General Telephone Co. of Florida v. Florida Public Service Commission, 63091

• Citation: 446 So.2d 1063
• Decision Date: 02 February 1984
• Docket Number: No. 63091,63091
• Parties: GENERAL TELEPHONE CO. OF FLORIDA, et al., Appellants, v. FLORIDA PUBLIC SERVICE COMMISSION, et al., Appellees.
• Court: United States State Supreme Court of Florida

Page 1063

446 So.2d 1063

GENERAL TELEPHONE CO. OF FLORIDA, et al., Appellants, v. FLORIDA PUBLIC SERVICE COMMISSION, et al., Appellees.

No. 63091.

Supreme Court of Florida.

Feb. 2, 1984.

James V. Carideo, Lorin H. Albeck, Leslie R. Stein and Michael W. Tye, Tampa, for appellant, General Tel. Co. of Florida.

Norman H. Horton, Jr., of Mason, Erwin & Horton, Tallahassee, for appellant, United Tel. Co. of Florida.

William S. Bilenky, Gen. Counsel, Patrick K. Wiggins, Deputy Gen. Counsel, and Jose A. Diez-Arguelles, Associate Gen. Counsel, Tallahassee, for appellee, Florida Public Service Com'n.

Jack Shreve, Public Counsel, and Kenneth A. Hoffman, Associate Public Counsel, Tallahassee, for appellee, The Citizens of the State of Florida.

ADKINS, Justice.

This case is before us for review of Public Service Commission (PSC) Order No. 11448, by which the PSC promulgated Florida Administrative Code Rule 25-14.04. We have jurisdiction. Art. V, § 3(b)(2), Fla. Const.

The rule, as an action by an administrative agency, was adopted pursuant to the procedures specified in the Florida Administrative Procedures Act. §§ 120.50-.73, Fla.Stat. (1981). On October 8, 1982, the PSC issued an order proposing rulemaking pursuant to section 120.54(1), Florida Statutes (1981), and notice of the proposed rulemaking was subsequently published in the Florida Administrative Weekly. On October 27, 1982, appellants requested a hearing on the proposed rule. On November 3, 1982, a hearing was held pursuant to section 120.54(3), Florida Statutes (1981). Appellants and other interested parties participated in the hearing, where they were able to present evidence, cross-examine witnesses, and were generally able to inform the PSC of their views on the proposed rule. On November 19, 1982, the PSC hearing officer who presided over the section 120.54(3) hearing announced his recommended version of the rule. The PSC adopted the rule as recommended through Order No. 11448 on December 27, 1982, despite exceptions to the recommended rule having been filed by appellants and other interested parties. On January 17, 1983, appellants filed for review in this Court.

The text of Florida Administrative Code Rule 25-14.04 is as follows:

25-14.04 Effect of Parent Debt on Federal Corporate Income Tax.

In Commission proceedings to establish revenue requirements or address over-earnings, other than those entered into under Rule 25-14.03, F.A.C., the income tax expense of a regulated company shall be adjusted to reflect the income tax expense of the parent debt that may be invested in the equity of the subsidiary where a parent-subsidiary relationship exists and the parties to the relationship join in the filing of a consolidated income tax return.

(1) Where the regulated utility is a subsidiary of a single parent, the income tax effect of the parent's debt invested in the equity of the subsidiary utility shall reduce the income tax expense of the utility.

(2) Where the regulated utility is a subsidiary of tiered parents, the adjusted income tax effect of the debt of all parents invested in the equity of the subsidiary utility shall reduce the income tax expense of the utility.

(3) The capital structure of the parent used to make the adjustment shall include at least long term debt, short term debt, common stock, cost free capital and investment tax credits, excluding retained earnings of the subsidiaries. It shall be a rebuttable presumption that a parent's investment in any subsidiary or in its own operations shall be considered to have been made in the same ratios as exist in the parent's overall capital structure.

(4) The adjustment shall be made by multiplying the debt ratio of the parent by the debt cost of the parent. This product shall be multiplied by the statutory tax rate applicable to the consolidated entity. This result shall be multiplied by the equity dollars of the subsidiary, excluding its retained earnings. The resulting dollar amount shall be used to adjust the income tax expense of the utility.

