with respect to the weight of the evidence, as these are usually matters for administrative agency determination. Citizens v. Public Service Commission, 435 So.2d at 787; Boyette v. State, Professional Practices Council, 346 So.2d 598, 599 (Fla. 1st DCA 1977).

Furthermore, the regulated entity challenging Commission action bears the burden "to establish that the order of the Commission under attack is invalid, arbitrary, or unsupported by the evidence." Florida Retail Federation, Inc. v. Mayo, 331 So.2d 308 (Fla.1976). In other words, "[i]t is the Commission's prerogative to evaluate the testimony of competing experts and accord whatever weight to the conflicting opinions it deems appropriate." United Telephone Company v. Mayo, 345 So.2d 648, 654 (Fla.1977). See also Gulf Power Company v. Florida Public Service Commission, 453 So.2d 799, 805 (Fla.1984); Florida Retail Federation v. Mayo, 331 So.2d at 312.

In a situation somewhat akin to that existing in this case, in Florida Power Corporation v. Cresse, 413 So.2d 1187 (Fla.1982), the court noted that the utility bears the burden to justify the reasonableness of its purchases for operation of plant. In Cresse, as in the instant case, the record reflected conflicting evidence on the point at issue. The court held that "[b]ecause the conflict is so clear, and because there is ample testimony in support of each of the positions espoused, we must defer to the PSC, in its role as fact finder, on this point." 413 So.2d at 1190. Much the same result obtained in Gulf Power v. PSC, where the court approved the Commission's rejection of the recommendations of its own staff as well as that of Gulf, because the Commission "was presented with sufficient evidence to enable it to choose a reasonable alternative." 453 So.2d at 805.

In this case, as in Gulf Power v. PSC, the Commission was presented with the testimony of competing experts. In its order, the Commission articulated its reasons for rejecting the $21,500 per acre valuation placed on the sewer pond land by the land appraiser who testified on behalf of the utility, finding the appraisal flawed, because it was not based on the land's proposed use as utility property. The Commission's order further indicates that the valuation was arrived at by comparison with four contracts for sale of residential land in the area, one of which was never consummated, and the others apparently were not arm's length transactions.

In light of the conflicting evidence offered on the land value question in the...