DATE:	October 14, 2010
TO:	Office of Commission Clerk (Cole)
FROM:	Office of the General Counsel (Williams, Brown, Leveille) Division of Economic Regulation (Kummer, Bulecza-Banks, Cicchetti, Draper, Maurey, Roberts, Slemkewicz, Thompson)
RE:	Docket No. 090539-GU – Petition for approval of Special Gas Transportation Service agreement with Florida City Gas by Miami-Dade County through Miami-Dade Water and Sewer Department.
AGENDA:	10/26/10 – Regular Agenda – Interested Persons May Participate
COMMISSIONERS ASSIGNED:			All Commissioners
PREHEARING OFFICER:			Skop
CRITICAL DATES:			None
SPECIAL INSTRUCTIONS:			None
FILE NAME AND LOCATION:			S:\PSC\GCL\WP\090539.RCM.DOC

 

 Case Background

            Florida City Gas (FCG) is an investor-owned natural gas utility company subject to the regulatory jurisdiction of the Commission as prescribed in Chapter 366, Florida Statutes (F.S.).  Miami-Dade County (Miami-Dade or the County) is a political subdivision of the State of Florida, and Miami-Dade Water and Sewer Department (MDWASD) is a department of the County.  MDWASD owns and operates several water and wastewater treatment plants in Miami-Dade County, Florida.  As part of its water treatment operations, MDWASD operates lime kilns at the Alexander Orr Plant in South Miami and at the Hialeah-Preston Plant in Hialeah, as well as a cogeneration facility at the South Dade Wastewater Treatment Plant.  MDWASD uses natural gas to heat the lime kilns for the water treatment process that produces and distributes water to MDWASD’s customers. 

 

            FCG, formerly City Gas Company of Florida, executed a Natural Gas Transportation Services Agreement with MDWASD in 1998 (1998 Agreement).  Pursuant to the agreement, FCG receives natural gas for MDWASD and transports the gas on the FCG distribution system to MDWASD’s facilities.  The 1998 Agreement had a ten-year term, expiring July 1, 2008, with no automatic renewal.  It appears that FCG’s predecessor never submitted the 1998 Agreement to the Commission for approval.  However, the impact of the 1998 Agreement on FCG’s general body of ratepayers was subject to annual reviews under FCG’s Competitive Rate Adjustment (CRA) review, in addition to FCG’s 2003 rate case.[1]  In its annual CRA filings during the term of the 1998 Agreement, FCG provided the CRA recovery information for the 1998 Agreement. 

 

            Before the 1998 Agreement expired, FCG and MDWASD agreed to an amendment dated August 28, 2008 (2008 Amendment), which temporarily extended the term of the 1998 Agreement on a month-to-month basis as of July 1, 2008.  Pursuant to the terms of the 2008 Amendment, either party could terminate with thirty (30) days’ notice.[2]  While negotiating the 2008 Amendment, FCG and MDWASD also negotiated a successor agreement to the 1998 Agreement, dated August 28, 2008 (2008 Agreement).  The 2008 Agreement contains the same pricing provisions as the 1998 Agreement, and many of the other provisions in the 2008 Agreement are similar to those in the 1998 Agreement.  Like its predecessor, the 2008 Agreement provided that FCG would transport natural gas to Miami-Dade’s facilities at rates that are significantly below the otherwise applicable tariff rate.  The most significant distinction between the 1998 and 2008 Agreements is the provision that if the Commission does not approve the 2008 Agreement within 180 days, or by February 24, 2009, the 2008 Agreement would not become effective and the parties would either renegotiate or terminate the contract service arrangement.

 

            By petition dated November 13, 2008, FCG requested that the Commission approve the 2008 Agreement between FCG and MDWASD.[3]  Through communications with staff, FCG learned that staff’s analysis had led staff to believe that the rates in the 2008 Agreement did not comply with the Contract Demand Service (KDS) tariff requirement that such rates shall not be set lower than the incremental cost the Company incurs to serve the Customer.  Staff informed FCG that its review of the 2008 Agreement’s terms would likely lead to an unfavorable staff recommendation.  FCG voluntarily withdrew its petition on February 17, 2009, and the Commission administratively closed the docket.  MDWASD never intervened in Docket No. 080672-GU. 

 

            By letter dated June 22, 2009, FCG advised MDWASD that it was invoking the thirty (30) day termination notice provided in the 2008 Amendment and began charging Miami-Dade the applicable GS 1,250k tariff rate on August 1, 2009.  MDWASD remitted payment of the full tariff rates to FCG until October 2009, at which time MDWASD began withholding the balance between the 2008 Agreement rates and the higher tariff rate.  According to MDWASD, it has been placing the difference between the 2008 Agreement rates and the tariff rate in a private, separate account since that time.

 

            On December 14, 2009, MDWASD filed a petition for approval of the 2008 Agreement with FCG that initiated the instant docket.  In its petition, MDWASD requests that the Commission either recognize that the 2008 Agreement is not subject to the Commission’s regulatory jurisdiction or, in the alternative, approve the terms of the 2008 Agreement.  In addition, MDWASD requests that the Commission order FCG to refund the difference between the 2008 Agreement rates and the tariff rates FCG has been charging MDWASD if it approves the 2008 Agreement.  On March 5, 2010, FCG filed a petition for leave to intervene in this docket, which was granted by Order No. PSC-10-0261-PCO-GU, issued on April 26, 2010.

 

On March 3, 2010, staff held a noticed, informal meeting with the parties.  As a result of that meeting, the parties filed jurisdictional briefs to address the threshold legal issue of whether the Commission has authority to consider the 2008 Agreement.  This recommendation addresses the Commission’s authority to consider the 2008 Agreement.[4]  The Commission has jurisdiction pursuant to Sections 366.04, 366.05, and 366.06, F.S.

