GTE Florida Inc. v. Deason, 82003
Decision Date | 07 July 1994 |
Docket Number | No. 82003,82003 |
Citation | 642 So.2d 545 |
Parties | 19 Fla. L. Weekly S362 GTE FLORIDA INCORPORATED, Appellant, v. J. Terry DEASON, etc., et al., Appellee. |
Court | Florida Supreme Court |
Thomas R. Parker, James V. Carideo, Joe W. Foster, Kimberly Caswell and M. Eric Edgington, Tampa, for appellant.
Robert D. Vandiver, Gen. Counsel and David E. Smith, Director of Appeals, Florida Public Service Com'n, and Jack Shreve, Public Counsel and Harold McLean, Associate Public Counsel, for Citizens of State of Florida, Tallahassee, for appellees.
We have on appeal a decision by the Florida Public Service Commission relating to rates or service of telephone utilities. We have jurisdiction. Art. V, Sec. 3(b)(2), Fla.Const.; Sec. 364.381, Fla.Stat. (1993).
In 1992, GTE Florida Incorporated asked the Public Service Commission (PSC) to approve a telephone rate increase in gross annual revenues of $110,997,618, later revised downward to $65,994,207. After hearings, the PSC denied the request and reduced revenues by about $14,500,000.
GTE Florida filed a motion for reconsideration. The PSC took up the motion in a meeting lasting less than an hour. At this point the PSC decreased the negative revenue requirement by about $831,000 to $13,500,000.
Ten million dollars of the total reduction arose from GTE's use of Statement of Financial Accounting Standards 106 ("SFAS 106"), which embodied expenses GTE Florida claimed in connection with certain post-retirement benefits. GTE contended that the $10,000,000 reduction was improperly based on the PSC's unsupported opinion of GTE Florida's 1994 financial conditions, rather than the established 1992 test year and the 1993 rate year contained in the record.
The PSC disallowed some of the cost of services supplied by GTE Data Services, an affiliate of GTE Florida. As grounds, the PSC held that the transaction with the affiliate was not "arms length" and therefore was subject to greater scrutiny. Specifically, the affiliate would only be entitled to cost plus a reasonable return, which was set at 11.25 percent. The evidence showed, however, that GTE Data Services charged GTE Florida rates equal to or less than those charged to nonaffiliates.
The cost of supplies purchased from GTE Supply was disallowed for the same reason. The PSC found that the relationship with GTE Supply provided substantial benefits, however, and allowed a greater return to GTE Supply. The evidence showed that GTE Supply sold commodities to GTE Florida at a discount of about 2.5 to 3 percent lower than the cost to nonaffiliates.
The PSC also based its order on a calculation of GTE Florida's capital structure, which the corporation disputes. The calculation involved a wholly owned subsidiary, GTE Communications, which sells deregulated offerings. The PSC reduced GTE Florida's capital structure by 100 percent of the equity value of GTE Communications. GTE Florida contended that the reduction should have been adjusted to represent proportionately its own sources of capital, which include forms of debt such as bonds.
Regarding SFAS 106, our research has disclosed that this relatively new accounting standard 1 has created some confusion throughout the nation. In simple terms, SFAS 106 establishes a new "accrual" method of accounting for costs associated with post-retirement benefits other than pensions (PBOPs), replacing the earlier "pay-as-you-go" accounting method. Under the accrual method, PBOP costs are deemed "paid" for financial accounting purposes as each employee earns them rather than when the PBOPs are actually paid to employees after retirement. Thus, SFAS 106 essentially is a change in the timing at which PBOP costs are used to offset company profits for accounting purposes. However, this change can have dramatic results: In 1991, International Business Machines' switch to SFAS 106 had an estimated accounting effect of $2.26 billion. Reva Steinberg et al., Accounting for Post-Retirement Benefits: Part II, 8 Prentice Hall Insights 29 (1991).
SFAS 106 has generated diverse responses by ratemaking authorities throughout the nation. Some such authorities apparently have adopted the accrual method of accounting for ratemaking purposes with little if any change. E.g., Iowa Adopts Accrual Method for PBOPs, 131 Pub.Util.Fort. 51 (1993). Other jurisdictions have rejected it in whole or in part. E.g., Arizona Sticks with Cash Accounting, 132 Pub.Util.Fort. 54 (1994). This apparently includes the Federal Communications Commission in at least one case involving telephone carriers. FCC Rejects PBOP Accounting Change, 131 Pub.Util.Fort. 60 (1993).
Still other jurisdictions have permitted some utilities to fully recover SFAS 106 costs, while requiring other utilities to "phase in" the change. Maryland PSC Keeps Its Word & Approves PBOP Phase-In, 131 Pub.Util.Fort. 44 (1993). Some state utilities commissions have announced their intention of providing greater scrutiny over costs associated with SFAS 106 because of uncertainties surrounding it, and others have stated they may adopt an accrual method different from SFAS 106. PBOP Rulings Continue, 131 Pub.Util.Fort. 46 (1993). At least one state has required a utility company to defer SFAS 106 expenses until future rate cases, in light of higher-than-usual company profits. High Earnings Cover SFAS 106 Costs, 132 Pub.Util.Fort. 46 (1994).
Partly because of the obvious confusion created by SFAS 106 in the ratemaking context, we cannot say we fault the PSC for exercising some degree of caution. While unsupported statements may have been made about GTE's future earnings, we find that an independent basis supports the PSC's determination regarding SFAS 106: the uncertainties still associated with the accrual method of accounting for PBOPs in ratemaking. 2 Several other jurisdictions have...
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