Florida PSC May Approve RSAM-Adjusted Depreciation and RSAM in a Litigated Rate Case, and Depreciation Rule Does Not Bar Reserve-Surplus-Creating Parameters

I. Introduction

This appeal arose from the Florida Public Service Commission’s partial approval of Florida City Gas’s (FCG’s) four-year rate plan. The Office of Public Counsel (OPC), acting on behalf of utility customers, challenged three principal aspects of the Commission’s final orders:

• Approval of Reserve Surplus Amortization Mechanism-Adjusted Depreciation Parameters (RSAM-ADP), a depreciation-parameter proposal that would create a large depreciation reserve surplus.
• Approval of the Reserve Surplus Amortization Mechanism (RSAM), an accounting mechanism intended to address changes in revenues/expenses during the rate-plan term while keeping return on equity within an authorized range.
• Continuation of an acquisition adjustment related to the 2004 acquisition of FCG by AGL Resources, Inc., approved by the Commission in 2007 and still being amortized after subsequent ownership changes.

The core legal issues concerned (a) whether the Commission’s adoption of depreciation parameters that yield a reserve surplus is inconsistent with the Depreciation Rule (Fla. Admin. Code R. 25-7.045); (b) whether the Commission departed from officially stated policy or prior practice—particularly in approving an RSAM outside the settlement context; and (c) whether the Commission’s determinations were supported by competent, substantial evidence and adequately explained.

II. Summary of the Opinion

The Supreme Court of Florida affirmed the Commission’s final and clarifying final orders. The Court held:

• The Commission’s approval of RSAM-ADP was not inconsistent with the Depreciation Rule, because the rule does not prohibit approving depreciation parameters that create a reserve surplus; instead, it requires identification, explanation/justification of proposed corrective measures, and Commission investigation of corrective possibilities.
• The Commission’s approval of RSAM-ADP and RSAM was not inconsistent with officially stated policy or prior practice, and was supported by competent, substantial evidence. The Court rejected the view that RSAM can only be approved via settlement agreements.
• Continuing the acquisition adjustment was not inconsistent with official policy (particularly given differing regulatory regimes for water/wastewater utilities versus gas utilities), and was supported by competent, substantial evidence.

Chief Justice Muñiz dissented (joined by Justice Grosshans), arguing the Commission’s reasoning was arbitrary and untethered to depreciation’s purpose and that the Commission failed to require proper “correction” of the entire surplus.

III. Analysis

A. Precedents Cited

1. Appellate review of PSC orders: deference, evidence, and reasoned explanation

• Floridians Against Increased Rates, Inc. v. Clark (FAIR) (371 So. 3d 905 (Fla. 2023))
  The Court relied on FAIR for two propositions: (i) PSC orders are presumed “reasonable and just,” and (ii) the Commission must provide an articulated, reviewable rationale—“something to work with”—to permit judicial review. Although the orders here predated FAIR, the Court treated FAIR as a summary of long-standing law.
• W. Fla. Elec. Coop. Ass'n, Inc. v. Jacobs (887 So. 2d 1200 (Fla. 2004))
  Cited for the presumption that Commission decisions are reasonable and just.
• S. All. for Clean Energy v. Graham (113 So. 3d 742 (Fla. 2013)) and Crist v. Jaber (908 So. 2d 426 (Fla. 2005))
  Used to reinforce that Commission factual findings carry a presumption of correctness.
• Fla. Rising, Inc. v. Fla. Pub. Serv. Comm'n (415 So. 3d 135 (Fla. 2025))
  Supplies the Court’s current two-step framework: (1) competent, substantial evidence supports findings, and (2) policy choices are within legislative discretion. Fla. Rising also provides the “reasoned explanation” requirement: a rational connection between facts found and the choice made.
• Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co. (463 U.S. 29 (1983))
  Borrowed as an administrative-law benchmark for the “rational connection” requirement in reviewing agency reasoning.
• Sec. & Exch. Comm'n v. Chenery Corp. (332 U.S. 194 (1947))
  Cited (through FAIR) for the principle that judicial review evaluates the agency’s stated reasons, not post hoc rationalizations.
• Citizens of State v. Graham (213 So. 3d 703 (Fla. 2017)) and McDonald v. Dep't of Banking & Fin. (346 So. 2d 569 (Fla. 1st DCA 1977))
  Cited in a footnote to contextualize that judicial review proceedings press for crystallization of agency discretion.
• DeGroot v. Sheffield (95 So. 2d 912 (Fla. 1957))
  Provides the classic definition of competent, substantial evidence—evidence a reasonable mind would accept as adequate.
• Citizens of State v. Fla. Pub. Serv. Comm'n (Citizens I) (146 So. 3d 1143 (Fla. 2014)) and United Tel. Co. v. Mayo (345 So. 2d 648 (Fla. 1977))
  Support deference to the Commission’s weighing of competing expert testimony and its discretion to assign weight.
• O.H. v. Ag. for Pers. with Disab. (332 So. 3d 27 (Fla. 3d DCA 2021))
  Reinforces that the existence of contrary competent, substantial evidence does not undermine an agency finding supported by competent, substantial evidence.

