Discussion
of Issues
Issue 1:
Should OPC’s Request for Oral Argument on its Motion
for Reconsideration of Order No. PSC-2025-0196-FOF-WS be granted?
Recommendation:
No. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and rule on the Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends that 5 minutes per party is sufficient. (Sandy, Farooqi)
Staff Analysis:
Law
Rule 25-22.0022(1), F.A.C., allows a party to request oral
argument before the Commission for any dispositive motion (such as motions for
reconsideration) by filing a separate written pleading filed concurrently with
the motion on which argument is requested, and stating with particularity why
oral argument would aid the Commission. Granting or denying oral argument is
within the sole discretion of the Commission under Rule 25-22.0022(3), F.A.C.
OPC’s Position
In its Request for Oral Argument, OPC requests an
opportunity to provide additional details and context concerning the arguments
made within the Motion. OPC requests the opportunity to provide 10 minutes of
oral argument on the Motion to further elaborate on its arguments and to aid
the Commissioners in understanding and evaluating the issues OPC raises as well
as answer any questions.
Sunshine’s Position
In its response, Sunshine states that the issues raised in
OPC’s Motion were already extensively presented to the Commission and that
nothing would be gained from further oral argument. If Commissioners have any
questions, then they have the right to address them to the appropriate party
without the necessity of an oral presentation by the parties.
Conclusion
Granting or denying oral argument is within the sole
discretion of the Commission. Staff believes that the pleadings are sufficient
on their face for the Commission to evaluate and decide OPC’s Motion. However, if
the Commission wants to exercise its discretion to hear oral argument, staff
recommends 5 minutes per party is sufficient.
Issue 2:
Should OPC’s Motion for Reconsideration of Order No.
PSC-2025-0196-FOF-WS be granted?
Recommendation:
Staff recommends that OPC’s Motion should be granted
in part and denied in part. Staff
recommends that two
of OPC’s proposed adjustments to the revenue requirement should be granted. This
will result in a downward calculation of revenue requirement by $778 and $880
for the Utility’s
water and wastewater systems respectively. Staff recommends that
OPC has otherwise failed to show where the Commission overlooked or failed to
consider a fact or law in rendering its decision. Therefore, in all other
respects, OPC’s Motion should be denied. (Sandy, Farooqi, Cicchetti,
Norris)
Staff Analysis:
Legal
Standard
Reconsideration
The appropriate standard of review for reconsideration of
a Commission order is whether the Motion identifies a point of fact or law that
the Commission overlooked or failed to consider in rendering the order under
review. See Stewart Bonded Warehouse, Inc. v. Bevis, 294 So. 2d 315
(Fla. 1974); Diamond Cab Co. v. King, 146 So. 2d 889 (Fla. 1962); and Pingree
v. Quaintance, 394 So. 2d 162 (Fla. 1st DCA 1981). It is not appropriate to
reargue matters that have already been considered. Sherwood v. State,
111 So. 2d 96 (Fla. 3d DCA 1959) (citing State ex. rel. Jaytex Realty Co. v.
Green, 105 So. 2d 817 (Fla. 1st DCA 1958)). Furthermore, a motion for
reconsideration should not be granted “based upon an arbitrary feeling that a
mistake may have been made, but should be based upon specific factual matters
set forth in the record and susceptible to review.” Stewart Bonded Warehouse,
Inc., 294 So. 2d at 317.
Due Process
It is well established in Florida law that “[t]he
fundamental requirements of due process are satisfied by reasonable notice and
a reasonable opportunity to be heard.” Citizens
of State v. Fla. Pub. Serv. Comm’n, 146 So. 3d 1143, 1154 (Fla. 2014)
(quoting Fla. Pub. Serv. Comm'n v. Triple
“A” Enter., Inc., 387 So. 2d 940, 943 (Fla. 1980). In administrative
hearings where substantial interests of a party are determined by an agency and
where there are disputed issues of material fact, an agency must provide
parties “an opportunity to respond, to present evidence and argument on all
issues involved, to conduct cross-examination and submit rebuttal evidence, to
submit proposed findings of facts and orders, to file exceptions to the
presiding officer’s recommended order, and to be represented by counsel or
other qualified representative.” Sections 120.569 and 120.57(1)(b), F.S.