Discussion of Issues

Issue 1: 

 Does the Commission have authority to approve the 2008 Agreement between Miami-Dade Water and Sewer Department (MDWASD) and Florida City Gas (FCG)?

Recommendation: 

 Yes.  The Commission has authority to approve the 2008 Agreement between MDWASD and FCG.    (Williams)

Staff Analysis: 

 

MDWASD Jurisdictional Brief

            Factual Assertions

            According to MDWASD, FCG filed its petition for approval of the 2008 Agreement on November 13, 2008, without notifying the County or seeking the County’s concurrence with the petition’s terms.  MDWASD claims that FCG then withdrew the petition prior to any ruling from the Commission and without notice to or acquiescence of the County.  MDWASD contends that FCG represented to the County that Commission approval would be merely procedural and ministerial in nature.  However, MDWASD states that FCG is now asserting that the County should have intervened in Docket No. 080672-GU if it wished to enforce the 2008 Agreement’s terms.[5]

            Section 366.11, F.S. and Rule 25-9.034(1), F.A.C.

            MDWASD states that Section 366.11, Florida Statutes (F.S.), exempts utilities owned and operated by municipalities from Commission jurisdiction and that pursuant to Section 366.02(1), F.S., the term “public utility” does not include a municipality or agency thereof.  MDWASD also contends that the Commission’s rule on special contracts, Rule 25-9.034(1), Florida Administrative Code (F.A.C.), exempts agreements between a regulated utility and a municipality from Commission jurisdiction.  Rule 25-9.034(1), F.A.C., provides:

Wherever a special contract is entered into by a utility for the sale of its product or services in a manner or subject to the provisions not specifically covered by its filed regulations and standard approved rate schedules, such contract must be approved by the Commission prior to its execution.

…

The provisions of this rule shall not apply to contracts or agreements governing the sale or interchange of commodity or product by or between a public utility and a municipality or R.E.A. cooperative, but shall otherwise have application.

MDWASD asserts that the rule applies to the County because, as explained below, it contends the County is entitled to all rights and privileges available to a municipality.  Accordingly, MDWASD concludes that the Commission lacks jurisdiction to consider the 2008 Agreement between MDWASD, a department of the County, and FCG.

            Florida Constitution and Supreme Court Precedent

            MDWASD asserts that pursuant to the Florida Constitution and Florida Supreme Court precedent, the County is entitled to all rights available to a municipality, including exemption rights.  MDWASD notes that Article VIII, Section 6(f) of the Florida Constitution provides that to the extent not inconsistent with the powers of existing municipalities or general law, the County may exercise “all the powers conferred now or hereafter by general law upon municipalities.”  MDWASD insists that the 2008 Agreement’s exemption from Commission jurisdiction pursuant to Rule 25-9.034(1), F.A.C., is consistent with general law and the powers of existing municipalities.

            Applicability of Rule 25-9.034(1), F.A.C.

            MDWASD argues that the provision in the 2008 Agreement requiring Commission approval within 180 days as a condition precedent to the contract is ineffective in light of Rule 25-9.034(1), F.A.C.  MDWASD claims that the exemption in Rule 25-9.034(1), F.A.C., eliminates the Commission’s jurisdiction over contracts with municipalities, and that the Commission’s lack of jurisdiction cannot be overcome by contractual agreement between two parties.  MDWASD asserts that the Commission has found that a term in a contract requiring Commission approval as a condition precedent does not overcome an otherwise applicable exemption from Commission jurisdiction.  In support of this argument, MDWASD relies on several Commission orders in which the Commission declined to rule upon or otherwise consider the terms of contracts between regulated utilities and government entities on the basis that the specific entities and activities involved were exempt from Commission regulation.[6]  In Order No. PSC-04-0199-FOF-SU (North Fort Myers Order), for example, a utility filed a bulk wastewater agreement with the Commission for approval, as required by the agreement’s terms.  The Commission declined to assert jurisdiction over the agreement because the agreement involved the sale of wastewater service to a government entity and was thus exempt from Commission jurisdiction pursuant to Section 367.022(12), F.S.  MDWASD asserts that these orders confirm the fact that parties cannot invoke the Commission’s jurisdiction by contract.  MDWASD claims that just as bulk water and wastewater agreements between a regulated utility and a government entity are exempt, the rates included in the 2008 Agreement are not subject to Commission jurisdiction due to the exemption provided for in Rule 25-9.034(1), F.A.C.

 

            Conclusion

            MDWASD maintains that the Commission’s powers as an administrative body are limited.  MDWASD notes that as a creature of the legislature, the Commission’s powers, duties and authorities are only those conferred expressly or impliedly by Florida statute, and that any reasonable doubt as to the lawful existence of a particular regulatory power of the Commission must be resolved against the exercise of jurisdiction.[7]  Further, MDWASD states that FCG is contractually bound by the rates to which it agreed in the 2008 Agreement.  MDWASD claims that during negotiation of the 2008 Agreement, FCG never raised the possibility that the transportation rates in the agreement could be changed by the Commission.  MDWASD insists that the basis for exempting agreements with municipalities from the requirement of Commission approval is the fact that such contracts undergo scrutiny at the County level before they are approved and passed on to the County’s customers.  MDWASD submits that if the Commission finds that the 2008 Agreement rates are too low, the Commission can require FCG’s shareholders to absorb any existing revenue shortfall to insure that FCG’s other customers are not subsidizing the rates charged to the County.  However, MDWASD maintains that the Commission has no authority to deprive the County of the benefits of its “hard-fought bargain” with FCG. 

