Citizens of State v. Public Service Com'n, 61101

• Decision Date: 16 December 1982
• Docket Number: No. 61101,61101
• Citation: 425 So.2d 534
• Parties: CITIZENS OF the STATE of Florida, Appellants, v. PUBLIC SERVICE COMMISSION and Florida Power Corporation, Appellees.
• Court: Florida Supreme Court

Page 534

425 So.2d 534

CITIZENS OF the STATE of Florida, Appellants, v. PUBLIC SERVICE COMMISSION and Florida Power Corporation, Appellees.

No. 61101.

Supreme Court of Florida.

Dec. 16, 1982.

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

William S. Bilenky, Gen. Counsel and Paul Sexton, Staff Counsel, Florida Public Service Com'n, Tallahassee, and Sylvia H. Walbolt and Robert W. Pass of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, and S.A. Brandimore, Richard W. Neiser and James A. McGee of the Office of the Gen. Counsel, Florida Power Corp., St. Petersburg, for appellees.

ADKINS, Justice.

This cause is before us to review a Public Service Commission order approving a permanent rate increase sought by Florida Power Corporation. We have jurisdiction. Art. V, § 3(b)(3), Fla. Const.

On April 24, 1980, Florida Power petitioned the Commission for a permanent rate increase to increase annual revenues by $99 million. The petition also sought an interim rate increase designed to yield an additional $61,173,000 per year. Prior to filing its petition, Florida Power had requested the Commission to approve use of a projected 1980 test year for its upcoming rate case. The Commission held informal workshops to consider Florida Power's ability to furnish reliable data for the 1980 test period. Interested parties were invited to file briefs addressing the issue of the Commission's authority to employ projected test years at the second workshop. Public Counsel also participated in the workshops. On April 7, 1980, the Commission approved Florida Power's request and the petition was subsequently filed.

The Citizens, through Public Counsel, intervened and filed a motion to deny the proposed interim increase. On May 21, 1980, by Order 9386, the Commission suspended Florida Power's proposed rates, requesting legal briefs concerning whether Maule Industries v. Mayo, 342 So.2d 63, (Fla.1976), permitted interim rates based on projected data and requiring Florida Power to submit supplemental filings. Florida Power & Light Company intervened and filed a brief. Florida Power also filed a brief.

The Commission ultimately voted to award to Florida Power an interim increase of approximately $54.6 million, subject to refund, and issued Order No. 9451 on July 15, 1980, to that effect. In this order, the Commission concluded that Florida Power had sufficiently demonstrated a present need for an interim increase in revenues as indicated by the projected 1980 data and corroborated by other historical data.

Order No. 9451 never became a final order. Public Counsel petitioned for reconsideration of the order and the Commission held a public hearing on the petition to determine whether certain unrecovered fuel costs should have been included in the interim rate increase. By Order No. 9577, the Commission reduced the interim rates to $40,134,000 and all excess funds collected under the previous order were refunded.

A status conference had been held, prior to issuance of Order No. 9577, at which time Florida Power agreed to extend the eight-month suspension period and to file additional data to support its test year assumptions and projections. The full rate case hearings were held during January and February 1981. At that time, Florida Power also filed historic data for the 1980 test year to allow the Commission to test the reasonableness of the projections upon which the case had proceeded. The Commission's final order, Order No. 9864 issued on March 11, 1981, confirmed the revenues collected under the interim rates and approved permanent rates yielding additional annual revenues of approximately $58.4 million. The Commission made the new rates applicable to all meter readings made on or after thirty days from the date of the vote and decision on the petition, or March 22, 1981.

Public Counsel petitioned for reconsideration of Order No. 9864. By Order No. 10162, issued July 29, 1981, the Commission granted in part and denied in part the Citizens' petition. Order No. 10162-A was also entered to amend Order Nos. 9864 and 10162.

