Citizens of Florida v. Nichols, 73623
| Decision Date | 15 February 1990 |
| Docket Number | No. 73623,73623 |
| Citation | 556 So.2d 1109 |
| Parties | 15 Fla. L. Weekly S74 CITIZENS OF FLORIDA, Appellants, v. Katie NICHOLS, etc., et al., Appellees. |
| Court | Florida Supreme Court |
Jack Shreve, Public Counsel, and Charles J. Beck, Asst. Public Counsel, William L. Hyde and Ronald C. LaFace of Roberts, Baggett, LaFace & Richard, Tallahassee, for appellants.
Susan F. Clark, General Counsel, and William J. Bakstran, Associate General
Counsel, Tallahassee, for Florida Public Service Com'n.
William H. Adams, III and David E. Otero of Mahoney, Adams, Milam, Surface & Grimsley, P.A., Jacksonville, Joaquin R. Carbonell, III, General Atty., Miami, J. Robert Fitzgerald, Vice President and General Counsel, and R. Douglas Lackey, General Counsel, Atlanta, Ga., for Southern Bell Tel. and Tel. Co.
The Citizens of Florida appeal the Florida Public Service Commission's orders 20162 and 20503, which established, among other things, an experimental profit-sharing plan with ratepayers for Southern Bell Telephone and Telegraph Company. The Citizens' primary claim is that the Commission failed to take into account the factor of stimulation in adopting the rate plan for Southern Bell. We have jurisdiction, article V, section 3(b)(2), Florida Constitution, and we find that the Commission had substantial, competent evidence to justify its adoption of the rate plan.
The relevant facts indicate that Southern Bell filed a petition seeking, among other things, to decrease the rates on a variety of toll services over a period of three years, and to receive permission to retain one-half of its earnings exceeding the threshold return on equity of 15%. Southern Bell's proposed plan contained new features not ordinarily contained in rate-making orders and tariffs. The Commission explained this new rate-setting plan in Order No. 20162 as follows:
Traditional utility regulation has historically taken the form of rate of return regulation (ROR) by independent regulatory authorities such as this Commission. Under this approach, privately-owned utilities such as Southern Bell are given the opportunity to collect rates which will cover operating costs and earn a reasonable rate of return on property devoted to providing the regulated service. In recent years in Florida, the Commission has calculated a rate of return as a mid-point and generally allowed a 100 basis point zone of reasonableness around that point. Southern Bell's current authorized zone is 14-16%. The Southern Bell petitions are premised upon the idea that this traditional manner of regulation needs to be altered in the light of technological developments and governmental actions, particularly the 1984 Bell System divestiture. In Southern Bell's view, alteration of the regulatory scheme would alleviate economic disincentives inherent in rate of return regulation.
Two major disincentives of ROR regulation discussed at the hearings were the incentive to overinvest and the lack of incentive to innovate, reduce cost and introduce new services. As to overinvestment, the theory is that, because the return is tied to rate base, there is an incentive to increase the rate base in order to increase earnings. In other words, regulated firms have reasons to "goldplate" their physical plants. The theory behind the reduced innovation is that no reason exists to reduce costs and improve productivity when these gains are returned to the utility's ratepayers.
To alleviate the perceived disincentives of ROR regulation, Southern Bell proposed a "rate of return sharing incentive plan." This plan assumed the existing 14-16% range for return on equity. Under the proposal, earnings above 15% would be split 50/50 between the company and its ratepayers. Southern Bell would retain 50% of the amount over 15% and the Commission could allocate the remaining 50% as it saw fit, including possible refunds and rate reductions. Although it was not clear from the petitions, Southern Bell did agree that its earnings after sharing would not exceed 16% under its plan.
The Commission gave its general approval to the sharing concept but changed both the starting point for the sharing and the sharing percentage. Southern Bell had asked for the right to earn 15% before it was required to share its earnings with the ratepayers; however, the Commission...
To continue reading
Request your trial