FCG Jurisdictional Brief

            Factual Assertions

            FCG states that at the time it executed the 2008 Agreement, it believed that the contract complied with applicable law, including all Commission-required regulations regarding contract service rates, and that approval of the 2008 Agreement would not have any adverse impact on the general body of ratepayers.  After filing the 2008 Agreement with the Commission for approval and communicating with staff, however, FCG learned that the contract rates did not comply with FCG’s KDS tariff requirement that such rates shall not be set lower than the incremental cost the Company incurs to serve the customer.  FCG states that it reevaluated the rates in the 2008 Agreement and found that the proposed rates would not comply with the applicable regulatory requirements.  Accordingly, FCG held a meeting with MDWASD officials to inform them that the 2008 Agreement did not comply with the KDS tariff requirements and that FCG would be withdrawing its petition for approval of the agreement in Docket No. 080672-GU.[8]  FCG then attempted to negotiate another agreement with MDWASD that would meet the statutory and tariff requirements for a rate that was not lower than the incremental cost.  However, FCG contends that MDWASD would not renegotiate the contract.  FCG states that in order to ensure equitable service to its general body of ratepayers and fulfill its regulatory obligations, FCG was compelled to bring its service into compliance with applicable law by terminating the 2008 Amendment and beginning to charge MDWASD the tariff rate applicable in the absence of a special contract. 

            Commission’s Exclusive Jurisdiction

            FCG asserts that the Commission’s exclusive jurisdiction with respect to rates and charges extends to all rates and charges of a utility, regardless of the jurisdictional status of the 2008 Agreement itself.  Section 366.06(1), F.S., provides that “[a] public utility shall not, directly or indirectly, charge or receive any rate not on file with the commission for the particular class of service involved.”  The statute then enumerates an extensive procedure for approving new rates and changing existing rates to ensure that the public has access to the rates, terms and conditions of regulated utility service.  FCG acknowledges that in Chapter 25-9, F.A.C., which controls the general filing and approval process for a utility’s tariffs, the Commission adopted Rule 25-9.034(1), F.A.C., to allow for special contracts.  FCG contends that this special contracts provision was promulgated in recognition of the fact that in certain instances public utilities should have some flexibility to retain large volume customers, as any rate over incremental cost will usually benefit the general body of ratepayers.  Nevertheless, FCG notes that the rule and the plain, unambiguous meaning of the statute require that FCG only charge a rate that is filed with and approved by the Commission.   

            FCG contends that the Commission’s exclusive grant of ratemaking authority is superior to any county or municipality authority.  FCG states that as an investor-owned natural gas utility company, it is subject to the regulatory jurisdiction of the Commission pursuant to Chapter 366, F.S.  The Legislature determined, in Section 366.01, F.S., that the regulation of public utilities would be “an exercise of the police power of the state for the protection of the public welfare” and that all the provisions of Chapter 366, F.S., must be “liberally construed for that purpose.”  FCG claims that under Section 366.04(1), F.S., the Commission’s exclusive authority with respect to the rates and charges of public utilities is not only extensive, but is complete.  Section 366.04(1), F.S., states, in relevant part:

[T]he Commission shall have jurisdiction to regulate and supervise each public utility with respect to its rates and service; . . . The jurisdiction conferred upon the commission shall be exclusive and superior to that of all other boards, agencies, political subdivisions, municipalities, towns, villages, or counties, and, in case of conflict therewith, all lawful acts, orders, rules, and regulations of the commission shall in each instance prevail.

(emphasis added).  FCG insists that the Legislature’s grant of such exclusive jurisdiction over rates and charges, and its declaration that such authority be “superior” and not concurrent to that of “municipalities, towns, villages, or counties,” is sufficient by itself to resolve the jurisdictional question in favor of the Commission’s authority to address this matter.  Furthermore, FCG notes that there is nothing in Chapter 366, F.S., that exempts any public utility’s rates from Commission authority.

            FCG notes that the Florida Supreme Court has repeatedly recognized the Commission’s exclusive jurisdiction over rates and has even required the immediate termination of circuit court proceedings in instances where there was only a colorable claim of Commission jurisdiction.[9]  The Florida Supreme Court held in Miller & Sons v. Hawkins, 373 So. 2d 913 (Fla. 1979) (Miller & Sons), for example, that “contracts with public utilities are made subject to the reserved authority of the state, under the police power of express statutory or constitutional authority, to modify the contract in the interest of the public welfare without unconstitutional impairment of contracts.”  In Miller & Sons, the Commission had ordered a utility to increase the service availability charges to a developer notwithstanding the prior contract rate that had been entered into by the utility pursuant to its tariff.  The Court concluded that despite contract law to the contrary, the Commission has complete authority to change rates in a private contract between a utility and a developer independent of the contracting authority of the parties.[10]

            FCG also cites Florida Power Corp. v. Seminole County, 579 So. 2d 105 (Fla. 1991) (FPC), to support its contention that the Commission, and only the Commission, has the exclusive authority to address the provision of natural gas transportation service by FCG, a regulated utility, to MDWASD.  In FPC, the county and city enacted ordinances requiring FPC to relocate certain power lines underground.  While there was no issue regarding the utility’s obligation to relocate the lines due to a road-widening project, the city and county requirements that the relocation be underground imposed an additional $1.25 million cost on the utility, and ultimately, its ratepayers.  Both the county and city relied upon their constitutional grants of authority under Article VIII of the Florida Constitution for authority to require that FPC move the lines underground and to refuse to pay the additional costs of such a requirement.  The Florida Supreme Court dismissed the county and city’s attempt to relocate the lines underground, holding that an obligation to place power lines underground “clearly affects its rates if not its service” and that the added costs would “necessarily be reflected in the rates of [FPC’s] customers.”[11]  Accordingly, FCG contends that the Commission alone fully regulates the rates, terms and conditions by which FCG provides transportation service to MDWASD and that anything which impacts rates becomes subject to the Commission’s exclusive jurisdiction.

