United Tel. Co. of Florida v. Mann
| Decision Date | 30 July 1981 |
| Docket Number | No. 58647,58647 |
| Citation | 403 So.2d 962 |
| Parties | UNITED TELEPHONE COMPANY OF FLORIDA, et al., Petitioners, v. Robert T. MANN, et al., Respondents. |
| Court | Florida Supreme Court |
Jerry M. Johns, Gen. Counsel, Altamonte Springs, for United Tel. Co. of Florida.
Earl B. Hadlow and John T. Sefton of Mahoney, Hadlow & Adams, Jacksonville, William B. Barfield, Miami, and Robert W. Sterrett, Jr. and Fred A. Walters, Atlanta, Ga., for Southern Bell Tel. and Tel. Co.
Jack Shreve, Public Counsel, Michael McK. Wilson, Deputy Public Counsel, and Benjamin H. Dickens, Associate Public Counsel, Tallahassee, for the Citizens of the State of Florida, cross-petitioners.
Arthur C. Canaday, Gen. Counsel, William S. Bilenky, Deputy Gen. Counsel and Virginia Daire Reber, Associate Gen. Counsel, Tallahassee, for the Florida Public Service Commission, respondents.
This cause is before us to review a Public Service Commission (commission) order directing United Telephone Company of Florida (United) to refund excess revenues collected during the pendency of a full scale rate making proceeding. We have jurisdiction. Art. V, § 3(b)(3), Fla.Const.
This case began when the public counsel petitioned for a show cause order and immediate rate making proceedings on September 29, 1978. Public counsel asserted that for the year preceding the filing of the petition United had been earning revenues in excess of the ceiling of its last authorized rate of return range of 9.0%-9.2%. 1 He requested the commission order United to show cause why its rates should not be reduced and to schedule interim rate making hearings. Before responding to this petition, the commission in Order No. 8513 initiated a full scale rate making proceeding under section 364.14, Florida Statutes (1977), establishing June 30, 1978 as the end of the test year, and in Order Nos. 8742 and 8773 authorized other utilities to intervene, including Southern Bell Telephone and Telegraph Company (Southern Bell). On March 22, 1979, the commission issued Order No. 8782 granting the public counsel's petition and ordering that an interim rate making proceeding be held on April 11. In this order the commission explained that if it found after the interim hearing that United's rates were excessive, the commission had the authority to either perscribe new rates which would effectuate the decrease or maintain the present rates with the excessive revenues being subject to refund. For purposes of this case we will not distinguish between these two methods of effectuating an interim rate decrease. Cf. Askew v. Bevis, 283 So.2d 337 (Fla.1973) ().
After the interim proceeding, the commission rendered Order No. 8855 on May 1, 1979, finding that approximately 3.3 million dollars of United's annual gross revenues were in excess of the ceiling of its last authorized rate of return and were therefore unjust and unreasonable. The commission ordered United to set aside $275,000 per month beginning May 1, which amount would be subject to refund upon the completion of the comprehensive rate making proceeding.
The comprehensive rate making proceeding was concluded on January 14, 1980, when the commission rendered Order No. 9208, the subject of our review in this case. The commission found that United's rate of return should be 9.62% encompassed by a range of 9.16% to 10.07% and that the adjusted rate base for the test year ending June 30, 1978, was $154,158,358. Despite the increase in United's allowable rate of return, the commission found that United was still earning an excess of $2,803,093 on an annual basis. Therefore the commission ordered United to reduce its rates by that amount and refund the appropriate portion of excess revenues collected since May 1, 1979.
United filed a petition for writ of certiorari, in which Southern Bell joined. The two companies claimed that the commission lacks the statutory authority to hold interim rate decrease proceedings and that if the commission does have that authority it cannot order a refund of amounts of revenues collected that are not in excess of the newly authorized rate of return ceiling. The public counsel filed a cross brief 2 claiming that the commission does have the authority to reduce rates on an interim basis but that the amount to be refunded should be based on the previously, not the newly, authorized rate of return ceiling. In addition public counsel raised a new issue concerning the commission's calculation of a working capital allowance. 3 Naturally, in its answer briefs the commission defended the actions it had taken.
