Discussion
of Issues
Issue 1:
Should the Commission grant the developer’s petition
for a waiver of subsections (5) and (6) of Rule 25-6.049, F.A.C.?
Recommendation:
Yes. The petition should be granted because the developer
has demonstrated that the purpose of the underlying statutes will be achieved
by other means and that application of the rule would create a substantial
hardship and violate principles of fairness. However, the waiver should be
subject to the following four conditions: (1) within one year of the closing of
sale of its first residential unit, Calypso must be a licensed public lodging
establishment under Sections 509.241 and 509.242, F.S.; (2) 92 percent of the
residential units sold must be used solely for overnight occupancy; (3) Calypso
must allocate the cost of electricity to the individual owners using a
reasonable apportionment method; and (4) Calypso must file a report with the
Commission 12 months after the date of closing of the sale of the first
residential unit. The report must include the number of units sold and, of
those, the number of units that are solely used for overnight occupancy as
defined in Rule 25-6.049(8)(b), F.A.C. The report must also include a copy of
Calypso’s public lodging license. The Commission should also put Calypso on notice
that should Calypso ever fail to comply with these conditions, the rule waiver
will cease to be effective and Calypso will be responsible for all costs
associated with the conversion to individual metering. (King, Cowdery, Guffey,
Redda)
Staff Analysis:
Under Rule 25-6.049(5), F.A.C., each of Calypso’s
individual units is required to have its own electric meter. Seven exemptions
to that requirement are contained in Rule 25-6.049(5)(a)–(g), F.A.C. For
example, paragraph (5)(d) provides an exemption for hotels, and paragraph (5)(g)
provides an exemption for condominiums that meet three specific criteria. One,
the declaration of condominium must require that 95 percent of the units are
used solely for overnight occupancy. Two, the condominium must maintain a
registration desk, lobby, and central telephone switchboard. Three, the
condominium must keep a record of guests’ check in and check out dates as well
as the name of the individuals registered to occupy the unit.
In addition, Rule 25-6.049(6), F.A.C., provides initial
and ongoing reporting requirements for condominiums that seek an exemption to
the individual metering rule under Rule 25-6.049(5)(g), F.A.C. The rule also
allows the condominium’s electricity provider to inspect the condominium and collect
evidence to assess whether the condominium has satisfied the criteria for the
exemption. Lastly, the rule provides provisions that apply if the condominium
fails to meet the requirements for the exemption in Rule 25-6.049(5)(g), F.A.C.
Calypso does not qualify for any of the exemptions in the
rule, so it is seeking a waiver.
Legal Standard for Rule Waivers
Section 120.542(2), F.S., lays out a two-prong test for
granting waivers to administrative rules. If the petitioner satisfies both
prongs, the Commission must grant the waiver. First, the petitioner must show
that “application of [the] rule would create a substantial hardship or would
violate principles of fairness.” A “substantial hardship” is a “demonstrated
economic, technological, legal, or other type of hardship.” Principles of
fairness are violated when “the literal application of a rule affects a
particular person in a manner significantly different from the way it affects
other similarly situated persons who are subject to the rule.” Second, the
petitioner must demonstrate that it will achieve the purpose of the underlying
statutes by other means.
The individual metering requirement in Rule 25-6.049(5),
F.A.C., is based on the Commission’s authority to prescribe rate
classifications and service rules for investor-owned electric utilities
included in Sections 366.05(1) and 366.06(1), F.S., and it implements the
conservation policies in Sections 366.81 and 366.82, F.S., also known as the
Florida Energy Efficiency and Conservation Act, or FEECA.
Under Section 120.542(1), F.S., the Commission can grant
conditional waivers so long as the conditions are necessary to ensure the
purposes of the underlying statutes are achieved.