2. Agency consistency: official policy and prior practice

• Fla. Cities Water Co. v. State (705 So. 2d 620 (Fla. 1st DCA 1998)) and Martin Mem'l Hosp. Ass'n v. Dep't of HRS (584 So. 2d 39 (Fla. 4th DCA 1991))
  Cited for the principle that inconsistent agency outcomes on similar facts, without reasonable explanation, are improper. The Court used these to frame OPC’s “prior practice” challenge regarding RSAM approvals.

3. Depreciation and reserve imbalance treatment: Commission orders as interpretive context

• Floridians Against Increased Rates, Inc. v. Clark (FAIR) (371 So. 3d 905 (Fla. 2023))
  Besides review standards, FAIR is cited for explaining what a “depreciation reserve surplus” is.
• In re Petition for Approval of 2019 Consol. Depreciation Study by Fla. Pub. Utils. Co., Fla. Pub. Utils. Co.-Indiantown Div., Fla. Pub. Utils. Co.-Fort Meade, & Fla. Div. of Chesapeake Utils. Corp. (Order No. PSC-19-0433-PAA-GU) (the “2019 FPUC Petition”)
  Treated as persuasive evidence of how the Commission reads Rule 25-7.045: the rule does not require reserve transfers, only identification of imbalances. The Supreme Court used this order to support its textual interpretation that the Depreciation Rule is flexible as to the method of correction.
• In re Petition for Increase in Rates by Fla. Power & Light Co. (Order No. PSC-10-0153-FOF-EI) (the “2010 FPL Case”)
  Cited for two different reasons: (i) the Commission has approved updated depreciation estimates that resulted in a large reserve surplus, illustrating that reserve-surplus outcomes are not forbidden; and (ii) OPC relied on language in this order about the “matching principle,” but the Court found the agency’s overall practice more varied than any single quoted line suggests. The dissent also relied heavily on the 2010 FPL Case as a source of “policy” requiring correction “as soon as possible.”
• In re Petition for Rate Increase by Fla. Power & Light Co. (Order No. PSC-2021-0446-S-EI) (the “2019 FPL Case”)
  Cited for historical context that the RSAM concept had been approved as part of a settlement agreement; the majority used this to address (and reject) the claim that settlement posture limits authority.
• In re Petition for Rate Increase by Peoples Gas Sys. (Order No. PSC-20-0485-FOF-GU) (the “2020 PGS Order”)
  Cited to show that RSAM-ADP parameters used here were based on parameters approved in recent base rate case settlements, and to show prior RSAM-ADP/RSAM approvals.
• In re Petition for Increase in Rates by Fla. Power & Light Co. (Order No. PSC-13-0023-S-EI), In re Petition for Rate Increase by Fla. Power & Light Co. (Order No. PSC-2016-0560-AS-EI), and In re 2009 Depreciation & Dismantlement Study by Fla. Power & Light Co. (Order No. 11-0089-S-EI)
  Cited as additional examples of settlement-context approvals of RSAM-type tools; the Court held they do not establish a binding “practice” that RSAM can only be adopted by settlement.

4. Commission jurisdiction and authority over rates

• Fla. Pub. Serv. Comm'n v. Bryson (569 So. 2d 1253 (Fla. 1990)) and United Tel. Co. v. Pub. Serv. Comm'n (496 So. 2d 116 (Fla. 1986))
  Used to stress that the Commission’s authority is legislative in origin; its jurisdiction, duties, and powers are defined by the Legislature.
• Citizens of State v. Fla. Pub. Serv. Comm'n (Citizens I) (146 So. 3d 1143 (Fla. 2014))
  Cited for the Commission’s “exclusive jurisdiction” over rates and service of public utilities and statutory authority under chapter 366.
• Floridians Against Increased Rates, Inc. v. Clark (FAIR) (371 So. 3d 905 (Fla. 2023))
  Cited (at FAIR, 371 So. 3d at 907 n.2) for rejecting the argument that the Commission lacks authority to approve an RSAM through a settlement agreement; the majority analogized: if settlement posture does not create authority, it likewise cannot limit authority.

