Westwood Lake, Inc. v. Metropolitan Dade County Water and Sewer Bd., 66--839

• Decision Date: 03 October 1967
• Docket Number: No. 66--839,66--839
• Parties: WESTWOOD LAKE, INC., a Florida corporation, Appellant, v. METROPOLITAN DADE COUNTY WATER AND SEWER BOARD, a Governmental agency of Metropolitan Dade County, Florida, Appellee.
• Court: Florida District Court of Appeals

Page 363

203 So.2d 363

71 P.U.R.3d 260

WESTWOOD LAKE, INC., a Florida corporation, Appellant, v. METROPOLITAN DADE COUNTY WATER AND SEWER BOARD, a Governmental agency of Metropolitan Dade County, Florida, Appellee.

No. 66--839.

District Court of Appeal of Florida, Third District.

Oct. 3, 1967.

Rehearing Denied Nov. 3, 1967.

Patton & Kanner, Miami, for appellant.

Thomas C. Britton, County Atty., and Louis Schneiderman, Asst. County Atty., for appellee.

Before CHARLES CARROLL, C.J., and HENDRY and SWANN, JJ.

SWANN, Judge.

This appeal stems from an order on rates issued by the Metropolitan Dade County Water and Sewer Board, which affected Westwood Lake, Inc., a utility company.

Appellant, Westwood Lake, Inc., is a Florida corporation, composed of two divisions; one constructs and sells homes, the other operates a water and sewer plant. It filed a single income tax return for both divisions of the company and did not keep separate accounts for the two divisions until about 1964.

A petition for certiorari from the Board's order on rates was taken by the utility to the Circuit Court of Dade County, Florida. See Section 32--23, Metropolitan Dade County Code. The Circuit Court entered an order denying the petition for certiorari and Westwood Lake, Inc. has taken this appeal.

Under these circumstances, we are concerned only as to whether the Circuit Court applied the applicable law and acted in accordance with established procedure. Ammerman v. Florida Board of Pharmacy, Fla.App.1965, 174 So.2d 425. Unfortunately, the appellant and the appellee have not agreed, in their briefs, on the appropriate and determinative points for consideration by this court, inasmuch as the appellant submits four points for review and the appellee contends that there are no less than fourteen separate points. Since the appellee has not filed any cross-assignments of error, we will attempt to discuss only those points raised by the appellant.

The appellant argues that there is no substantial competent evidence in the record to support the findings of the Board in the entry of the order which fixed its rate of return at six per cent on its rate base of $975,614; reduced the compensation paid to its executives from $18,000, as requested by the utility, to $12,000, as ordered by the Board; excluded from its rate base the sum of $5,000 in self-insurance reserves; excluded from its rate base the sum of $18,000 as expenses incurred in this rate case; held that the sum of $1,624,757 was a contribution which should be excluded from the rate base; and further, that there was a departure from the essential requirements of law when the Board required the utility to initially carry the burden of proof to show that its then existing rates were unreasonable.

The attorney for the Board admitted at the hearings that the Board had the initial burden of proof but suggested that the attorney for the utility go forward with the case. The attorney for the utility agreed that it had no objection to 'the burden of proceeding forward first,' and agreed also that where the Board was seeking a rate change the burden of proof was on it.

It has recently been held that the initial burden of proof to establish the unreasonableness of rates was on the Board in a case of this type. See Metropolitan Dade Co. W. & S. Bd. v. Community U. Corp., Fla.App.1967, 200 So.2d 831; In re Coal Rates in New Mexico, 23 N.M. 704, 171 P. 506 (1918). See also Welch, Conduct of the Utility Rate Case, 203 (1955). We proceed therefore to an examination of whether the Board met its proper burden of proof on the various items, and whether the applicable law has been applied.

