In re Florida Power & Light Co.

BY THE COMMISSION. Order denying petition for reconsideration: By Order No. 7843, dated June 16, 1977, we entered a decision on the request of Florida Power and Light Company for an increase in rates. That order 1 established, inter alia, that a fair rate of return for the company is I 9.16%, and that, of the total request of $349,000,000 in additional | annual revenues, it is entitled to receive $195,496,841. By the instant petition, the company has asked us to reconsider three aspects of that decision — the inverted rate structure adopted for the residential class of customers; the multiplier established for collection of franchise fees; and our refusal to allow $25 million in unrecovered fuel expense as a test year operating expense. Tampa Electric Company also intervened so as to be heard on the residential rate issue. [151] The inverted rate structure has been challenged on numerous grounds. Principally, the company contends that no notice of the commission’s intent to consider the inverted rate structure was given during the proceeding; the legislature has not delegated to the commission express statutory authority to implement the inverted rate structure; the rate design is not supported by the record; and the design does not conform to testimony offered in Docket No. 73694-EU, the investigation of rate design of electric utilities initiated by this commission four years ago. In an alternative argument, FP&L urges that the subject of the residential rate design be incorporated into this existing docket. The residential rate design prescribed by Order No. 7843 has become the most controversial aspect of this rate case. After careful deliberation, we have decided to affirm and retain the residential rate, as we are convinced that it is a reasonable effort to attain a legitimate objective and that, over time it will benefit the majority of Florida Power and Light Company’s customers. Prior to the entry of Order No. 7843, FP&L’s residential rate consisted of a flat customer charge of $3.23, a charge of 3.3030 /kwh for the first 750 kwh consumer, and a charge of 3.0850/kwh for each kilowatt hour in excess of that consumption. That rate design reflected the inclusion of the applicable portion of the interim rate increase, in the amount of $87,877,577 annually, which was granted by Order No. 7668 issued in this docket on March 4, 1977. To achieve the presently existing residential rate, we directed in Order No. 7843 that the additional increase authorized for the residential class of customers therein be placed upon consumption greater than 750 kwh. The charge for the initial 750 kwh remained as it was established after the interim increase. As a result, the charge for the second “block” of consumption was set at a level slightly higher than that for the initial 750 kwh of use — an “inversion” of the traditional “declining block” structure. As stated in Order 7843, the purpose of our decision was to provide to those customers having a high consumption of electricity an economic incentive to avoid the unnecessary consumption of energy. In doing so, we took official notice of the urgent heed nationwide to make wiser use of irreplaceable natural resources. In addition, as noted in Order No. 7843, the record in this case demonstrates the impact upon the consumer of the necessity of adding increased capacity during times of persistent inflation and dramatically rising construction costs. The requirement of adding generating capacity to rate base at higher unit costs results in attrition of the company’s rate of return, which leads to the request for additional rate increases. To the extent that wasteful use of electricity contributes to the demand [152] for more plant, we believe that the economic incentive offered by the rate design in question can help to curb the need for additional expensive generating capacity. As pointed out during oral argument by public counsel, who supports the residential rate established in Order No. 7843, the record in this case supports our action in other respects as well. The company’s objection to the rate design in question stems in large part to the amount charged per kilowatt hour. In terms of cents/ kwh, the level of the charge which we established was lower than that recommended by Dr. Frederick Welles, a witness who testified on behalf of public counsel. Dr. Welles, who advocated prices based upon marginal costs, recommended as a step toward that end a flat rate per kilowatt hour with no separate customer charge. Even more significantly, his testimony specifically advised against continuation of the declining block structure (TR-4922). At another point, the witness’ testimony embraced and approved the “inverted” concept — “Rates based on marginal costs would be above the existing and proposed FP&L rates and, for reasons indicated below, should be flat or even tilted upward as usage increases.” (TR-4915, emphasis added) Thus, the issue of the appropriate rate design for residential customers was