General Telephone Co. of Florida v. Florida Public Service Commission, No. 63091

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

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.

Page 1065

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.

Page 1066

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

Page 1067

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...