Appellants challenge the PSC rulemaking on several grounds. First, appellants claim that the record established at the section 120.54(3) hearing shows substantial evidence weighing against adoption of the rule and that, in fact, the record shows no evidence in support of the rule, thus making the PSC's adoption of the rule an arbitrary decision. Second, appellants claim that the rule is substantively invalid because implementation of the rule prevents a utility from receiving a fair rate of return on investment as provided by section 364.14, Florida Statutes (1981), and because the rule abridges due process guarantees which require that ratemaking orders be based on competent and substantial evidence of record.

For the reasons stated below, we find that appellants' challenges are without merit and we uphold the rulemaking in all respects.

In order to evaluate appellants' challenges regarding the sufficiency of the evidence supporting the rule, we must specify the proper standard for judicial review of the rulemaking in this case. The PSC, as does any other administrative agency, acts in both quasi-legislative and quasi-judicial capacities. This Court has recognized that agency rulemaking pursuant to statutory authorization, such as the PSC rulemaking in this case, is a quasi-legislative function. See Daniel v. Florida State Turnpike Authority, 213 So.2d 585, 586 (Fla.1968).

The legislature has provided the PSC with the "power to prescribe fair and reasonable rates and charges ... to be observed by each utility ... and to prescribe all rules and regulations reasonably necessary and appropriate for the administration and enforcement of this chapter." § 366.05(1), Fla.Stat. (1981). The rulemaking in this case, as is all PSC rulemaking involving utility rates, is authorized by § 350.127(2), Fla.Stat. (1981), which provides the PSC the power to "adopt ... rules reasonably necessary to implement any law which it administers."

Despite the section 120.54(3) hearing where interested parties made statements under oath and were subjected to limited cross-examination, we find that the rulemaking in this case retained its quasi-legislative nature. In this context, we agree with the characterization of a section 120.54(3) hearing set forth by the district court in Balino v. Department of Health and Rehabilitative Services, 362 So.2d 21 (Fla. 1st DCA 1978), cert. denied, 370 So.2d 458 (Fla.1979), where the hearing was described as a quasi-legislative proceeding intended to facilitate the exchange of information between interested parties and not to be restricted to technical rules of evidence. Such a hearing is designed only to allow an agency to inform itself to the fullest extent possible prior to rulemaking, and not to adjudicate any issues or be conducted in the adversarial manner normally associated with judicial or quasi-judicial proceedings.

As a quasi-legislative proceeding, our review of the rulemaking is more limited than would be review of a quasi-judicial proceeding. The standard of review for a quasi-legislative proceeding must differ from that for a quasi-judicial proceeding, as a qualitative, quantitative standard such as competent and substantial evidence is conceptually inapplicable to a proceeding where the record was not compiled in an adjudicatory setting and no factual issues were determined. We adopt as the proper standard of review one set forth by the First District Court of Appeal upon review of similar rulemaking:

Where the empowering provision of a statute states simply than an agency may "make such rules and regulations as may be necessary to carry out the provisions of this Act," the validity of the regulations promulgated thereunder will be sustained as long as they are reasonably related to the purposes of the enabling legislation, and are not arbitrary or capricious.

Agrico Chemical Co. v. State, Department of Environmental Regulation, 365 So.2d 759 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (Fla.1979); Florida Beverage Corp. v. Wynne, 306 So.2d 200 (Fla. 1st DCA 1975).

We find that the rule adopted by the PSC is neither arbitrary or capricious. The rule represents a valid implementation of a PSC policy choice regarding the treatment of a utility's income tax expense during ratemaking. Testimony put forth during the section 120.54(3) hearing shows that there is no single correct method of dealing with the income tax expense of a subsidiary-utility joining in the filing of a consolidated return. By choosing this particular method, the PSC is merely acting within the scope of its discretion. It is clear that this Court will not substitute its judgment for that of the PSC on a discretionary decision. Citizens of Florida v. Mayo, 357 So.2d 731 (Fla.1978). This particular policy choice finds ample support in the record, where it is shown that an income tax expense adjustment had been implemented in several past ratemaking cases in basically the same form as the rule now provides. In fact, this Court has instructed the PSC to apply this type of adjustment in a ratemaking case when the facts of the case were found to warrant such an adjustment. See Citizens of Florida v. Hawkins, 356 So.2d 254 (Fla.1978). We therefore find that appellants' evidentiary challenges to the rulemaking are without merit.

Appellants challenge the rule itself on two substantive grounds, the first being that use of the rule would deny...