            Exemption from Commission Jurisdiction

            FCG asserts that the County’s Home Rule Charter, as well as general law, expressly contemplate Commission jurisdiction.  FCG states that MDWASD, acting on behalf of Miami-Dade County, may not take advantage of the exemption contained in Rule 25-9.034(1), F.A.C., because MDWASD’s authority as a “municipality” is not unlimited; rather, it is subject to the operation of general law and the Commission’s exclusive and superior jurisdiction with respect to public utilities and their rates.  Contrary to MDWASD’s arguments, FCG contends that neither Article VIII, Section 6(f) of the Constitution, nor Section 1.01(A)(21) of the County’s Home Rule Charter, provide a basis for applying the exemption in Rule 25-9.034(1), F.A.C., to MDWASD.[12]  FCG argues that additional provisions in Article VIII, Section 6 of the Constitution and the County’s Home Rule Charter actually indicate that the County’s authority is subject to Commission jurisdiction and that jurisdiction under the circumstances here does not permit MDWASD to rely on the municipality exemption in Rule 25-9.034(1), F.A.C.

            FCG notes that the County’s Home Rule Charter was established pursuant to the Dade County Home Rule Amendment, Article VIII, Section 11, Florida Constitution of 1885, which is preserved in Article VIII, Section 6(e), Florida Constitution of 1968.  Article VIII, Section 6(e), of the 1968 (and current) version of the Florida Constitution protects and incorporates the former Article VIII, Section 11, Florida Constitution of 1885, which states:

Nothing in this section shall be construed to limit or restrict the power and jurisdiction of the Railroad and Public Utilities Commission[13] or of any other state agency, bureau or commission now or hereafter provided for in this Constitution or by general law and said state agencies, bureaus and commissions shall have the same powers in Dade County as shall be conferred upon them in other counties.

 

In addition, Section 9.06(b) of the County’s Home Rule Amendment and Charter states that “[n]othing in this Charter shall be construed to limit or restrict the power and jurisdiction of the Florida Railroad and Public Utilities Commission,” and subsection (i)[14] of the County’s Home Rule Amendment states that “this section shall be strictly construed to maintain such supremacy of this Constitution and of the Legislature in the enactment of general laws pursuant to this Constitution.”  The Florida Supreme Court also addressed the constitutional and home rule powers of municipalities and counties as they relate to the Commission in FPC, holding that “[w]hile the authority given to cities and counties in Florida is broad, both the constitution and statutes recognize that cities and counties have no authority to act in areas that the legislature has preempted.”[15]  From this, FCG concludes that the drafters of these constitutional provisions intended that the County be subject to the Commission’s jurisdictional power because the general law of Florida clearly provides that the Commission has exclusive and superior authority with respect to the rates, terms and conditions of service by a public utility, including FCG.

 

            FCG notes that whatever municipal powers have been granted to the County, such powers are only effective to the extent they are authorized by “general law.”  FCG states that in Lawnwood Medical Ctr. V. Seeger, 990 So. 2d 503, 509-510 (Fla. 2008), the Florida Supreme Court defined the term “general law” as a statute.  Accordingly, general law is created by statute, not by rule.  FCG asserts that general law, including Chapter 366, F.S., and the Florida Constitution, overwhelmingly provides for exclusive and superior Commission jurisdiction.  The Florida Supreme Court has repeatedly held that general law is supreme, and the County’s Home Rule Amendment and Charter are to be strictly construed to protect that supremacy.  Furthermore, the exemption upon which MDWASD relies is granted through a rule of the Florida Administrative Code, not a general law, which means that it is not a “power[] conferred . . . by general law upon municipalities.”  Article VIII, Section 6(f), Florida Constitution.  In fact, application of the exemption in Rule 25-9.034(1), F.A.C., would be inconsistent with the general law regarding Commission jurisdiction, i.e. Chapter 366, F.S.  Thus, FCG argues that MDWASD’s attempt to interpret the Florida Constitution and the Home Rule Amendment and Charter to permit it to be treated as a municipality under Rule 25-9.034(1), F.A.C., conflicts with general law.

 

            Finally, FCG asserts that Rule 25-9.034(1), F.A.C., upon which MDWASD relies, may not have a sufficient statutory basis as to be legally effective.  FCG states that the rule purports to carve out an exception to the filing of special contracts with the Commission for municipalities and R.E.A. cooperatives.  However, FCG contends that the statutory basis for the rule is Section 366.05(1), F.S., which grants to the Commission authority to “prescribe fair and reasonable rates and charges,” to require repairs and other improvements to a utility’s operations, to fix the compensation of employees necessary to carry out its duties, and to “implement and enforce the provisions of this chapter.”  FCG claims that according to settled law, the general authority to adopt rules is limited to the promulgation of rules on specific matters delegated to the agency.  Section 120.52 (8), F.S., provides, in relevant part:

 

A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required.  An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute.  No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious or is within the agency’s class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy.  Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the enabling statute.

 

FCG argues that the grant of rulemaking authority alone does not grant the Commission authority to create exemptions to the statutory requirement to charge only rates filed and approved by the Commission.  Also, there does not appear to be any statutory authority that would authorize the Commission to create an exemption to the legislatively required obligation to file and get approval for rates.  FCG contrasts Chapter 366, F.S., which contains no exemption authority, with Section 364.337(2), F.S., which grants the Commission authority, upon petition, “for a waiver of some or all of the requirements of this chapter, except ss. 364.16, 364.336, and subsections (1) and (5),” and Section 364.3375(1), F.S., which provides, “In granting such certificate the commission, if it finds that the action is consistent with the public interest, may exempt a pay telephone provider from some or all of the requirements of this chapter.”  FCG suggests that to the extent MDWASD’s arguments against jurisdiction turn solely on the exception contained in Rule 25-9.034(1), F.A.C., there may not be sufficient statutory authority for such an exception.