Introduction
OPC’s Motion asserts
three fundamental issues. First, OPC contends that the Commission did not put
the parties on notice that adjustments to the utility’s financial records and
capital structure would be made after the record was closed, which is a
violation of OPC’s due process. Second, OPC argues that the Commission erred in
how it made the adjustments to the utility’s financial records and capital
structure. And, unrelated to the first two issues, OPC contends that the
Commission made a minor error in calculating rate base. What follows is an
analysis of the issues presented in OPC’s Motion and staff’s recommended
resolution of those issues.
OPC’s Motion
According to OPC, the Commission overlooked OPC’s
statutory and due process rights when it addressed substantive issues or reached
legal conclusions that were not previously raised or challenged in the rate
case. OPC contends that it
was not allowed to object to these deficiencies in staff’s recommendation at
the post-hearing Agenda Conference because participation was limited to
Commissioners and staff. OPC also contends that its due process rights were
violated where Commission staff omitted OPC’s arguments from the staff recommendation
and Final Order.
In particular, OPC argues that no party to the rate case
was on notice that the Commission was going to annualize Sunshine’s
plant-in-service to “comport” with Sunshine’s annualization of accumulated
depreciation. OPC further argues that it had no notice that the Commission was
going to make pro rata adjustments to all sources of capital when calculating
Sunshine’s weighted average cost of capital. According to OPC, adjustments to annualize Sunshine’s
plant-in-service and accumulated depreciation was a violation of Rules
25-30.433(5) and 25-30.436, F.A.C. Moreover, OPC argues that the Commission
acted inconsistently with prior agency practice by prorating all sources of
capital to calculate the weighted average cost of capital, in violation of
Section 120.68(7)(e)3., F.S.
Finally,
OPC offers what it refers to as errors in calculations of the revenue requirement
in the Final Order. If accepted, OPC’s adjustments would require a downward
calculation of revenue requirement by $778 and $880 for the Utility’s water and wastewater systems,
respectively.
Sunshine’s
Response
In its Response, Sunshine does not address all of OPC’s
arguments. However, Sunshine states that in summarizing the Company’s MFRs, OPC
conflates an annualization of depreciation expense (an expense item in the
revenue requirement) with the annualization of accumulated depreciation (a rate
base item). Sunshine made an annualization adjustment in its MFRs to
depreciation expense, to match the expense adjustments with annualized
accumulated depreciation. While the accumulated depreciation adjustment did
affect rate base, the depreciation expense adjustment does not, and thus would
not be subject to Rule 25-30.433(5), F.A.C. Sunshine states that OPC’s Motion
is also inconsistent in its framing of the accumulated depreciation
annualization adjustment. Sunshine
contends that OPC itself identified the lack of a Plant In-Service adjustment
as creating a mismatch with depreciation accounting in the test year.
Sunshine
challenges OPC’s statement that staff’s recommendation “deviated from
standard practice by recommending approval of Sunshine’s adjustment annualizing
depreciation expense and associated accumulated depreciation.” According to
Sunshine, it is clear that the Commission’s pro forma adjustment to accumulated
depreciation is consistent with its long-standing interpretation and application
of Rule 25-30.433(5), F.A.C.
Analysis
A. Due Process
OPC contends
it was not put on notice that the Commission may calculate accumulated
depreciation or capital structure as set out in the Final Order, nor was it
offered an opportunity to provide sufficient arguments on these issues, because
the Commission made adjustments at a post-hearing Agenda Conference once the
record was closed.
The Commission has broad discretion to make pro forma
adjustments under Section 367.081(2)(a), F.S.
It is within the Commission’s discretion to make pro forma adjustments
and modifications to fix rates it judges to be “just, reasonable, compensatory,
and not unfairly discriminatory.” Section 367.081(2)(a)1., F.S. OPC’s due
process argument amounts to a contention that prior to a Commission decision on
adjustments, the parties should be specifically notified of every potential
adjustment. This is inconsistent with the requirements of law as well as with
the realities and complexities of utility ratemaking. In administrative
hearings, the Commission is required to provide notice of “all issues
involved.” Section 120.57(1)(b), F.S. However, the Commission is not required
to provide advance notice to the parties of adjustments to depreciation expense
and accumulated depreciation expense. The Commission has a broad range of
discretion to make adjustments that are reasonable and supported by the record.
