Gulf Power Co. v. Bevis

Citation289 So.2d 401
Decision Date30 January 1974
Docket NumberNo. 43245,43245
PartiesGULF POWER COMPANY, a corporation, Petitioner, v. William H. BEVIS et al., Respondents.
CourtUnited States State Supreme Court of Florida

Bert Lane of Beggs, Lane, Daniel, Gaines & Davis, Pensacola, for petitioner.

Reubin O'D. Askew, Governor of Fla., and Arthur J. England, J., Consumer Advisor and Sp. Counsel to the Governor, and Robert L. Shevin, Atty. Gen., and W. Robert Olive, Jr., Asst. Atty. Gen., for cross-petitioners.

Donald R. Alexander, Tallahassee, for respondents.

Robert R. Feagin III of Holland & Knight, Lakeland, for amicus curiae, Tampa Electric Co.

B. Kenneth Gatlin and Jack M. Skelding, Jr. of Madigan, Parker, Gatlin, Truett & Swedmark, Tallahassee, and Frank H. Bass, Jr., St. Petersburg, for amicus curiae, Fla. Power Corp.

Edwin L. Mason, of Mason & Erwin, Tallahassee, for amicus curiae, St. Joseph Telephone and Telegraph Co., and Gulf Telephone Co. DEKLE, Justice.

This is a review in certiorari of orders of the Florida Public Service Commission. The first order, entered June 30, 1972, authorized an increase in petitioner's rates in order to allow a fair rate of return upon its properties and investment which is constitutionally required. 1

Thereafter, the Governor of the State of Florida and the Attorney General of Florida (who had not previously been parties in the proceeding) filed extraordinary petitions for reconsideration directed to that portion of the Commission's order which took into consideration in determining a fair rate of return, the additional expense required to be paid by the utility under the new state corporate income tax. This was treated by the Commission in its ultimate determination in that original order as one of the many factors requiring consideration in arriving at an overall result of a fair return fixed in its order at the 'midlevel' of 8.06%. The amount of the tax was not applied on the basis of a direct, independent addition to the rate to be charged but was properly considered along with other expenses of the utility in determining a proper return as required by law.

The Commission found the corporate income tax to be one which 'will have a pronounced and material effect on the earnings of the Company,' pointing out in its order that for the test period 'the Company would have incurred a $756,499 expense for this tax alone.' The Commission in its order then pointed out that 'we would be remiss in our duty if we failed to recognize that Gulf's earnings will be materially reduced by this tax;' and further stated, 'The state income tax will of course also decrease the Company's net operating income to some extent.' Thus it is seen that the Commission correctly perceived the effect of the new state income tax as an additional expense of doing business which naturally reduces the income of the company and which must accordingly be considered in focus as one of the factors in arriving at a fair rate of return, which they correctly did.

The respondents, and the Governor's counsel in particular, argue that this disposition of the corporate income tax in the determination of rates was not an issue before the Commission and was not one determined by it for our review. The record is to the contrary. The Governor's extraordinary petition itself urged the Commission to reverse this very determination and made it the prime issue when it stated:

'The determination of the Commission in this case that Florida corporate income tax liability is an operating expense properly chargeable in full to utility customers is the first determination by the Commission on this precise question, and for that reason has extraordinary policy implications for all future rate cases.'

The Governor's petition then expressly sets forth as his number one objection to the Commission's initial order that:

'(1) the order sets precedent for the basis upon which the tax pass-on is computed. . . .'

It is accordingly clear that this very issue was the basis for the new order under attack here upon certiorari review and must be resolved by us. Such resolution will in turn dispose of the procedural questions raised.

The issue regarding disposition of the state corporate income tax in the fixing of rates by the Commission is pinpointed in its new order under review, rejecting any allowance for such tax, despite the fact that the Commission expressly recognizes still the impact of the tax upon the operating income of the company and therefore the diminishing of its opportunity for a fair rate of return upon the utility's investment. The Commission's specific findings in this respect have not been changed and remain in effect. The Commission took into account such findings when it first fixed the rates in arriving at the correct fair return of 8.06%.

It is not a question of any particular item of expense being given isolated consideration, as respondents seem concerned that it is; rather it is a consideration of all pertinent expenses and income in determining the ultimate question, namely, that of a proper rate which affords a fair return. This the Commission correctly did in the first instance and should not have receded from it. The already effective tax was an essential 'out of period adjustment' necessarily considered as supplemental to the test year being applied. The authorities unanimously require this.

