Citizens of State v. Florida Public Service Commission, XX-7

• Decision Date: 12 May 1981
• Docket Number: No. XX-7,XX-7
• Citation: 399 So.2d 9
• Parties: CITIZENS OF the STATE of Florida, Appellants, v. FLORIDA PUBLIC SERVICE COMMISSION, et al., Appellees.
• Court: Florida District Court of Appeals

Page 9

399 So.2d 9

CITIZENS OF the STATE of Florida, Appellants, v. FLORIDA PUBLIC SERVICE COMMISSION, et al., Appellees.

No. XX-7.

District Court of Appeal of Florida, First District.

May 12, 1981.

Rehearing Denied June 24, 1981.

Jack Shreve, Public Counsel, and J. Roger Howe, Asst. Public Counsel, Tallahassee, for appellants.

Arthur C. Canaday, Jr., Susan F. Clark, Virginia Daire Reber, and Raymond E. Vesterby, Tallahassee, for appellee, Public Service Commission.

James L. Ade and William A. Van Nortwick, Jr., Jacksonville, for appellee, General Waterworks Corp.

LILES, WOODIE A. (Retired), Associate Judge.

Pursuant to Article V, Section 3(b)(2), Florida Constitution (1980), the Public Counsel is before this Court urging that we disallow a rate base which includes "add back" of accumulated depreciation attributable to contributions-in-aid-of-construction (CIAC).

The Public Service Commission (PSC) granted General Waterworks Corporation d/b/a General Waterworks Central Florida District (General Waterworks) a rate increase and in doing so allowed the accumulated depreciation on CIAC to be added back, and Public Counsel maintains that this is that type of "double-dipping" prohibited by the Supreme Court in Citizens of the State of Florida v. Hawkins (Holiday Lakes), 364 So.2d 723 (Fla.1978).

There, the Court said:

The process of setting public utility rates involves at least two essential elements: the utility's rate base and the rate of return. Rate base represents the utility property which provides the services for which rates are charged. The rate of return is a percentage figure which is applied to the rate base in order to establish a reasonable return for the utility's investors. When these two figures are multiplied the net operating income of the utility results. Operating expense and income taxes are then added to the net operating income to calculate gross revenue. The actual rates charged the customers are determined in such a way as to allow the utility to collect this gross revenue. Id., at 724.

Here, as in Holiday Lakes, a significant portion of the utility's assets, or property, is attributable to CIAC, which is plant for which the utility's investors have not paid. In calculating General Waterworks' rate base, the PSC has allowed the utility to add back into its computation a figure which represents accumulated depreciation on CIAC. Stating its computation of rate base as a formula, PSC's method defines rate base as follows:

RB = (X k Y) - ((A k B) k X) k A ¹

First, and most importantly, Holiday Lakes is factually distinguishable because there the PSC, in addition to allowing the add-back into the rate base, also allowed the utility to treat that depreciation on CIAC as an operating expense. In this case, however, the PSC did not allow depreciation on CIAC as an operating expense. This difference in treatment is important. The practice of allowing CIAC depreciation as an operating expense instead of allowing the add-back in the rate base would lead to a greater revenue requirement for the utility and, consequently, higher rates for the utility's customers because a utility receives a dollar-for-dollar return on operating expenses, but only a percentage on its rate base. Further, while the practice of allowing depreciation on CIAC as an operating expense was not at issue in Holiday Lakes, the end result of that case disallowed the add-back in the rate base so as to prevent the utility from double-dipping. Accordingly, we think that the PSC's present practice of disallowing depreciation on CIAC as an operating expense constitutes an offsetting factor "which would neutralize this practice (adding back accumulated depreciation on CIAC in the rate base) and the harmful effects that ensue from allowing utilities to earn a return on contributed capital." Id., at 727.

The Supreme Court also specifically noted in Holiday Lakes that its decision in no way conflicted with its prior ...