See Citizens of State v. Pub. Serv. Comm’n, 425 So. 2d 534, 540 (Fla.
1982) (“This Court has consistently recognized the broad legislative grant of
authority which these statutes confer and the considerable license the
Commission enjoys as a result of this delegation.”); Floridians Against Increased Rates, Inc. v. Clark, 371 So. 3d 905,
910 (Fla. 2023) (The Court has repeatedly recognized the “broad legislative
grant of authority” afforded to the Commission and the “considerable license”
it enjoys in fixing fair, just, and reasonable rates.”).
Staff
believes that the record supports the adjustments as well as the numerous opportunities
OPC had to meaningfully participate in this rate case. In September 2024, OPC
intervened for the second time in this rate case after withdrawing its first
intervention in May of 2024. Between September 2024 and February 11-12, 2025,
when the evidentiary hearing was conducted, OPC issued interrogatories,
requests for production, and conducted multiple depositions of Sunshine
witnesses and staff witness Curt Mouring. OPC
also retained its own expert witness, Ralph Smith, who provided testimony specifically
referencing a mismatch between Sunshine’s test-year plant-in-service and
depreciation expense calculations.
Witness Smith also offered his own proposed capital structure and cost rate
calculations to correspond with his testimony, which indicated an adjustment to
these expenses would be reasonable. Following the Prehearing Conference, the
Prehearing Order included issues on plant-in-service, depreciation expense,
accumulated depreciation, and capital structure, among other matters, so all
parties were on notice as to the major issues in dispute at the hearing.
During the
evidentiary hearing in February 2025, OPC cross-examined Sunshine witnesses
about plant-in-service, depreciation, and the mismatch between test year
plant-in-service and depreciation calculations. (TR 64; 66-67; 78; 513; 515)
Following the evidentiary hearing, OPC filed a 52-page post-hearing brief on
March 14, 2025. For the issue concerning whether adjustments to accumulated
depreciation should be made, OPC devoted several pages of argument contending
that “Sunshine’s MFRs were submitted in violation of [R]ule 25-30.433(5), F.A.C,….by
improperly annualizing depreciation expense and associated accumulated
depreciation.” (OPC BR 28) Much of this argument is repeated in OPC’s Motion.
(OPC BR 28-31; OPC Motion 13-14) In its post-hearing brief, OPC also took the
position that the appropriate weighted average cost of capital is reflected in
the calculations sponsored in Witness Smith’s testimony and exhibit RCS-2.
OPC’s expert witness testimony, exhibits, and post-hearing brief were all considered
by the Commissioners prior to their vote in this matter.
Staff recommends that OPC’s Motion should be denied as it
relates to advanced notice of Commission calculations/adjustments to
depreciation expenses and due process. OPC had an opportunity to argue its
positions and offer evidence and testimony regarding accumulated depreciation
and weighted average cost of capital calculations. Because OPC had the
opportunity to participate and offer argument, testimony, and evidence in the
hearing, the Commission did not overlook any due process rights.
OPC’s second
due process argument is that the Commission violated OPC’s rights by adopting
Commission staff’s recommendation. OPC argued that the staff recommendation was
devoid of OPC’s arguments, noting that “for years, [s]taff’s recommendations
have included detailed summations of the parties’ actual arguments.” It is
correct that staff has in the past included a separate section in post-hearing
recommendations summarizing the parties’ arguments from their briefs. However,
staff has discontinued doing so because it was unnecessarily repetitious, since
the parties’ arguments are appropriately discussed in the body of staff’s
recommendation, just as was done in the post-hearing recommendation for this
docket. Contrary to OPC’s argument, the Final Order does provide a “written assessment of the parties’ main
disagreements reflected in the record.” Motion at 13. OPC’s argument would
require staff to include repetitive arguments leading to a more muddled or
potentially confusing recommendation.
Further, OPC
contends that by omitting detailed summations of the parties’ arguments, the
Commission violated Section 120.68(7)(e)3., F.S., which provides that remand is
appropriate when an agency’s exercise of discretion was inconsistent with
officially stated agency policy or a prior agency practice, if deviation
therefrom is not explained by the agency. Staff does not believe that its
decision to omit presenting the same arguments twice in one document, whether
in the post-hearing recommendation or the Commission’s Final Order, rises to
the level of a violation of “stated agency policy or practice” per the statute.