controverted during the hearing. Our decision did not go as far as Dr. Welles’ ultimate objective of marginal cost pricing, which would entail revenues greater than the company’s present requirements. However, the rate design we established is consistent with important aspects of this testimony, including the objectives of conservation and the avoidance of unnecessary plant additions. The company’s argument with regard to Docket No. 73694-EU has no force. While recommendations were submitted in that docket, we have not finalized that matter and are not bound by anything presented therein. As for the question of notice, the company is aware that the issues inherent to a major rate case reach all aspects of rate structure. There is no requirement that the commission provide separate notice of each detail it wishes to consider. Plant City v. Mayo, 337 So.2d 966 (1976). Moreover, as has been indicated, the issues addressed by Order No. 7843 were sufficiently reached by testimony of record to identify the matter as one which the commission might consider. With regard to the company’s challenge of our statutory authority to adopt the inverted rate, we note that Florida statutes do not delineate any one prescribed rate design. Chapter 366, Florida statutes, requires only that the rates we set be fair, just, and reasonable. Substantial discretion is left to the commision to make [153] judgments within those guidelines, and we believe that our decision herein comports with the statutory requirements. While the company argues that the residential rate would work a “hardship” on its customers, its own petition states that over half its residential ratepayers have bills for less than 750 kwh per month on an annual basis. We acknowledge that the conservation rate is somewhat experimental. However, operating experience under the rate will soon enable us to evaluate the degree to which it is achieving the desired result. Of course, if for any reason it becomes evident that the rate design is creating undesirable effects, we have the authority under law to implement a proceeding for the purpose of making any needed modification to the rate structure. Order No. 7843 required FP&L to reduce its franchise fee multiplier from 3.847% to 3.705%. This reduction was made because the former multiplier enabled the company to collect franchise fees “on top of” franchise fees. The proposition was correctly stated by the company in the example used in its petition for reconsideration — “Under the commission’s interpretation of FP&L’s liability, if a customer received a bill from FP&L in the amount of $106 (excluding taxes) of which $100 was for general service and $6 for franchise fees, FP&L would only owe the municipality 6% of $100 and not 6% of $106 or $6.36.” The company protests our action on the basis of “no competent, substantial evidence,” but revealingly does not argue that the interpretation is wrong. Rather, it requests authority to continue the higher multiplier so that it will not be harmed in the event the municipalities attempt to collect the greater amount. In our opinion, the matter is basic. A person who makes a 1.00 purchase in a state having a 4% sales tax owes taxes computed by applying 4% x $1.00, not 4% x $1.04. No useful purpose would be served by permitting a contrary result in this instance. Florida Power and Light Company included in its computation of net operating income slightly more than $25 million in unrecovered fuel costs. In Order No. 7843, we disallowed this amount as an operating expense, stating as follows — “We agree with public counsel and with FIPUG that unrecovered fuel costs should be disallowed in this proceeding. The unrecovered fuel costs are the result of the two month lag that the cost recovery clause currently employs. Rather than allow the company to include any under-recovery or over-recovery of fuel costs [154] in a general rate proceeding, we feel it would be appropriate for the company to recover those amounts through the mechanism of the cost recovery clause.” We continue to adhere to this position. In Order No. 7843, we pointed out that during the first three months of 1977, the company experienced an over-recovery of fuel expenses because of the two-month lag. In its petition, FP&L argues that this has been true of the initial period of each of the last three years, but that the end of each of those years has reflected a net loss. If anything, this demonstrates that the experience of public utilities with regard to fuel costs can be expected to continue to fluctuate, and that the clause can be expected to perform its function over time of reflecting variations in the cost of fuel. For the above reasons, we believe the petition for reconsideration should be denied. Accordingly, it is ordered that the petition for reconsideration filed herein by Florida Power and Light Company and that filed by Tampa Electric Company be and the same are hereby denied. It is further ordered that Order No. 7843 be and the same is hereby affirmed in all respects.