Utilities, Inc., of Florida v. Florida Public Service Com'n

• Decision Date: 22 September 1982
• Docket Number: No. AE-394,AE-394
• Citation: 420 So.2d 331
• Parties: UTILITIES, INC., OF FLORIDA, Appellant, v. FLORIDA PUBLIC SERVICE COMMISSION, Appellee.
• Court: Florida District Court of Appeals

Page 331

420 So.2d 331

UTILITIES, INC., OF FLORIDA, Appellant, v. FLORIDA PUBLIC SERVICE COMMISSION, Appellee.

No. AE-394.

District Court of Appeal of Florida,

First District.

Sept. 22, 1982.

R.M.C. Rose and Martin S. Friedman of Myers, Kaplan, Levinson, Kenin & Richards, Tallahassee, for appellant.

Susan F. Clark, Associate Gen. Counsel, Fla. Public Service Com'n, Tallahassee, for appellee.

OWEN, WILLIAM C., Jr., (Retired), Associate Judge.

Appellant, a regulated utility, having applied unsuccessfully to the Public Service Commission (PSC) for a rate increase, seeks judicial review of the agency's final order denying the application after formal proceedings were conducted by a hearing officer pursuant to Section 120.57, Florida Statutes (1981). Applying the standards of judicial review established by and enunciated in McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977), we affirm.

Of the several issues submitted to the hearing officer, the only one with which we are concerned was the determination of a fair and proper rate of return on equity capital. On that subject there was conflicting opinion testimony. The hearing officer's findings of fact (as contained in the recommended order) outlined the method of calculation which each of the two expert witnesses used as the basis of his respective opinion as to a fair rate of return on equity capital. The petitioner's expert witness, Mr. Cohen, utilized three methods of calculation, resulting in a range from 18.4 percent to 20.7 percent, with an average of 19.27 percent. The PSC's expert witness, Mr. Gollahon, a member of the PSC staff, utilized a different method and, taking into account many factors different from those used by Mr. Cohen, arrived at an opinion of 16 percent return on equity capital, with permission to fluctuate plus or minus 1 percent. In that portion of the recommended order entitled "conclusions of law," the hearing officer stated (with reference to the rate of return on equity capital) the following:

The remaining issue is the appropriate return or cost that is to be placed on equity capital. The petitioner, through the testimony of Stanley L. Cohen, presented competent evidence as to three methods of calculation it used, and then took an averaging approach to arrive at a figure of 19.63% as a cost of equity. The respondent did not cross-examine petitioner's witness. Instead, the respondent presented the testimony of James Gollahon who used other methods of deriving a cost of equity capital. Insufficient evidence was produced by the respondent to clearly illustrate that the petitioner's calculations or methods of arriving at a reasonable rate of return were erroneous. The undersigned concludes that the petitioner has presented competent, substantial evidence that a return of 19.63% on equity capital would be fair.

The Public Service Commission approved the Hearing Officer's recommended order except as to the conclusion of law relating to the appropriate return on equity. As to that item the agency order stated, "We are unable to find in the record a basis for the 19.63% return on equity which the Hearing Officer recommended and, therefore, reject it." ¹ The agency order then proceeded to explicate in detail the weaknesses which it found in the calculations made by Mr. Cohen ² and the reasons why the calculations used by Mr. Gollahon and his conclusions based thereon, were felt to be more reliable. ³ The Agency concluded that a return of 16 percent on equity was fair and just.

If the quoted portion of the Hearing Officer's recommended order is, indeed, a "conclusion of law" as denominated in the recommended order, then the Agency clearly had the authority, under Section 120.57(1)(b)9., Florida Statutes (1981), to reject or to modify the conclusions of law in the recommended order. If, however, the hearing officer's reference to a 19.63% return is essentially a finding of fact (both parties to this appeal have treated it as though it were), ⁴ the PSC properly rejected it and substituted its own findings for the reasons set out below.

Appellant contends that (1) Section 120.57(1)(b)9., Florida Statutes (1981), does not permit an administrative agency the luxury of reversing the findings of fact of the hearing officer unless it "determines from a review of the complete record, and states with particularity in the order, that the findings of fact were not based upon competent substantial evidence," ⁵ and (2) the testimony of its expert witness, Mr. Cohen, met the test of competent, substantial evidence as defined in Duval Utility Co. v. Florida Public Service Commission, 380 So.2d 1028 (Fla.1980) and DeGroot v. Sheffield, 95 So.2d 912 (Fla.1957). The argument, though compelling, is one which we know from McDonald v. Department of Banking and Finance, supra, must be reconciled with the countervailing argument that Section 120.68(10),...