Tamaron Homeowners Ass'n, Inc. v. Tamaron Utilities, Inc.
| Decision Date | 13 September 1984 |
| Docket Number | Nos. 63626,63646,s. 63626 |
| Citation | 460 So.2d 347 |
| Parties | TAMARON HOMEOWNERS ASSOCIATION, INC., Petitioner, v. TAMARON UTILITIES, INC., Respondent. SARASOTA COUNTY, Petitioner, v. TAMARON UTILITIES, INC., Respondent. |
| Court | Florida Supreme Court |
Daniel Joy, Sarasota, for Tamaron Homeowners Ass'n, Inc.
Richard E. Nelson and Omer Causey of Nelson, Hesse, Cyril, Smith, Widman & Herb, Sarasota, for Sarasota County.
M. Joseph Lieb, Jr. of Syprett, Meshad, Resnick & Lieb, Sarasota, for respondent.
B. Kenneth Gatlin of Madigan, Parker, Gatlin, Swedmark & Skelding, Tallahassee, amicus curiae for Florida Cities Water Co.
This case is before the Court upon two separate petitions for review of a decision of the District Court of Appeal, Second District, reported as Sarasota County v. Tamaron Utilities, Inc., 429 So.2d 322 (Fla. 2d DCA 1983). The decision provided a construction of the fourteenth amendment to the United States Constitution and article I, section 9 of the Florida Constitution. We have jurisdiction. Art. V, § 3(b)(3), Fla. Const.
Tamaron Utilities, Inc. (Tamaron), a public utility providing water and sewer service, applied to the Sarasota County Commission for permission to increase its monthly rates for sewage disposal. Tamaron is a subsidiary of U.S. Homes, Inc., the developer of the subdivision served by Tamaron. U.S. Homes provided Tamaron with the capital assets necessary to operate the sewerage system and recouped its investment by passing the cost on to purchasers of homes in the subdivision. When capital assets of a utility are in effect provided by the customers, they are called "contributions in aid of construction" (CIAC). It is important to distinguish such "contributed" capital assets from other assets of the company used in its water and sewer operation, which will be referred to as "noncontributed." Because practically all of its capital assets were obtained by means of such contributions, Tamaron is a zero rate-base utility. Since there was no rate base on which Tamaron was entitled to earn a rate of return, Tamaron limited its request for a rate increase to cover its operating expenses, including depreciation on noncontributed assets, and taxes.
Tamaron claimed that based on the test year ending in 1980, it would incur operating expenses in 1981 of $128,082. To cover these expenses, it asked for a rate increase to $20.91 per month per customer for sewer service. Tamaron included in its estimate of operating expenses $6,000 for repairs, $10,000 for maintenance, $2,000 for miscellaneous maintenance, and, the main contested item in this case, $23,530 for what was initially labeled as a "reserve contingency account."
At the rate hearing Tamaron claimed that the reserve contingency account was necessary for unforeseen expenses since all of its estimated revenue was matched dollar for dollar with expenses requiring a cash outlay. Tamaron arrived at the figure of $23,530 by multiplying the value of contributed assets ($588,243) by a depreciation factor of four percent.
A rate analyst for Sarasota County agreed that Tamaron had a negative rate base and was therefore limited to a rate increase sufficient to cover its operating expenses, depreciation on noncontributed property, and taxes. The rate analyst calculated Tamaron's estimated operating expenses for 1981 to be $90,583. In arriving at his calculations, the rate analyst alloted only $14,600 for repairs and expenses and nothing at all for a reserve contingency fund. He testified that the county's legal department had issued an opinion that the reserve contingency fund was actually an allowance for depreciation on contributed property, which was prohibited by County Ordinance 80-62. Section 8(e) of that ordinance provides:
(e) The Board has the duty and authority to determine and fix reasonable rates and charges that may be charged by any public utility for its services. The Board shall determine and investigate the actual original cost of the property of each public utility actually used and useful in public service and shall keep a current record of the net investment of each utility in such property. The value as so determined by the Board shall be used for rate-making purposes, less accrued depreciation and shall not include any contribution in aid of construction or any good will or going-concern value. The Board shall fix and determine a rate which allows for reimbursement of operating costs including depreciation on all properties, excluding contributed properties, and a fair and reasonable net return on the original cost of a system incurred by the person first dedicating it to public service, which shall not include contributions in aid of construction or customer contributions.