A review of the record herein establishes that there was no substantial competent evidence in the record to support the order reducing the total salaries of the executives of the utility from $18,000 to $12,000. The only evidence presented by the Board was that of a staff witness, A. H. Blake, Jr., who testified that, In his opinion, executive compensation for rate making purposes should not exceed $12,000. This opinion was concurred in by another staff witness, W. Wirt Culbertson. This was insufficient to sustain the Board's ruling and was therefore a departure form the essential requirements of the law. See also Re Siren Teleph. Co., Inc., 30 PUR3d 336 (Wis. Pub.Serv.Com. 1959); Re Ripley Water Supply Co., 74 PUR (NS) 446 (N.Y.Dep.Pub.Serv.1948); Villages of Milford v. Illinois Commerce Comm., 20 Ill.2d 556, 170 N.E.2d 576 (1960); Re Valley Water Co., 79 PUR (NS) 88 (Mont. Pub.Serv.Com.1949).

The order of the Board indicated that the utility planned to establish a self-insurance reserve of $55,000 to be funded at the rate of $5,000 per year. This was to be in addition to the existing fire extended coverage and vandalism insurance coverage of approximately $500,000; product liability coverage of $500,000, and automobile liability coverage of $1,000,000, on which insurance coverage the premiums had been allowed by the Board as an operating expense. The Board submitted testimony from the Dade County Insurance Manager that the facilities of the utility were not a proper subject for self-insurance because of the fact that through lack of geographical dispersion all of its property was exposed to the same risk. The Board indicated that it would be disposed to allow additional operating expenses for insurance, provided that such insurance be handled by an insurance company through the payment of insurance premiums, because the self-insurance program was determined to be unreasonable under the circumstances. The utility presented no evidence to show the nature and probability of the risk against which it requires a self-insurance fund. Its experience appears to indicate no necessity for any increase in its insurance coverage, inasmuch as its engineer and manager testified that in the last several years there had been no increase in claims against it or against its insurance carriers. It further appears that insurance premiums paid would be deductible for income tax purposes, but the $5,000 paid to fund the self-insurance reserve is not deductible; therefore, the self-insurance reserve would yield the utility only one dollar of protection for every two dollars paid.

We find, therefore, that on the record before us the ruling of the Board was supported by substantial competent evidence in not allowing the $5,000 per year to establish the self-insurance reserve of $55,000. See Re The Springfield Gas Co., 19 PUR (NS) 1 (Ohio Pub.Util.Com. 1937); Re California Oregon Power Co., 35 PUR3d 329 (Ore. Pub.Util.Com. 1960); Re Rockford Electric Co., PUR 1925 D 154 (Ill. Commerce Com. 1925).

The order herein challenged set forth that the utility claimed a total rate case expense for the case involved herein of $18,000 to be amortized over five years at the rate of $3,600 per year. The Board rejected this claim on the ground that it resulted primarily from the repudiation by the utility of its own records.

The Florida Public Service Commission has held that expenses incurred by a utility in a proceeding before a regulatory body should be included in the utility's operating expenses. Jacksonville Gas Co. v. Jacksonville, 82 PUR (NS) 67 (Fla.R.R. & Pub.Util.Com.1949). See also Peoples Water & Gas. Co. v. City of Miami Beach, 90 PUR (NS) 401, (Fla.Cir.Ct. 1951).

The records referred to in the order are the income tax records and audit reports. There were a number of other contested items, however, which required additional work and accounting, and which did not rely upon those records. We therefore find that there was a departure from the essential requirements of the law in disallowing the utility's rate case expenses upon the grounds that the rate case resulted primarily from the utility's repudiation of its own records.

The most important point determined by the Board involved water and sewer lines costing $1,624,757, which were installed by the utility to serve the subdivision of which it was also the developer. The question was whether these costs of $1,624,757 should be included in the utility's rate base in its entirety, in all, or in part. The utility contends that this sum is comprised of two parts; a deferred tax reserve in the amount of $844,000 and a net investment of $780,000, and that the deferred tax reserve should be deducted from the $1,624,757 added to its plant and service account, thereby increasing its rate base in the amount of $780,000. The Board disagreed with the utility and took the position that the entire $1,624,757 had been recovered by the utility from its sales to the purchaser of homes and lots in the subdivision (which has been completely developed in this aspect), and that this was therefore a contribution in aid of construction. The Board heard testimony and took evidence on this factual issue. It received nine federal income tax returns filed by the utility between 1955 and 1963, together with seven certified annual audit reports for the fiscal years between 1957 and 1963, together with two reports from the utility preceding the order to show cause, all of which treated the $1,624,757 as...