Rates are fixed for the future rather than for the past and for this reason a pre-fixed earlier period cannot be arbitrarily applied, as the Commission has now done at the urging of the Governor and Attorney General. A rate making body such as Florida's PSC cannot ignore an existing fact that admittedly will affect the future rates, such as the corporate tax here. This question has been settled by the U.S. Supreme Court in McCardle v. Indianapolis Water Co., 272 U.S. 400, 47 S.Ct. 144, 71 L.Ed. 316 (1926). There, the U.S. Supreme Court said that the fixing of utility rates must of necessity be related to matters which are reasonably predictable as being involved, for the process is one of making a rule for the future. This is really the principle which the Commission correctly applied when it entered its original order and said:

'In regulatory rate making, it is customary to select a test year or period for the purpose of testing the revenue requirements of the utility under consideration. The judicial decisions on the subject of the appropriate test year in a utility rate case uniformly adhere to the rule that the test period should be based on the utility's most recent actual experience With such adjustments as will make the test period reflect typical conditions in the immediate future. The propriety or impropriety of a test year depends upon how well it accomplishes the objective of determining a fair rate of return in the future. Thus, the realistic approach to this issue, since rates are fixed for the future and not for the past, is to use the most recently available data for a 12-months' period, Adjusted for known changes which will occur with in a reasonable time after the end of said period so as to fairly represent the future period for which the rates are being fixed.' (Emphasis added)

The Commission thereby correctly recognized and considered initially the corporate income tax since it became effective before the hearings were even completed and before its order was entered. It could not be ignored. The test year data were accordingly adjusted to recognize and to take into account a Known change in order properly to reflect typical conditions in the future period for which the rates were being fixed. That is what the 'test period' is-a sample or typical example, to determine a future course.

The law is a tool of justice, not a goddess to be worshiped. When the Commission later took the position that test-period adjustments must recognize Only those changes which take place precisely within ninety days after the end of the test year, it lost sight of this basic objective of the 'tool' it was using as a 'test period' to arrive at a fair, 'typical' result. For it is a correct Result which is the goal of the determination and not merely the Means or formula used in arriving at the answer. The blind application of such a time limitation is grossly arbitrary and completely ignores the purpose of the rule and the basic reason for test-year adjustments. These are used simply because it is unwieldy and cumbersome to try to apply a total and unending time.

In Letourneau v. Citizens Utilities Company, 128 Vt. 129, 259 A.2d 21, 24 (1969), the Vermont Supreme Court defined the purpose of the test year in public utility rate making when it said:

'The propriety or impropriety of a test year depends upon how well it accomplishes the objective of determining a fair rate of return in the future. It must reasonably represent expected future operations. . . .' (Emphasis added)

Innumerable other authorities have held to the same effect. 2

In the cause before us, when the Commission entered its second order here under review, the corporate tax under discussion had in fact been in effect for almost a full year. To ignore this fact was error in the new order; refusal to recognize the existing tax would present a false picture of the utility's future earnings and rate of return.

Recently the Massachusetts Supreme Judicial Court had occasion to consider a situation closely resembling the one before us today. In New England Tel. & Tel. Co. v. Dept. of Pub. Util., 275 N.E.2d 493 (Mass. 1971), a telephone company appealed a decision of the state regulatory agency, contending that, in computing the company's expenses for the test year, the agency had committed error in that it improperly failed to include certain federal and municipal taxes. Specifically referring to the disallowance of the Social Security taxes, the Court said:

'There was undisputed evidence that the rate of the Social Security taxes payable by the Company would increase from the 4.8% In effect in...

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7 cases
  • Central Louisiana Elec. Co. v. Louisiana Public Service Com'n
    • United States
    • Louisiana Supreme Court
    • 22 Junio 1987
    ...referred to as a test year. 73B C.J.S. Public Utilities § 42, p. 248. However, the test year is merely a sample. Gulf Power Company v. Bevis, 289 So.2d 401, 404 (Fla.1974). The accuracy of this sample depends upon how well it represents figures that will, or should exist in the future. Sout......
  • Floridians United for Safe Energy, Inc. v. Public Service Com'n
    • United States
    • Florida Supreme Court
    • 30 Agosto 1985
    ...to grant prospective rate increases based on these factors. Citizens of Florida v. Hawkins, 356 So.2d 254 (Fla.1978); Gulf Power Co. v. Bevis, 289 So.2d 401 (Fla.1974); City of Miami v. Florida Public Service Commission, 208 So.2d 249 The order of the Public Service Commission is affirmed. ......
  • Marco Island Utilities, a Div. of Deltona Utilities, Inc. v. Public Service Com'n, 87-2116
    • United States
    • Florida District Court of Appeals
    • 28 Agosto 1990
    ...result which is the goal of the determination and not merely the means or formula used in arriving at the answer." Gulf Power Co. v. Bevis, 289 So.2d 401, 406 (Fla.1974). Thus, the facts relied on by the Commission in reaching its decision must be supported by competent, substantial evidenc......
  • Citizens of Florida v. Hawkins, 51399
    • United States
    • Florida Supreme Court
    • 16 Febrero 1978
    ...determine the amount of revenue that will be required to assure the company a fair rate of return on its investment. Gulf Power Company v. Bevis, 289 So.2d 401 (Fla.1974). In Gulf Power, we recognized that because "(r)ates are fixed for the future rather than for the past," test year data m......
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