The Sarasota County Commission adopted a resolution finding that the rates and charges presented by its rate analyst were fair and reasonable and authorized Tamaron to increase its rates to $15.84 per month per customer.
Tamaron filed a petition for writ of certiorari with the circuit court, seeking to have the ordinance declared unconstitutional. The circuit court granted the motion of the Tamaron Homeowners Association and others to intervene. After hearing arguments on the petition and Sarasota County's response, the circuit court granted the petition for writ of certiorari, holding that section 8(e) was invalid and violative of the due process and equal protection clauses of the state and federal constitutions. The circuit court then ordered that the phrase "excluding contributed properties" contained in the fourth sentence of section 8(e) be deleted from the ordinance so that Tamaron could claim depreciation on contributed property as an operating expense.
Sarasota County, Tamaron Homeowners Association, and others filed petitions for writ of certiorari with the second district court of appeal, which consolidated the cases. The district court of appeal stated that there was no constitutional requirement that a utility be allowed to build up a reserve fund to cover depreciation losses, but that depreciation of contributed property should be considered at some point in the rate-making process. The district court construed section 8(e) as prohibiting the inclusion of CIAC depreciation in the rate base calculation by way of an add-back. 429 So.2d at 327. The district court concluded that the entire ordinance was confiscatory and violative of due process since it completely prohibited the consideration of CIAC depreciation in the rate-making process.
The issue in this case is whether an ordinance which prohibits the inclusion of CIAC property in the rate base and prohibits the consideration of depreciation of such property as an operating expense deprives a utility of its property without due process of law. In analyzing this ordinance, we must therefore examine its impact upon the rate base and operating expenses. We must then determine whether the impact necessarily results in unjust and unreasonable rate.
We begin by noting that in utility rate-making cases, a utility's rate base is arrived at by determining the original cost of the property used in providing the service. This original cost figure is periodically adjusted downwards as the value of the property depreciates. The rate base is then multiplied by a percentage factor denoted as the rate of return. The purpose of this calculation is to estimate the amount of equity investors have in the utility and the amount of return they should get on their investment. Since investors do not have an equity interest in property contributed to a utility and therefore are not entitled to earn a rate of return on such property, it would be unfair to the customers to include contributed property in the rate base. State ex rel. Utilities Commission v. Heater Utilities, Inc., 288 N.C. 457, 219 S.E.2d 56 (1975); Princess Anne Utilities Corp. v. Commonwealth ex rel. State Corp. Commission, 211 Va. 620, 179 S.E.2d 714 (1971). Hence the various states have been uniform in holding that contributions in aid of construction should be excluded from the rate base. 1 A. Priest, Principles of Public Utility Regulation 177 (1969).
In Westwood Lake, Inc. v. Dade County, 264 So.2d 7 (Fla. 1972), we acknowledged the constitutionality of ordinances that exclude contributions in aid of construction from the rate base. We also held that "there can of course be an unconstitutional application of the ordinance as to a utility if it deprives that utility of a fair rate and thereby deprives the utility of its property without due process of law." Id. at 9 (emphasis in original).
In this case, however, we are not concerned with the constitutionality of the ordinance as applied. Both the circuit court and the district court of appeal found the ordinance unconstitutional on its face. The district court of appeal held the entire ordinance unconstitutional by construing it to prohibit any consideration of contributed property or depreciation on contributed property as part of the rate base as well as prohibiting the allowance of depreciation...
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General Development Utilities, Inc. v. Charlotte County, 92-02206
...County relies upon such cases as Sarasota County v. Tamaron Utils., Inc., 429 So.2d 322 (Fla.2d DCA 1983), quashed and remanded, 460 So.2d 347 (Fla.1984); Village of North Palm Beach v. Mason, 188 So.2d 778 (Fla.1966); City of Plantation v. Mason, 170 So.2d 441 (Fla.1964); and Florida Citie......