5. Acquisition adjustment policy: contrasting water/wastewater orders and gas-utility practice

• In re Application for Ltd. Proceeding Increase & Restructuring of Water Rates by Sun Communities Finance Limited Partnership in Lake County, & Overearnings Investigation (Order No. PSC-00-1165-PAA-WS)
  OPC cited this order for the statement: “Acquisition adjustments do not survive subsequent purchases of the utility's assets.” The majority distinguished it because it involved water/wastewater utilities operating under different rules.
• In re Joint Application for Approval of Sale of Florida Water Services Corp.'s Land, Facilities, & Certificates in Brevard, Highlands, Lake, Orange, Pasco, Polk, Putnam, a Portion of Seminole, Volusia, and Washington Counties to Aqua Utilities Florida, Inc. (Order No. PSC-05-1242-PAA-WS)
  OPC cited this order for the statement that acquisition adjustments do not survive subsequent transfers. The majority again distinguished it as water/wastewater and not clearly intended as a universal policy for gas utilities.
• In re Application of Peoples Gas Sys., Inc. for a Rate Increase (Order No. 23858) and In re Petition for Rate Increase by Peoples Gas Sys. (Order No. PSC-03-0038-FOF-GU)
  The majority used these to show that, in the gas-utility context, the Commission has allowed acquisition adjustments to continue even after subsequent acquisitions.
• In re Petition for Approval of Acquisition Adjustment & Recognition of Regul. Asset to Reflect Purchase of Fla. City Gas by AGL Res., Inc. (Order No. PSC-07-0913-PAA-GU) (the “2007 AGLR Order”) and In re Petition for Rate Increase by Fla. City Gas (Order No. PSC-18-0190-FOF-GU) (the “2018 FCG Order”)
  These orders grounded the factual history of the acquisition adjustment and reinforced that it remained on the books through later ownership changes and the last settlement.

B. Legal Reasoning

1. Depreciation Rule compliance: surplus is permitted; correction is flexible

OPC’s principal doctrinal claim was that approving depreciation parameters that create a reserve surplus is “inconsistent with” the Depreciation Rule. The Court rejected that claim on textual and practical grounds:

• The rule’s imbalance provisions (R. 25-7.045(4)(e) and (5)(f)) contemplate surpluses and deficiencies and require inquiry and justification, not prohibition.
• The Court reinforced this reading with Commission practice, including the “2010 FPL Case” and the “2019 FPUC Petition,” which reflect reserve-surplus outcomes and multiple methods of addressing imbalances.
• On the record here, the Court concluded FCG identified the surplus and proposed RSAM as the corrective approach, and the Commission investigated and accepted it—satisfying the rule’s procedural and explanatory demands.

2. “Official policy” and “prior practice” challenges under section 120.68

OPC invoked section 120.68(7)(e)3., Florida Statutes, arguing the Commission deviated from official policy (the “matching principle”) and prior practice (approving RSAM only in settlements). The Court held:

• A single quoted sentence in the “2010 FPL Case” did not establish controlling “officially stated agency policy,” especially given the Commission’s varied methods for dealing with imbalances over time.
• Prior settlement approvals did not create a binding practice that RSAM cannot be approved in a litigated case; OPC identified no case where the Commission denied RSAM in a litigated posture.
• The Commission provided a legally sufficient explanation grounded in its statutory ratemaking authority under chapter 366: the Commission’s jurisdiction does not expand or contract based on settlement posture.

3. Competent, substantial evidence and deference to expert weighing

The Court applied the DeGroot competent-substantial-evidence test and reiterated deference to the Commission’s evaluation of competing experts under “Citizens I” and “United Tel. Co. v. Mayo.” It identified record support for:

• The reasonableness of RSAM-ADP (testimony of Mark Campbell, Liz Fuentes, and Ned Allis; similarity to previously approved parameters; alignment with ranges used in prior cases; and the Commission’s ability to accept or reject staff recommendations).
• The RSAM’s predicted effects (rate stability/certainty; avoiding rate-case expense; ability to manage business fluctuations; projected customer savings; and mitigation of inflation/interest-rate risks), primarily through Campbell’s testimony.