 

 

            Contract Terms

            FCG contends that the 2008 Agreement is void and of no effect because the 2008 Agreement was not approved and made effective by the Commission within the time frame required by Article I of the 2008 Agreement.  Article I of the 2008 Agreement states that “[i]f the Agreement is not approved and made effective by the Commission subject to terms and conditions satisfactory to the Parties within one hundred eighty (180) days from the date this Agreement is entered into by the Parties, this Agreement shall not become effective.”  Furthermore, in Resolution No. R-1105-08, the Board of County Commissioners of Miami-Dade County acknowledged that the 2008 Agreement was subject to Commission approval.  Resolution No. R-1105-08, which ratifies the 2008 Agreement, states:

NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF MIAMI-DADE COUNTY, FLORIDA, that this Board hereby ratifies the County Mayor’s action of the execution, by the Mayor or his designee, of a Natural Gas Transportation Service Agreement between Florida City Gas and Miami-Dade County and to exercise the cancellation and renewal provisions contained therein, subject to approval by the Public Service Commission.

FCG argues that because the parties entered into the agreement on August 28, 2008, and more than 180 days have elapsed without Commission approval, the 2008 Agreement is void and not in effect. 

Analysis

            Upon review, staff recommends that the Commission find that it has authority to consider the 2008 Agreement between FCG and MDWASD.  The relevant question here is not whether the Commission has jurisdiction to regulate MDWASD in the way it regulates public utilities such as FCG.  Rather, the relevant inquiry is whether the Commission has authority to approve a contract to which an unregulated entity, here the County, is a party.  Accordingly, while the Commission does not have jurisdiction to regulate MDWASD as a utility, staff believes that the Commission has authority to consider a contract between a regulated utility and a non-regulated entity for natural gas transportation service, especially where the contract specifically provides for Commission approval.

            Miami-Dade County as a Municipality

            The County is entitled to all the rights and privileges available to a municipality pursuant to the Florida Constitution and Miami-Dade County’s Home Rule Amendment and Charter.[16]  Article VIII, Section 6(f) of the Florida Constitution provides that “[t]o the extent not inconsistent with the powers of . . . general law, [the County] may exercise all the powers conferred now or hereafter by general law upon municipalities.”  Section 1.01(A)(21) of its Home Rule Amendment and Charter provides that the County is entitled to exercise all powers and privileges granted to municipalities by the Constitution and laws of the state, and Section 1.01(A)(14) specifically allows the County to regulate, control or operate utilities, sanitary and sewage collection and disposal systems, and water supply, treatment, and service systems. 

            However, staff agrees with FCG that the County’s authority as a municipality is not unlimited.  The County’s Home Rule Charter was established pursuant to Article VIII, Section 11, of the Florida Constitution of 1885, which is preserved in Article VIII, Section 6(e), Florida Constitution of 1968.  Article VIII, Section 6(e), of the Florida Constitution protects and incorporates the former Article VIII, Section 11, Florida Constitution of 1885, which states in paragraph (7):

Nothing in this section shall be construed to limit or restrict the power and jurisdiction of the Railroad and Public Utilities Commission or of any other state . . . commission now or hereafter provided for in this Constitution or by general law and said state . . . commissions shall have the same powers in Dade County as shall be conferred upon them in other counties.

 

In addition, Section 9.06(b) of the County’s Home Rule Amendment and Charter states that “[n]othing in this Charter shall be construed to limit or restrict the power and jurisdiction of the Florida Railroad and Public Utilities Commission,” and paragraph (9) of the County’s Home Rule Amendment states that “this section shall be strictly construed to maintain such supremacy of this Constitution and of the Legislature in the enactment of general laws pursuant to this Constitution.”  Accordingly, an examination of general law should inform any discussion of the Commission’s jurisdiction to consider the 2008 Agreement between FCG and MDWASD.[17]

            General Law

            MDWASD claims that it is exempt from Commission regulation pursuant to Section 366.11, F.S., which provides, in pertinent part:

No provision of this chapter shall apply in any manner . . . to utilities owned and operated by municipalities, . . . or to the sale of electricity, manufactured gas, or natural gas at wholesale by any public utility to, and the purchase by, any municipality [] under and pursuant to any contracts . . . when such municipality . . . is engaged in the sale and distribution of electricity or manufactured or natural gas, or to the rates provided for in such contracts.

Staff does not believe that this statutory provision applies to MDWASD.  First, Chapter 366, F.S., governs public utilities, which are defined in Section 366.02(1) as entities “supplying electricity or gas . . . to or for the public within this state.”  MDWASD is a municipal water and wastewater utility.  It does not supply electricity or gas to the public within the state of Florida.  Second, the contract at issue here does not involve the sale of electricity or gas at wholesale from FCG to MDWASD, nor is MDWASD “engaged in the sale and distribution of electricity or gas.”  Accordingly, Chapter 366.11, F.S., which governs the Commission’s regulation of electric and gas utilities, is not the appropriate statute to consider in determining the extent of the Commission’s jurisdiction in this case.

            Chapter 367, F.S., governs the Commission’s jurisdiction over water and wastewater utility systems.  Section 367.022(2), F.S., states that “[s]ystems owned, operated, managed, or controlled by governmental authorities” are “not subject to regulation by the commission as a utility nor are they subject to the provisions of this chapter.”  Section 367.021(7), F.S., provides that a governmental authority is a “political subdivision” as defined in Section 1.01(8), F.S., and a county or city is a political subdivision pursuant to that section.  Accordingly, the water and wastewater system of Miami-Dade County is not subject to regulation by the Commission “as a utility.”  However, that does not mean that the Commission lacks jurisdiction over a contract to which MDWASD is a party.

            As an investor-owned natural gas utility company which supplies gas to the public, FCG is subject to the regulatory jurisdiction of the Commission pursuant to Chapter 366, F.S.  The legislature determined, in Section 366.01, F.S., that the regulation of public utilities would be “an exercise of the police power of the state for the protection of the public welfare” and that the provisions of Chapter 366, F.S., must be “liberally construed for that purpose.”  Section 366.04(1), F.S., provides that the Commission has jurisdiction to “regulate and supervise each public utility with respect to its rates and service,” and this jurisdiction is “exclusive and superior to that of all other boards, agencies, political subdivisions, municipalities . . . or counties.”  Section 366.04(1), F.S., further states that in the event of a conflict between the jurisdiction of the Commission and that of another political subdivision, “all lawful acts, orders, rules, and regulations of the commission shall in each instance prevail.” 

