Background
Florida City Gas (FCG), a natural gas utility serving eight South Florida counties and a subsidiary of Florida Power & Light, petitioned the Florida Public Service Commission in 2022 for approval of a four-year rate plan. Two accounting measures were central to the petition: the Reserve Surplus Amortization Mechanism-Adjusted Depreciation Parameters (RSAM-ADP), an alternative depreciation study FCG offered in lieu of its mandatory 2022 Depreciation Study, and the Reserve Surplus Amortization Mechanism (RSAM), an accounting tool designed to absorb day-to-day revenue and expense fluctuations while holding FCG’s return on equity within its authorized range without triggering new rate proceedings. The Commission approved both, acknowledging that the RSAM-ADP would generate a $52.1 million reserve surplus and that the RSAM would apply $25 million of that surplus as a corrective measure.
A third issue arose during litigation: FCG had continued to amortize an acquisition adjustment originally approved in 2007 when AGL Resources acquired FCG, even after two subsequent ownership changes — to Southern Gas Company in 2016 and then to NextEra Energy/FPL in 2018. Although FCG’s rate petition had not specifically requested reapproval of that adjustment, the Commission allowed its continuation through FCG’s next rate case.
The Office of Public Counsel (OPC), which represents ratepayer interests, appealed all three rulings to the Florida Supreme Court, arguing the RSAM-ADP violated the Commission’s Depreciation Rule, that the RSAM-ADP and RSAM conflicted with official Commission policy and prior practice, and that the acquisition adjustment could not survive FCG’s subsequent ownership transfers. The Florida Supreme Court consolidated OPC’s appeal with a subsequent appeal of the Commission’s clarifying order.
The Court’s Holding
The Florida Supreme Court affirmed the Commission on all three issues. On the RSAM-ADP, the Court held that the Depreciation Rule does not prohibit depreciation parameters that produce a reserve surplus — it only requires that any resulting imbalance be identified and that the utility explain and justify a corrective measure, both of which FCG did by proposing the RSAM. The Commission also satisfied its own obligation by investigating corrective options before adopting the new depreciation rates. The Court noted that the Commission had previously approved depreciation parameters producing large reserve surpluses (including a $1.2 billion surplus in a 2010 FPL proceeding) without violating the rule.
On the RSAM, the Court rejected OPC’s claim that the mechanism could only be approved through a settlement agreement, finding that OPC identified no prior case where the Commission had refused to approve an RSAM in a fully litigated proceeding. The Commission’s statutory authority to set fair and reasonable rates under chapter 366 is not conditioned on whether a case is settled or litigated. The Court further found substantial competent evidence supporting the RSAM: witness testimony that it would save customers approximately $10.8 million over the four-year plan, avoid roughly $2 million in rate-case expenses, and prevent an estimated $27 million in cumulative cash costs to customers through 2026.
On the acquisition adjustment, the Court held that the two prior orders OPC cited — stating that acquisition adjustments “do not survive subsequent purchases” — addressed water and wastewater utilities, which operate under a separate, codified regulatory scheme. Gas utilities have no equivalent rule. The Court pointed to the Commission’s own history in the gas-utility context, including allowing a 1990 Peoples Gas System acquisition adjustment to continue after that company’s 1997 acquisition, as evidence that no universal policy against continuation exists. The Commission’s approval was therefore neither inconsistent with officially stated policy nor unsupported by the record.
Key Takeaways
- The Florida Depreciation Rule requires identification of reserve imbalances and justification of corrective measures, but does not mandate any particular correction method — the Commission retains discretion to choose among corrective approaches, including an RSAM.
- The Commission’s authority to approve rate mechanisms such as the RSAM in fully litigated proceedings is co-extensive with its chapter 366 statutory jurisdiction; prior approvals in settlement contexts do not restrict that authority or establish binding prior practice.
- Policy statements from Commission orders addressing water and wastewater utilities — which have codified acquisition-adjustment rules — do not constitute official policy applicable to gas utilities, which are regulated under a different and less prescriptive framework.
- On judicial review, the Florida Supreme Court will not reweigh conflicting expert testimony or substitute its judgment for the Commission’s, so long as the Commission’s factual findings are supported by competent, substantial evidence and its policy choices are rationally connected to an articulated reason.
Why It Matters
The decision reinforces the Commission’s broad discretion in managing depreciation reserve imbalances and structuring multi-year rate plans for Florida gas utilities. By confirming that the RSAM can be approved outside of a settlement agreement, the Court signals that tools designed to provide rate stability during periods of inflation and interest-rate volatility are available in litigated cases — potentially influencing how both utilities and the Commission approach future rate proceedings.
The ruling also provides important guidance on the limits of “official policy” as a ground for reversal under Florida’s Administrative Procedure Act. A statement in a single prior order, or a series of orders addressing a different utility sector, will not automatically bind the Commission to a uniform approach across all regulatory contexts. Practitioners challenging Commission discretion on policy-consistency grounds will need to identify a clearly applicable, consistently applied rule — not simply a favorable phrase in an earlier order.