The Developer’s Petition
According to the developer’s petition and the declaration
of condominium it provided in response to staff’s data requests, Calypso is the
third and final tower in the Calypso Resort and Towers development. Calypso is
currently under construction and will include 250 residential units and 13
commercial units. It is located on the north side of Front Beach Road, across
the street from its two sister towers, which are currently operating under the resort
name. The developer states that when Calypso becomes a part of the resort, it
will be managed by the same company managing the resort. According to the
developer, the resort management and staff will conserve energy by ensuring
that all electrical components are turned off when guests are not present. The
developer further states that the building will use motion sensing technology
to turn certain fixtures and appliances off automatically, and the resort staff
will also maintain that equipment to ensure it is functioning properly.
The developer states that ownership of Calypso’s 250
dwelling units will be structured as a condominium under Chapter 718 of the
Florida Statutes, but the developer envisions Calypso will operate “as a resort
or similar to a hotel/resort in most cases with short term rentals for beach
vacations.” The developer predicts that “all or substantially all of the units
will be used for transient rentals.” The developer initially claimed it would
apply for a public lodging license, but it expressly retracted that commitment
in its response to staff’s first data request. Staff questioned the developer
as to the reason for the retraction and asked whether the developer intended
for Calypso to “share” the resort’s public lodging license, which at the time
was active but delinquent. In its responses, the developer expressed no intent
for Calypso to obtain a public lodging license, and the resort’s license
recently expired.
The
developer also asserts the existence of several facts that support its position
that Calypso is similarly situated to other resort hotels and that all or
substantially all of Calypso’s units will be used for transient rentals. The
developer submitted its Panama City Beach building permits for Calypso, which
showed that it paid a recreational impact fee for “[l]odging hotel, resort,
resort condo.” Though Calypso is still under construction, the developer claims
it is planning to use “nationally known reservation software” along with a
rental pool agreement to help keep guest rooms filled and the resort operating
in an orderly fashion. To aid in keeping the guest rooms filled, the developer
also plans to advertise with travel agents and at trade conferences. The
developer plans to have a hospitality area for guests to check in and out. The
developer has also designed all rooms to be ADA compliant. Staff has further
discovered that the online advertising for Calypso’s resort units includes an
estimate of the number of seasonal rentals each floorplan could expect and an
estimate of the revenue from those rentals.
Finally, the
developer claims that by accepting electricity through a master meter, Calypso
will pay Gulf Power’s rates for Large Power Service (LP) rather than Residential
Service (RS). It also supplied staff with Gulf Power’s estimate that each
individual unit would demand an average of 5 kW.
The developer argues that it is entitled to a waiver
because application of the rule violates principles of fairness and creates a
substantial hardship. The developer intends for Calypso to operate as a resort
hotel and will directly compete with other resort hotels. The developer claims
that if it is not permitted to receive electricity through a master meter and
pay the lower commercial rate, it will be forced to incur electricity expenses
far above those incurred by the resort hotels it will compete with. The crux of
the developer’s argument is that this cost difference puts it at a significant
competitive disadvantage. This demonstrated economic hardship, according to the
developer, amounts to a substantial hardship under Section 120.542(2), F.S.
Similarly, the developer argues that application of the rule violates
principles of fairness because Calypso will be similar to resort hotels but
will be treated differently.
The developer further avers that it will comply with Rule
25-6.049(9)(a), F.A.C., in utilizing a reasonable apportionment method to
allocate electricity costs amongst the individual unit owners based on the
square footage of their individual units.
Gulf Power’s Comments
Gulf Power expressed two main concerns with the
developer’s petition, but it stopped short of objecting to the petition.
Gulf Power’s first concern is that there is no way for
anyone to know if Calypso’s units will in fact be used for overnight occupancy
because the declaration of condominium does not require any unit owner to rent
its unit on a short-term basis. Gulf Power noted that the Commission has
granted only a few waivers for condominiums without language in the declaration
of condominium requiring a certain percentage of the units to be used for
overnight occupancy, and in those cases there were other “forms of assurance
that the condominium would, as a matter of fact, be operated as a transient
lodging facility.”