            The Commission also has authority to prescribe rates that are fair, just and reasonable, and a public utility cannot charge any rates not on file with the Commission.  Section 366.06(1), F.S., provides that the commission shall have the authority “to determine and fix fair, just, and reasonable rates that may be requested, demanded, charged, or collected by any public utility” for its service.  Furthermore, a public utility “shall not, directly or indirectly, charge or receive any rate not on file with the Commission.”  Section 366.06(1), F.S.  Finally, pursuant to Section 366.06(2), F.S., whenever the Commission finds that the rates charged by a utility for its service are unjust, unreasonable, unjustly discriminatory, or in violation of law, or that such rates are insufficient to yield reasonable compensation for the services rendered, the Commission is required to hold a public hearing and thereafter determine just and reasonable rates to be charged for such service.  These statutory provisions, read in conjunction with the Florida Constitution and the County’s Home Rule Amendment and Charter, indicate that the Commission has exclusive and complete authority with respect to the rates and charges of FCG as a public utility under 366.04(1), F.S.

            Case Law

            The Florida Supreme Court has recognized the Commission’s exclusive jurisdiction over rates.  As FCG points out, the Court in Miller & Sons held that contracts with public utilities are made “subject to the reserved authority of the state, under the police power of express statutory or constitutional authority, to modify the contract in the interest of the public welfare without unconstitutional impairment of contracts.”[18]  In Miller & Sons, the Court concluded that the Commission has complete authority to change rates in a private contract between a utility and a developer independent of the parties’ contracting authority.  MDWASD attempts to distinguish Miller & Sons on the ground that the developer who entered into the agreement with the utility was not a governmental entity with constitutionally recognized municipal rights, privileges and exemptions like the County.  However, this distinction is immaterial and was not a basis for the Court’s holding.  Whether a contract is between a regulated public utility and a private developer, or between a regulated public utility and a governmental entity, the contract itself is subject to Commission jursidiction under Chapter 366, F.S., and may be modified by the Commission in the public interest.

            In addition, the Florida Supreme Court and the United States Supreme Court have acknowledged that parties cannot defeat the government’s legitimate police power by contract. The Miller & Sons Court found that the effect of ruling in favor of the developer would be “to allow a private party to circumvent by contract the police power of the state, which is impermissible.”[19]  The Court in Miller & Sons also agreed with the Commission’s assertion in the Order under review that:

[T]he plain and unequivocal mandates of Section 367.101, F.S., that [charges] be just and reasonable, a fact too well known to require further discourse, coupled with references to “public welfare” and application of legal rates without discrimination, spell out adequately the “public interest or welfare.”[20]

Furthermore, in Union Dry Goods Co. v. Georgia Public Service Corp., 248 U.S. 372 (U.S. 1919), a corporate plaintiff argued that the electric rates fixed by the state railroad commission were invalid because, if given effect, they would supersede the rates agreed to in the private contract between the plaintiff and the power company, which was entered into prior to the commission order changing the rates.  The United States Supreme Court held that “private contract rights must yield to the public welfare, where the latter is appropriately declared and defined and the two conflict,” even if contracts previously entered into between the parties may thereby be affected.[21]  

            The Commission has jurisdiction, indeed an obligation, to set rates for a public utility that are fair, just, and reasonable.  As noted by FCG, the county and city in FPC argued that their constitutional grants of authority allowed them to require a regulated utility to move lines underground and to refuse to pay the additional costs of such a requirement.  The Florida Supreme Court held that an obligation to place power lines underground “clearly affects [the public utility’s] rates if not its service” and that the added costs would “necessarily be reflected in the rates of [the public utility’s] customers.”[22]  Staff believes that if the contract rates at issue here are so low that they unfairly require FCG’s customers to subsidize those of the County, the Commission can and should exercise its legitimate authority to ensure that the rates charged by FCG are fair, just and reasonable. 

            Rule 25-9.034(1), F.A.C.

            Commission Approval Requirement

            In 1961, the Commission entered an Order Adopting Rules and Regulations Relating to Construction and Filing of Tariffs by Utility Companies.[23]  By that order, the Commission adopted Rule 12.124, F.A.C., entitled “Contracts and Agreements.”  This predecessor to Rule 25-9.034(1), F.A.C., was virtually identical to the current version, except that it only required that copies of special contracts be placed on file with the Commission rather than that such contracts be approved by the Commission.  In 1973, the Commission issued an order proposing an amendment to Rule 12.124, F.A.C., which by that time was Rule 25-9.34, F.A.C.  By Order No. 5718,[24] the Commission recommended that all future special contracts and agreements should be required to be approved by the Commission.  The Commission explained:

Although special contracts and agreements may have served a valid purpose in the past, we are of the opinion that the final approval for any contracts or agreements entered into hereinafter should be made by this commission . . . Thus, if a utility desires, for example, to sell its services or product at a rate other than that specified in the tariff, pursuant to a special contract with that party, our proposed rule would require detailed justification for deviating from the published tariff rate.

The necessity for such a rule at this time is the ever-increasing number of rate applications being filed by regulated utilities that have some special contracts whose rates have been set at a level generally below the level of rates being paid by customers receiving service under published tariff rates, all due to contractual terms established years ago.  Therefore, it is our opinion that, when a utility seeks to enter into a new contract or renegotiate an existing contract with another party, such may be entered into only upon our prior approval under procedures described more fully in the proposed rule.  We further conclude that said rule amendment is reasonable, proper, and in the public interest.