Staff recommends that OPC’s Motion should be denied as to this argument, as it
fails to demonstrate a point of fact or law that the Commission overlooked or
failed to consider in rendering its order.
B. Capital Structure
In its Motion, OPC argues that the Commission acted
inconsistently with its officially stated agency policy or prior agency
practice by prorating all sources of capital to calculate the weighted average
cost of capital. Specifically, OPC contends that non-investor sources of capital,
such as customer deposits, should have been excluded from the calculation because
the adjustments had a significant upward impact on Sunshine’s revenue
requirement despite no party having an opportunity to present evidence on or
dispute them. OPC argues that this is a violation of Section 120.68, F.S., and this
decision was contrary to the Commission’s decision in Sunshine’s two prior
rates cases, as well as a 2024 PAA decision regarding Pluris Wedgefield.
The establishment of a utility's capital structure provides
a means to identify the various sources of capital employed by a utility,
together with the amounts and cost rates properly associated with each source
of capital. In developing the capital structure, all capital costs are prorated
according to their relative proportion to total capital. This percentage
proportion is multiplied by the appropriate cost of each source of capital.
These weighted components are then added to provide a composite or overall cost
of capital. The weighted cost of capital multiplied by the net utility rate
base produces an appropriate return on rate base, including a return on equity
capital, for a proportion of the utility rate base equal to the proportion of
equity in the capital structure. This process also produces returns sufficient
to recover the annual cost of other types of capital.
Reconciliation of rate base and capital structure exists
because, while sources of particular funds are readily traceable, uses of
particular funds are not. As a utility uses capital to fund its operations, the
sources of capital are comingled. Thereafter, it becomes irrelevant whether a
dollar spent on operations is an “equity dollar,” “debt dollar,” or a “customer
deposit dollar.”
Therefore, as adjustments are made to remove items from
the rate base, corresponding adjustments must be made to the capital structure
to keep the rate base and capital structure in balance. If a pro rata
adjustment (an adjustment to each capital structure component in proportion to
its relative weight) is made to the capital structure, there is no change in
the required overall rate of return. However, if an adjustment is made to a
specific capital structure component, the relative percentages change and the
required overall rate of return changes.
OPC is correct that the Commission did not make pro rata
adjustments across all sources of capital in the Utility’s last two rate cases
or Pluris.
However, it appears that those departures were a matter of oversight, rather
than an intentional change in policy. In contrast, prorating adjustments across
all sources of capital has been the Commission’s practice for decades. Nonetheless,
adjustments of this type, regardless of which direction they are made, are
within the Commission’s discretion. Nothing in statute precludes the Commission
from using its discretion to make reasonable pro rata adjustments to capital
structure components that are supported by the record. For these reasons, staff
believes that the Commission did not depart from prior practice by prorating
all sources of capital to calculate the weighted average cost of capital in
this rate case.
C. Annualizing Plant-In-Service and Accumulated
Depreciation
OPC’s disagreement with the Commission’s accumulated
depreciation calculations ultimately amounts to a difference of interpretation
as to what constitutes a “13-month average” under Rule 25-30.433(5), F.A.C.
The term “13-month average” is not specifically defined in the rule; however,
the rule provides that “the averaging method used by the Commission to
calculate rate base and cost of capital shall be a 13-month average for Class A
utilities.” Rule 25-30.433(5), F.A.C. The Commission has interpreted a 13-month
average to be the amounts on a Utility balance sheet for the 13 months of the
test year, divided by 13.
Additionally, the Commission has routinely allowed known and measurable
adjustments to elements of rate base and cost of capital when necessary to
accurately capture test year operations by a utility.
This is especially true when known and measurable adjustments may be used in furtherance
of the “matching principle,” a bedrock of regulated utility accounting meant to
ensure consistency between costs and revenues. For example, if a plant is
proposed to be removed from rate base, it may be prudent to make matching
adjustments to the associated depreciation expense and/or accumulated
depreciation reserve or even deferred taxes.