Second, Gulf Power expressed concern about the developer’s
intent to not seek a public lodging license from the Department of Business and
Professional Regulation. It noted that such a license submits the licensee to
safety regulations typical for transient lodging facilities, and the Commission
has never granted a petition for a waiver from the individual metering
requirement where the condominium did not intend to apply for and maintain a
public lodging license.
Staff’s Analysis
of the Developer’s Petition
Staff recommends that the
developer has established the statutory requirements for a waiver of Rule
25-6.049(5) and (6), F.A.C. However, due to the unique circumstances of this
case, staff recommends the Commission order Calypso to satisfy certain
conditions going forward in order for the waiver to remain in effect.
Literal Application of the Rule Would Violate
Principles of Fairness and Create a Substantial Hardship for Calypso
The developer’s argument that application of the rule will
violate principles of fairness rests on the premise that, when construction is
complete, Calypso will function as a hotel and should be entitled to an
exemption to the individual metering requirement just as hotels are. Staff has
determined that it is highly probable that Calypso’s resort units will be used
for transient rental purposes for all the reasons stated in the developer’s
petition and responses to staff’s data requests. In sum, Calypso will become
part of a larger resort that is already functioning as a hotel. The developer’s
website advertises Calypso’s individual units as rental investments, and the
developer intends to advertise Calypso as a resort with travel agents and trade
shows. The developer stated that Calypso’s guests will be served by the resort
staff. The developer has also shown that it paid impact fees for a resort when
obtaining its building permits, and it stated that Calypso is being constructed
to meet the ADA requirements for a resort. Thus, Calypso will be similarly
situated to other hotels and resorts in the area, and application of the
individual metering requirement would violate principles of fairness.
By extension, the developer has also established that
application of the rule will cause it substantial hardship. Staff estimates
that the unit owners of Calypso will save, collectively, approximately $38,000
a year in electricity costs by being able to take advantage of Gulf Power’s LP
rates. Cost savings alone do not amount to a demonstrated economic hardship,
but when coupled with the fact that the resort will directly compete with
neighboring hotels, which are allowed to take advantage of the cost savings
realized through master metering, the developer has demonstrated an economic
hardship.
Calypso will Achieve the Purposes of the
Underlying Statutes by Other Means
The purpose of FEECA is to promote energy conservation in
Florida. The individual metering requirement of Rule 25-6.049(5), F.A.C., is
designed to achieve that purpose by directly linking the amount customers pay
for electricity to the amount of electricity the customer uses. This
incentivizes customers to conserve electricity in order to minimize their
electricity bills. However, the individual metering requirement no longer
achieves FEECA’s purpose when a customer loses control over how much
electricity is consumed within the unit. A customer that owns a condominium
unit and rents the unit to others on a short-term basis for a flat per-night or
per-week fee loses control over how much electricity is used in the unit. Thus,
where the vast majority of a condominium’s residential units are rented out on
a short-term basis for a flat fee, the individual metering requirement does not
incentivize conservation.
Condominiums that function in this manner usually have a
management team and staff that serve the renters, maintain the individual
units, and maintain the common areas. The management and staff are also in the
best place to conserve electricity.
They can set air conditioners at appropriate levels and make sure lights and
appliances are turned off when units are unoccupied. They can also maintain
windows, doors, and appliances to ensure energy efficiency. The developer has
stated that the resort management and staff will ensure the efficient day to
day operations of the entire resort, including taking steps to ensure
electricity is conserved where it can be. Thus, the developer has demonstrated
that it will achieve the purpose of the underlying statute by other means.