The Commission adopted the proposed amendment in Order No. 5786.[25]  The current Rule 25-9.034(1), F.A.C., is identical to Rule 25-9.34, F.A.C.  Thus, final approval for any contract or agreement entered into by a public utility that is not specifically covered by its filed tariff must be obtained from the Commission.

            Exception to Commission Approval Requirement

            While Rule 25-9.034(1), F.A.C., requires that all special contracts and agreements be approved by the Commission, the rule contains a narrow exception.  Rule 25-9.034(1), F.A.C., states:

Wherever a special contract is entered into by a utility for the sale of its product or services in a manner or subject to the provisions not specifically covered by its filed regulations and standard approved rate schedules, such contract must be approved by the Commission prior to its execution.

…

The provisions of this rule shall not apply to contracts or agreements governing the sale or interchange of commodity or product by or between a public utility and a municipality or R. E. A. cooperative, but shall otherwise have application.

MDWASD relies primarily on the last sentence of the rule to support its contention that the Commission lacks jurisdiction to consider the 2008 Agreement.  Staff believes that MDWASD’s argument that Rule 25-9.034(1), F.A.C., “expressly exempts from the Commission’s jurisdiction agreements between a regulated utility and a municipality”[26] is inaccurate.  In Chapoteau v. Chapoteau, 659 So. 2d 1381 (Fla. Dist. Ct. App. 3d Dist. 1995), the Third District Court of Appeal held that an agency’s jurisdiction can only be established by statute, not by rule.[27]  Thus an agency cannot, by rule, expand or contract jurisdiction that the legislature has conferred upon it.[28]  The statutory basis for Rule 25-9.034(1), F.A.C., is Section 366.05(1), F.S., which grants the Commission power over public utilities’ rates.[29]  Pursuant to that section, the Commission has authority to “prescribe fair and reasonable rates and charges.”  Accordingly, the County’s reliance on an agency rule for its assertion that the agency, here the Commission, “lacks jurisdiction,” is ill-placed. 

            The Commission should also look to other governing statutes to determine the extent of its jursidiction.  In this instance, the relevant statutes are those that grant the Commission authority to set rates charged by a public utility that are fair, just and reasonable pursuant to Sections 366.04, 366.05, and 366.06, F.S., and the statute which states that MDWASD is not subject to Commission regulation “as a utility,” Section 367.022(2), F.S.  As the Florida Supreme Court noted in Forsythe v. Longboat Key Beach Erosion Control Dist., 604 So. 2d 452, 455 (Fla. 1992), courts must “give full effect to all statutory provisions and construe related statutory provisions in harmony with one another.”[30]  Staff believes that these statutes, read consistently and in conjunction with one another, reveal that the Commission has authority to consider the 2008 Agreement.  First, FCG, as a public utility, is clearly subject to regulation by this Commission.  Second, MDWASD voluntarily submitted the contract to the Commission for approval by agreeing to the term requiring Commission approval of the 2008 Agreement within 180 days.  In staff’s opinion, approving or denying a retail contract to which MDWASD is a party does not amount to “regulation” of MDWASD by the Commission as contemplated in 367.022(2), F.S. 

            Inapplicability of Rule 25-9.034(1), F.A.C.

            The plain language of Rule 25-9.034(1), F.A.C., does not support the County’s argument that the 2008 Agreement is exempt from Commission review.  As the Florida Supreme Court held in Fla. Dep’t of Revenue v. Fla. Mun. Power Agency, 789 So. 2d 320 (Fla. 2001), courts must adhere to the rule’s language as closely as possible and should not look behind the plain language of the rule to determine intent when the rule is clear and unambiguous on its face.[31]  The requirement of Commission approval in Rule 25-9.034(1), F.A.C., applies to special contracts for the “sale of [the public utility’s] product or service.”  The exception upon which MDWASD relies, in contrast, applies only to contracts between public utilities and municipalities that govern the sale or interchange of a “commodity or product.”  In the 2008 Agreement, FCG agreed to sell to MDWASD capacity on its gas lines so that MDWASD can transport its own gas product to its treatment plants.  Since the contract at issue is for service, rather than a commodity or product, the exception to the requirement of Commission approval does not apply, and the contract must be approved by the Commission.  As noted in State Contr. & Eng’g Corp. v. DOT, 709 So. 2d 607 (Fla. Dist. Ct. App. 1st Dist. 1998), an agency’s interpretation of its own rules is entitled to great deference.[32]

            Section 366.11(1), F.S., also sheds light on the exception contained in Rule 25-9.034(1), F.A.C.  Section 366.11(1), F.S., specifically exempts from Commission jurisdiction “the sale of electricity, manufactured gas, or natural gas at wholesale” by any public utility to, and the purchase by, any municipality pursuant to a contract “when such municipality . . . is engaged in the sale and distribution of electricity or [gas].”  Since contracts for the sale of a product or commodity at wholesale from a public utility to a municipality are statutorily exempt from Commission jurisdiction, it makes sense that the rule would likewise exempt such contracts from the requirement of Commission approval.  In addition, the exemption in Section 366.11(1), F.S., only applies when the municipality is engaged in the sale and distribution of electricity or gas.  Accordingly, staff believes that the statutory exemption only applies to a sale of a product or commodity for resale, i.e. a wholesale sale of electricity or gas from a public utility to a municipality for resale to the municipality’s end-use customers, not to a retail service sale where the end-use customer is the municipality itself.  This is consistent with the legislative directive that municipally-owned utilities be excluded from the Commission’s jurisdiction over the “rates” a municipality charges its customers, which the Florida Supreme Court defined as “the dollar amount charged for a particular service or an established amount of consumption.”[33]  While the Commission has authority to approve the 2008 Agreement, only MDWASD has authority to set rates for its customers for the products and services it provides.