We will first consider the question of whether the commission has the authority to order interim rate decreases. Petitioners United and Southern Bell claim that the section which the commission proceeded under, section 364.14, 4 cannot be interpreted as giving the commission the implied authority to reduce rates on an interim basis. They point out that the statute specifically provides that upon finding that the rates are unjust or unreasonable, the commission must determine just and reasonable rates "to be thereafter observed and in force...." § 364.14, Fla.Stat. (1977). They argue that calculating new rates after a full rate making proceeding and applying them to the interim period constitutes unlawful retroactive rate making. See City of Miami v. Florida Public Service Commission, 208 So.2d 249 (Fla.1968).
The commission and public counsel respond by arguing that the procedure used in this case is the reverse of the "make whole" procedure authorized by this Court in Southern Bell Telephone and Telegraph Co. v. Bevis, 279 So.2d 285 (Fla.1973). In that case we stated that if a company showed that its rate of return was below the minimum previously authorized by the commission, it made a prima facie case for approval of an interim rate increase. We also stated that if the commission was in doubt as to the propriety of the rate of return, it could grant the interim increase contingent upon the outcome of the full hearing and require the company to refund any part of the interim increase which was later found to be improper. We specifically stated that our decision in City of Miami was never meant to preclude the commission from making interim increases contingent on the outcome of a full hearing. By the same token that decision does not preclude the commission from making interim decreases contingent upon the outcome of a full hearing. Since there is no logical reason for distinguishing between rate increase proceedings and rate decrease proceedings, we find that the commission is authorized to order interim rate decreases upon finding that a company is earning revenues in excess of its maximum allowable rate of return.
The question we are faced with now is how much money collected during the interim period should be refunded. United argues that it should have to refund only the amount of revenues collected that are in excess of 10.07%, the ceiling of the newly authorized rate of return range. Public counsel argues that the new rate of return should be applied prospectively and that the refund should be based upon 9.20%, the ceiling of the previous rate of return range. As mentioned earlier the commission took to the middle ground and ordered the refund of any collected revenues that were in excess of the newly authorized rate of return of 9.62%. To resolve this dispute we need to analyze the purpose of and method of calculating a public utility's rate of return.
A regulated public utility is entitled to an opportunity to earn a fair or reasonable rate of return on its invested capital. Gulf Power Co. v. Bevis, 289 So.2d 401 (Fla.1974). A fair rate of return is for the benefit of the utility's investors. Gulf Power Co. v. Bevis, 296 So.2d 482 (Fla.1974). This amount "should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain credit and to attract capital." Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944); see also Bluefield Waterworks & Improvement Co. v. Public Service Commission, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176 (1923). Therefore the purpose of establishing a fair or reasonable rate of return is to "fairly compensate investors for the risks they have assumed...." Permian Basin Area Rate Cases, 390 U.S. 747, 792, 88 S.Ct. 1344, 1373, 20 L.Ed.2d 312 (1968).
The method of calculating a rate of return is primarily based upon calculating the cost of investment capital. There are three main sources of investment capital: debt, preferred stock and common stock. The cost of the first two sources can be mathematically derived whereas the cost of common stock is a matter of economic judgment. Each of these costs expressed in terms of percentage is then multiplied by that particular source's capitalization ratio to achieve a weighted average. The sum of these weighted averages is the rate of return. After this figure is reached, the commission can make further adjustments to account for such things as accretion, attrition, inflation and management efficiency.
As an example we give the calculations used by the commission in deriving the 9.62% rate of return in this case:
Capitalization Cost Weighted
Amount Ratio Rate Average
------------ -------------- ------ --------
Common Equity $121,052,725 45.71% 13.25% 6.06%
Long Term Debt 112,909,200 42.63 8.34 3.56
Deferred Taxes 30,077,430 11.36 -- --
Investment Tax
Credit 813,112 .30 -- --
------------ -------------- ------ --------
$264,852,467
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