Recommended Conditions for the Developer’s
Waiver
Assuming all or substantially all of Calypso’s residential
units are used solely for overnight occupancy as the developer envisions, the
developer has demonstrated that the purpose of the underlying statutes will be
achieved by other means and that application of the rule would both create a
substantial hardship and violate principles of fairness. Therefore, the
Commission should grant the petitioner a waiver to Rule 25-6.049(5) and (6),
F.A.C. However, because whether Calypso’s residential units are used solely for
overnight occupancy is dependent solely on the independent decisions of future,
unknown owners of those units, staff recommends the waiver be subject to the
following four conditions.
One, Calypso must apply for a public lodging license
within one year of the closing of the sale of the first of its residential
units. Calypso must also maintain this license for as long as this waiver is
effective. The Commission has made the maintenance of a public lodging license
a condition of every one of the waivers it has previously granted.
Section 509.013(4)(a), F.S., defines a public lodging establishment as any unit
or group of units advertised or held out to the public as a place regularly
rented to guests. And such establishments are required to be licensed under
Section 509.241(1), F.S. In short, if the developer asserts that Calypso will
function like a hotel, it should be licensed like a hotel.
Two, 92 percent of the residential units sold must be used
solely for overnight occupancy as that term is defined in Rule 25-6.049(8)(b),
F.A.C. The Commission has routinely conditioned similar waivers on “all or
substantially all” of the condominium’s units being used on a “transient basis.”
But whereas the term “transient basis” is neither used nor defined in Rule
25-6.049, F.A.C., “overnight occupancy” is both used and defined within the
rule. Therefore, using the latter of those two terms leads to greater clarity.
Additionally, the term “all or substantially all” does not provide a measurable
standard in this particular case. Calypso currently has no residential unit
owners, and the declaration of condominium does not require any future owner to
use its unit solely for overnight occupancy. Therefore, there is no evidence to
establish what percentage would constitute “substantially all.” An analysis of
the Commission’s past waivers shows that those condominiums receiving waivers
from the individual metering rule have demonstrated that, on average, 92.5
percent of their individual units were either currently being used on a
transient basis or would be used on a transient basis. Therefore, 92 percent
should be achievable.
Three, Calypso must allocate the cost of electricity to
the individual owners using a reasonable apportionment method. This is a
requirement of Rule 25-6.049(9)(a), F.A.C., and has been incorporated into
previous waivers.
Four, Calypso must file a report with the Commission 12
months after the date of closing of the sale of the first residential unit. The
report must include the number of units sold and, of those, the number of units
that are solely used for overnight occupancy as defined in Rule 25-6.049(8)(b),
F.A.C. The report must also include a copy of Calypso’s public lodging license.
This condition is necessary because Calypso is still under construction, and in
the future no residential unit owner will be required to use its unit for
overnight occupancy. Thus, there is some uncertainty as to whether Calypso will
in fact function like a hotel once it is occupied. The Commission has made this
same requirement in two similar waiver cases.
Conclusion
Staff recommends granting the developer’s petition for a
waiver of Rule 25-6.049(5) and (6), F.A.C., with the following conditions:
1.
Within one year of the closing of sale of its first
residential unit, Calypso must be a licensed public lodging establishment under
Sections 509.241 and 509.242, F.S. Calypso must also continually maintain that
license.
2.
On an average annual basis, 92 percent of the residential
units sold must be used solely for overnight occupancy.
3.
Calypso must allocate the cost of electricity to the
individual owners using a reasonable apportionment method.
4.
Calypso must file a report with the Commission 12
months after the date of closing of the sale of the first residential unit. The
report must include the number of units sold and, of those, the number of units
that are solely used for overnight occupancy as defined in Rule 25-6.049(8)(b),
F.A.C. The report must also include a copy of Calypso’s public lodging license.
The Commission should also put Calypso on notice that
should Calypso ever fail to comply with these conditions or file the report, the
rule waiver will cease to be effective and Calypso will be responsible for all
costs associated with the conversion to individual metering.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued and this docket
should be closed. (King, Cowdery)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, a consummating order should be issued and this docket
should be closed.