OPC interprets the Commission’s adjustments to annualize
accumulated depreciation in the Utility’s test year as creating a year-end annualization,
instead of using a 13-month average to address what it calls a mismatch. (OPC
BR 28)
The Commission considered OPC’s arguments concerning
annualization adjustments to the Utility’s test year accumulated depreciated
before the vote in this matter. The Commission’s treatment of those arguments is
fully explained in the Final Order:
OPC argued that Sunshine incorrectly calculated rate
base, as witness Swain stated that various factors are annualized rather than
using a 13-month average. OPC specifically cited that Sunshine violated Rule
25-30.433(5), F.A.C., which requires the rate case filing to utilize the
13-month average for calculating rate base. Per witness Swain, Sunshine is not
incorrectly calculating these values, as the Utility filed its rate case using
all required 13-month averages, and made pro forma adjustments. She maintained
that pro forma adjustments look to the future and apply the future as an
adjustment to the test year, which is not a mismatch nor is it out of
compliance with Rule 25-30.433(5), F.A.C….
… We agree with witness Swain in regard to the
appropriateness of annualization as a pro forma adjustment. However, we also
agree with OPC witness Smith’s argument that it was a mismatch to include the
annualization on an asset recorded on a 13-month average basis. Thus, it is
also reasonable to include the annualization of the test year additions as a
corresponding adjustment to eliminate the mismatch.
(Final Order at p. 45)
Sunshine’s response to OPC’s Motion echoes arguments the
utility made during the rate case, that “[c]ontrary to OPC’s assertion in the
Motion, the annualization adjustment to Test Year Plant In-Service was not
‘unilaterally recommended’ or done ‘out of the blue.’ In fact, it was OPC
itself that, at various points in the record of the instant case, identified
the lack of a Plant In-Service adjustment as creating a mismatch.” Response at
3.
It appears as though this argument raised in OPC’s Motion
is the same that was raised during the rate proceeding and in its post-hearing
brief. That argument was addressed, and dispensed with, in the Final Order. As
previously stated, reconsideration is not an appropriate vehicle to reargue
matters that have already been considered. Ultimately, staff believes that the
Commission’s interpretation of the term “13-month average,” in Rule
25-30.433(5), F.A.C., is reasonable, and adequately explained in the Final
Order. Test year accounting is used to analyze a regulated utility’s financial
information for the purpose of establishing appropriate rates in the future.
The Commission’s use of a 13 month average, adjusted with annualization
calculations to correct a mismatch between plant-in-service and depreciation, served
that purpose. The Commission’s resolution of the “mismatch” identified by OPC
is consistent with its broad discretion, is supported by the record evidence,
and is consistent with Rule 25-30.433, F.A.C. Therefore, staff recommends that
the Commission deny OPC’s Motion for Reconsideration with respect to the
Commission’s annualization of plant in service depreciation.
D.
Revenue Requirement Calculations
In its
Motion, OPC offered alleged errors in the calculation of the revenue requirement
in the Final Order. If accepted, OPC’s adjustments would require a downward
calculation of revenue requirement by $778 and $880 for the Utility’s water and wastewater systems,
respectively. The Utility
offered no response to OPC’s argument in its motion response.
Having
reviewed OPC’s calculations, OPC is correct with respect to the errors in
calculation. It appears that the staff recommendation, and thus the Final
Order, miscalculated property tax assessments incurred by the Utility. The
corrected numbers are shown on Schedules 3-A through 3-C, attached to this
recommendation. The corrected calculation proposed by OPC would have a
negligible effect on customer rates. Because it does appear there was a minor
error in the revenue requirement calculation, staff recommends reconsideration
as to this issue and that the revenue requirement should be recalculated
consistent with Schedules 3-A through 3-C. This will result in a downward
calculation of revenue requirement by $778 and $880 for the Utility’s water and wastewater systems,
respectively.
E.
Conclusion
Staff recommends that OPC’s Motion should be granted in
part and denied in part. As discussed in Section D above, staff recommends that
reconsideration should be granted to correct the calculation of Sunshine’s revenue
requirement. Staff
recommends that OPC has otherwise failed to demonstrate that the Commission
overlooked or failed to consider a point of fact or law in rendering its
decision. Therefore, in all other respects, OPC’s Motion should be denied.
Issue 3:
Should this docket be closed?
Recommendation:
No. Final Order
PSC-2025-0196-FOF-WS has been appealed to the Florida First District Court of Appeal.
This docket should remain open for the processing of the appeal. (Sandy, Farooqi)
Staff
Analysis: Final Order PSC-2025-0196-FOF-WS has been appealed to
the Florida First District Court of Appeal. This docket should remain open for
the processing of the appeal.
