Scattered, smothered, and covered under water regulation. Have the courts (finally) unscrambled franchise rights of IOUs and local governments?

• Author: Ferguson, Cleveland, III

Florida's constitution divides government into state and county levels. Florida's statutes allow for municipalities to be chartered, some with home rule, some without. When all of these political entities begin exercising their authority over Florida's citizens and the businesses they create, there are instances when the resulting laws create a smothering sense of over regulation. A lawyer advising a private utility of a group of homeowners on water regulation issues must research ordinances scattered throughout municipal and county codes, the Florida Administrative Code, and a hall dozen chapters of the Florida Statutes. Water regulation is covered in some way by municipalities, counties, and nearly a half dozen state agencies. (1) Everyone needs access to water. With 207 investor-owned water and wastewater utilities (IOUs) comprising more than 1,300 systems in 35 counties, more than half of Florida's population is affected by these multitiered regulators. (2) Without knowing which laws govern your case, wading through the myriad statutes and regulations in this field can lead to wrong legal advice and increased costs to businesses and higher utility rates to consumers. The road map for consumer advocates and lawyers who work with IOUs may have been simplified due to a recent, bold opinion issued by the Fifth District Court of Appeal confronted with the following situation.

Not-so-atypical Hypothetical

Imagine a development, divided by a county road. On the right, the development is located within a city's limits. On the left, the development is located within an unincorporated portion of a county. A developer continues building single-family homes on both sides of the road. Families are beginning to more into the homes and water service is now needed in the entire area. The city's council amends its comprehensive plan to reserve for its utility system the option to provide water service to the residents in this area up to the county road. No objections to the city council's action are filed. The city council decides that it will not provide water service immediately; instead, the city council reasons that if it waits until more developments are built on both sides of the road, providing water service to the community becomes more profitable. Next, an investor-owned water utility (IOU) is granted the right to provide water service to residents on both sides of this road by the Florida Public Service Commission (PSC). The city council initially objects to this grant of franchise rights at a PSC meeting, but eventually withdraws it. As a result, the PSC approves the extension of service territory requested by the utility. The IOU wants the developer to interconnect its water pipes into the utility's main line (abutting the development) so the utility can provide service immediately. The city council refuses to grant additional building permits to the developer if he does not interconnect with the city rather than the IOU. The IOU tells the developer that the city's action is improper because it was granted the right to provide water to the residents in that service area by the PSC. The IOU then reminds the city council that the county commission ceded jurisdiction to the PSC over the regulation of IOU water and wastewater systems. The city council, using its authority under Florida's comprehensive plan statutes, (3) annexes the unincorporated property into its limits, and asserts its municipal powers under Ch. 180 to provide water service to the entire development. Further, the city then threatens the developer with its zoning and permitting power if the development does not interconnect with the city. The utility asserts its franchise rights to operate in the area pursuant to its certificate granted by the PSC under F.S. Ch. 367. What is the PSC's authority to grant franchise rights to an investor-owned utility? How do the comprehensive plan statutes affect PSC jurisdiction? Does Ch. 180 provide municipalities with a trump card against Ch. 367? Who wins?

Powers of the PSC Regarding Water Regulation

* PSC's Authority Under F.S. Ch. 367

F.S. Ch. 367 is known as the "Water and Wastewater System Regulatory Law," and it empowers the PSC to have exclusive jurisdiction over each IOU in the water and wastewater industry with respect to its authority, service, and rates. (4) Chapter 367 supercedes all other laws on the same subject. (5) Chapter 367 requires that IOUs regulated by the PSC obtain a certificate of authorization to provide service within a specifically requested territory from the PSC. In determining whether to grant of amend a certificate, the PSC has no statutory duty to consider the actions of local governments. (6)

As a regulatory goal, once the PSC has granted a certificate of authority, it also must balance the IOU's interest in recouping its investment. This includes weighing the opportunity to make a reasonable profit through rate increases with adequate service to its customers. The PSC's economic regulation of privately owned utilities is not automatic. County governments are provided the option of either regulating the rates, service, and territory of IOUs doing business within their jurisdiction or they may cede this jurisdiction to the PSC. (7) They may also rescind the PSC's authority at any time after ten years by a vote of the county government. (8)

Affirming that "an administrative agency has only such power as expressly or by necessary implication ... granted by legislative enactment," (9) courts have upheld PSC action on approving utility territorial agreements, (10) modifying utility rates in spite of deed restrictions in private contracts, (11) and exercising exclusive jurisdiction over IOUs which are part of systems providing service that transverse county boundaries, (12) in nearly 100 percent of all such cases, making the PSC among the most respected regulatory bodies by the courts in Florida. Aside from economic regulation by the PSC, IOUs must work with additional state and local actors that administer water and wastewater regulations.

* Regulation of the Private Water and Wastewater Industry

Over the course of Florida's development, its legislature enacted nearly a dozen acts that resulted in hundreds of regulations designed to address environmental problems and respond to various economic issues. (13) This resulted in several state entities having a hand in the regulation of Florida's water and wastewater. Consequently, IOUs and customers must wade through regulations that are scattered throughout Florida's statutory scheme. With seemingly no thought given to consolidation of administrative responsibility of these regulating bodies, state agencies just ended up crowding the area, often creating multilayered headaches for IOUs along the way.

For example, the state Department of Environmental Regulation (DER) regulates the environmental, health, and safety aspects of water and wastewater service. (14) The DER shares this responsibility with county health departments. Florida Water Managements Districts (FWMDs) control the water source supply. (15) Since adequate water and wastewater utility service is an integral part of land use planning, state, local, and regional political subdivisions are involved as well. (16) Land use planning has resulted in an emphasis in growth management and environmental protections. These political subdivisions...