4. Acquisition adjustment: no universal policy across utility types; evidence supported continuation

OPC attempted to establish a Commission policy that acquisition adjustments do not survive subsequent transfers. The Court rejected that as a categorical “official policy” applicable here, emphasizing:

• The cited statements came from water/wastewater utility orders, which operate under a different regulatory scheme (including Fla. Admin. Code R. 25-30.0371), unlike gas utilities governed under Fla. Admin. Code Ch. 25-7.
• The gas-utility context included examples of continuing acquisition adjustments post-transfer (e.g., Peoples Gas System practice).
• Competent, substantial evidence supported continuation: Fuentes’ testimony supported the $11.8 million net acquisition adjustment and $0.7 million amortization expense and explained why OPC’s cited precedent was not controlling in the gas context.

C. Impact

The decision’s practical and doctrinal impacts are likely to be significant in Florida utility regulation:

• Depreciation flexibility confirmed: Utilities and the Commission have explicit appellate affirmation that the Depreciation Rule allows approval of depreciation parameters even when they generate a reserve surplus, provided the required identification/explanation and Commission investigation occur.
• RSAM not confined to settlements: The Court’s rejection of the “settlement-only” premise reduces procedural leverage that parties might otherwise attempt to exert by refusing settlement; RSAM-type mechanisms may be adopted on a litigated record.
• Section 120.68 “policy/practice” challenges tightened: The opinion signals that challengers must show a truly “officially stated policy” or a sufficiently consistent “prior practice,” not a selective quotation from one order, and must grapple with the agency’s broader historical range of approaches.
• Acquisition adjustment continuation for gas utilities: The Court’s willingness to distinguish water/wastewater acquisition-adjustment statements may embolden continued amortization of legacy gas-utility acquisition adjustments through ownership changes, absent a clear, gas-specific Commission rule or policy.

Countervailing pressure from the dissent: The dissent provides a ready-made roadmap for future challengers—arguing that depreciation choices must be tethered to depreciation’s purpose and that “correction” of reserve surpluses must be real, complete, and explained, not left partially unaddressed or merely “potentially” eliminated by a discretionary mechanism.

IV. Complex Concepts Simplified

• Depreciation parameters / depreciation study: Inputs (like service life and net salvage) used to calculate how quickly a utility recovers the cost of long-lived assets through customer rates.
• Depreciation reserve surplus: A situation where customers have paid more (through depreciation expense) than current estimates say is needed—often because updated information suggests assets last longer than previously expected.
• Matching principle (in this context): The ratemaking idea that costs should be recovered from customers during the period those customers receive the service benefits of the assets.
• RSAM (Reserve Surplus Amortization Mechanism): Here, an accounting tool designed to keep the utility’s return on equity within a Commission-approved band during a multi-year plan, by adjusting accounting entries (non-cash earnings effects) rather than repeatedly changing base rates.
• “Competent, substantial evidence”: Not “the best possible evidence,” but enough relevant evidence that a reasonable person could accept it to support the agency’s finding.
• Official policy / prior practice (section 120.68): Grounds to remand if the agency deviates from an officially stated policy or consistent past practice without explaining why; the Court required more than isolated language from a single order.
• Acquisition adjustment: A regulatory accounting construct reflecting the difference between the purchase price paid for a utility and an “original cost” valuation used in ratemaking, which may be amortized over time.

V. Conclusion

The Supreme Court of Florida affirmed a broad view of Commission discretion in utility ratemaking: the Depreciation Rule does not bar depreciation parameters that create a reserve surplus, and the Commission may approve RSAM/RSAM-ADP on a litigated record so long as its choices are supported by competent, substantial evidence and accompanied by a reasoned explanation. The Court also upheld continuation of a legacy gas-utility acquisition adjustment, distinguishing water/wastewater acquisition-adjustment statements as non-controlling in the gas context.

Going forward, the decision strengthens the Commission’s ability to deploy multi-year rate-plan accounting mechanisms and weakens categorical challenges based on settlement posture or selective invocations of “matching principle” language—while leaving room, highlighted by the dissent, for future disputes over whether such mechanisms are genuinely tied to depreciation’s purpose and whether reserve imbalances are meaningfully “corrected.”