The first issue that Public Counsel presents for our review is whether the allowance of projected construction work in progress (CWIP) in the rate base is prohibited by section 366.06(2), Florida Statutes (1979), and conflicts with prior decisions of this Court. The statute reads, in applicable portion:

The commission shall investigate and determine the actual legitimate costs of the property of each utility company, actually used and useful in the public service, and shall keep a current record of the net investment of each public utility company in such property which value, as determined by the commission, shall be used for rate-making purposes and shall be the money honestly and prudently invested by the public utility company in such property used and useful in serving the public ....

Although Public Counsel does not challenge the projected test year concept generally, he argues that section 366.06(2) prohibits the inclusion of projected test year CWIP in the rate base. His objection rests on the directive to determine the "actual legitimate costs of property ... actually used and useful in the public service" and that it "keep a current record of the net investment of each public utility in such property which value ... shall be used for rate making purposes." Public Counsel's first contention is that the statute clearly limits the Commission to the use of historic cost data in calculating rate base. Apparently, he contends that "current record" refers exclusively to a record of investment that has already been made at the time the rate increase petition is filed. Florida Power argues that the statutory language is only intended to prevent the use of outdated information and to ensure that the most up-to-date data is employed in predicting what the utility's requirements will be during the period in which the new rates will be in force and, therefore, it is consistent with the function of rate-making to permit the Commission to use the record it has at the time rates are set as its "current record."

We find no basis to distinguish between using projected CWIP as opposed to using any other projected component of rate base. The projected test year 1980 in the case sub judice had become an historic test year by the time the full hearings were commenced in January of 1981. There was a deviation between the projected CWIP allowed and historic CWIP of 1.4%. However, the actual net operating income of Florida Power on a systemwide basis was shown to be less than what had been projected by the company. The end result was greater actual revenue requirements than those sought under the projected data. Inasmuch as Public Counsel has not challenged the projected test year concept generally and the Commission has concluded that an adequate basis has been provided for analysis of the projected test year, we find this portion of his argument to be without merit.

Having made this determination, we are left with the question of whether the statute or decisions of this Court prohibit inclusion of CWIP in rate base. This Court has ruled that section 366.06(2), Florida Statutes, does not prohibit the inclusion of CWIP in rate base. Shevin v. Yarborough, 274 So.2d 505 (Fla.1973). In Shevin, the Attorney General of Florida attacked the inclusion of CWIP on the basis that it failed to comport with the test applied by the Commission in a previous order. In response, the Court stated:

We have determined that the judgment of the Commission in this matter is in accord with the essential requirements of the law, supported by substantial competent evidence, and not a clear abuse of discretion.

Id. at 510. As illustrated by Shevin, inclusion of CWIP in rate base is a question of policy and Commission discretion. The policy should have a reasoned basis. Order No. 9864 provides an explanation of CWIP as a rate base adjustment. In that order the Commission sets forth some of the policy reasons and factors supporting its decision as follows:

The arguments for and against the inclusion of CWIP in rate base were fully developed before the Commission. Expenditures associated with construction may be accounted for in two ways. The interest costs may be capitalized through an Allowance for Funds Used During Construction, in which case no return is earned upon plant until it enters service. At that time such interest costs are recovered through higher depreciation rates. AFUDC appears on the current income statement in the form of non-cash earnings which are perceived as inferior in quality by investors.

Alternatively, CWIP may be included in rate base. In this situation, the utility earns a present return on its investment in new construction, and no allowance for funds is recorded on that portion of CWIP included in rate base. The advantages of this alternative included greater cash flow and a higher quality of earnings, which should translate into lower perceived risk and a lower cost of capital. These aspects are especially beneficial in a situation involving a substantial construction program and a need for external financing. In addition, use of this alternative leads to a more gradual phasing in to the rate base (which is supported by rates charged to customers) of the large investments associated with new plant, as contrasted with the revenue requirement "jolt" which occurs when a utility requests approval of rates designed to provide a return on the total value of the new plant when it is placed into service.

Order 9864, Docket No. 800119-EU, at Sheet 5. In Order No. 10162, which amended Order No. 9864, the Public Service Commission also stated:

Having considered the position of the parties, we are persuaded that inclusion of an appropriate amount of CWIP in rate base constitutes a sound regulatory practice, and one which will realize net advantages over...