            Although the language of the rule is clear, basic construction principles further support this interpretation.  The doctrine of “expressio unius est exclusio alterius” holds that the mention of one thing implies the exclusion of the other.  As the Florida Supreme Court explained in Gay v. Singletary, 700 So. 2d 1220, 1221 (Fla. 1997), if a rule expressly describes a situation where something should apply, an inference must be drawn that what is not included by specific reference was intended to be omitted or excluded by the rule’s drafters.  The first sentence of Rule 25-9.034(1), F.A.C., states that it applies to contracts entered into for the sale of products or services.  It then creates an exception for contracts governing the sale of commodities or products.  The inference must be drawn, then, that if the drafters of the rule had intended for the exception to apply to contracts governing the sale of a service, the exception would have so stated. 

            2008 Agreement Terms

            Even if the Commission found that the exception in Rule 25-9.034(1), F.A.C., applied to this gas transportation service contract, MDWASD waived its right to take advantage of it.  Staff agrees with MDWASD that parties cannot confer jurisdiction where there is none, nor can they waive lack of jurisdiction by contract.[34]  However, that is not what the parties have done here.  As explained above, the Commission has jurisdiction to consider the 2008 Agreement, and Rule 25-9.034(1), F.A.C., does not and cannot limit the Commission’s jurisdiction.  Instead, the rule allows certain types of contracts to be executed without the burden of having to procure prior Commission approval.  A party can, by contract, waive the benefit of an exception to which it would normally be entitled.  Here, if the rule did apply to exempt the 2008 Agreement, MDWASD voluntarily relinquished its right to that exemption with respect to this particular contract.

            As noted in Zurstrassen v. Stonier, 786 So. 2d 65, 70 (Fla. 4th DCA 2001), and acknowledged by the Commission in Order No. PSC-09-0753-PCO-EI,[35] Florida law requires the following elements to find waiver: (1) the existence at the time of waiver of a right, privilege, advantage or benefit which may be waived; (2) the actual or constructive knowledge thereof; and (3) an intention to relinquish such right, privilege, advantage or benefit.  Here, at the time the parties entered into the 2008 Agreement, Rule 25-9.034(1), F.A.C., existed.  It is clear that MDWASD had constructive, if not actual, knowledge of the provisions of the rule.  The parties mutually agreed to the unambiguous provision that if the 2008 Agreement was not approved by the Commission within 180 days, it would not become effective.  Thus the intent to relinquish the advantage or benefit contained in Rule 25-9.034(1), F.A.C., is expressed clearly in the 2008 Agreement.  Accordingly, MDWASD voluntarily submitted the contract to the Commission for approval despite an exception in the rule to which MDWASD believed it was entitled.

            The water and wastewater cases cited by MDWASD for the proposition that parties cannot waive lack of jurisdiction by contract are inapplicable.  In Order No. PSC-00-1902-AS-SU,[36] Florida Water Services Corporation (FWSC) and the City of Longwood (City) entered into a Settlement Agreement and Bulk Wastewater and Reuse Service Agreement (Agreement).  The Agreement, which was filed with the Commission, provided that Commission approval was required before the contract became effective.  While the Commission found that those provisions of the Agreement governing the sale of bulk wastewater service to the City for resale were specifically exempt from Commission regulation pursuant to Section 367.022(12), F.S, and thus did not need to be ruled upon, the Commission approved the remainder of the Agreement between FWSC and the City.  The Commission’s basis for declining to rule upon that portion of the Agreement dealing with the sale of bulk wastewater service to the City for resale was Section 367.022, F.S., which states:

The following are not subject to regulation by the commission as a utility nor are they subject to the provisions of this chapter, except as expressly provided:

(12) The sale for resale of bulk supplies of water or the sale or resale of wastewater services to a governmental authority or to a utility regulated pursuant to this chapter either by the commission or the county.

In the North Fort Myers Order and Order No. PSC-00-1238-FOF-WS,[37] the Commission similarly determined that it lacked jurisdiction to rule upon the sale of bulk water and wastewater service from a regulated entity to a governmental authority.  In all three instances, the Commission relied upon a very specific statutory provision, namely Section 367.022(12), F.S.,  for its holdings that the parties’ contract terms to the contrary were ineffective to “create” jurisdiction where there was none. 

            These water and wastewater cases do not undermine the assertion that MDWASD voluntarily submitted the 2008 Agreement to the Commission for approval.  As explained above, Rule 25-9.034(1), F.A.C., unlike Section 367.022(12), F.S., neither creates nor destroys Commission jurisdiction over the 2008 Agreement.  Instead, the rule creates a requirement that special agreements to which a regulated entity is a party be approved by the Commission prior to execution.  The 2008 Agreement term requiring Commission approval was not an attempt to invoke jurisdiction where there was none, as the parties attempted to do in the cases relied on by MDWASD.  Instead, it was an agreement by MDWASD to voluntarily submit the contract to the Commission for approval despite an exception that it believed may have otherwise applied.

            Conclusion

Staff accepts MDWASD’s contention that the County enjoys the same rights, privileges and exemptions as a municipality and that MDWASD is not subject to regulation by the Commission “as a utility.”  However, the Commission has exclusive, superior authority over the rates and charges of FCG, a regulated public utility.  Pursuant to Rule 25-9.034(1), F.A.C., all special contracts and agreements entered into by a public utility that are not specifically covered by its filed tariff must be approved by the Commission.  The exception provided in Rule 25-9.034(1), F.A.C., does not apply to the 2008 Agreement because the agreement at issue is for service, not for a “product or commodity.”  As shown by staff’s analysis of Section 366.11(1), F.S., there is no analogous statutory exemption for the type of contract here as there was in the water and wastewater cases cited by MDWASD.  For these reasons, staff believes that the Commission has jurisdiction to consider the 2008 Agreement.

Issue 2: 

 Should this docket be closed?

Recommendation: 

 No.  If the Commission approves Issue 1, this docket should remain open for the Commission to conduct a hearing.    (Williams)

Staff Analysis: 

 If the Commission approves Issue 1, this docket should remain open for the Commission to conduct a hearing.