88-001978RU Central Corporation vs. Florida Public Service Commission Status: Closed DOAH Final Order on Friday, June 24, 1988.

Summary: PSC issued requirement (with force of law) without compliance to APA rule-making. Constitutes invalid exercise of delegated legislative authority.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CENTRAL CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 88-1978RU

)

FLORIDA PUBLIC SERVICE )

COMMISSION, )

)

Respondent. )

________________________________)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D.

Tremor, Hearing Officer with the Division of Administrative Hearings, on May 20,

1988, in Tallahassee, Florida. The issue for determination in this proceeding

is whether the statement contained in Section 7 of respondent's Order Number

19095, which requires alternative operator services providers to hold subject to

refund all revenues in excess of the local exchange company's most comparable

rate, constitutes an invalid exercise of delegated legislative authority.

APPEARANCES

For Petitioner: Wings S. Benton

Patrick K. Wiggins

Ransom & Wiggins, P.A.

Post Office Drawer 1657

Tallahassee, Florida 32302

For Respondent: Mary Jane Lord, Debra W. Schiro, and

Susan T. Clark

101 East Gaines Street

Tallahassee, Florida 32301

INTRODUCTION

Pursuant to Section 120.56, Florida Statutes, petitioner Central

Corporation (Central) challenges a portion of Order No. 19095 of the Florida

Public Service Commission (PSC), contending that the challenged statement

constitutes a rule within the meaning of the Administrative Procedure Act and is

invalid for failure of the PSC to promulgate it in accordance with the

rulemaking procedures required in Section 120.54, Florida Statutes. In support

of its position of invalidity of the challenged statement, petitioner presented

the testimony of Alan Taylor, PSC's Chief of the Bureau of Service Evaluation,

Division of Communications; Jill Hurd, PSC's Chief of the Bureau of Rates and

Economics, Division of Communications; James Freeman, accepted as an expert in

the area of economics as applied to the regulation of utilities; and Lester

Freeman, the president of Central Corporation. Petitioner's Exhibits 1, 3, 5-8,

11, 12, 15-21, 23 and 24 were received into evidence, some to a limited extent.

In support of its position that the challenged statement is not a "rule"

within the meaning of the Administrative Procedure Act, the PSC presented the

testimony of Alan Taylor, and offered no further exhibits into evidence.

Subsequent to the hearing, both parties submitted proposed findings of fact

and proposed conclusions of law. To the extent that the parties' proposed

factual findings are not included in this Final Order, they are rejected for the

reasons set forth in the Appendix hereto.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the

hearing, as well as facts stipulated to by the parties, the following relevant

facts are found:

1. Central Corporation, formerly known as TFC Teleservices Corporation, is

a provider of alternative operator services (AOS). An AOS provider provides

operator assisted long distance telecommunications services to various entities

including hotels, motels, universities, hospitals and private pay telephone

providers. This new AOS telecommunication industry emerged after 1984 when AT&T

ceased paying commissions to hotels for toll-traffic from guests and when the

Federal Communications Commission authorized privately-owned pay phones. There

are currently nine AOS providers in Florida.

2. Central is authorized by Certificate Number 1528, issued by the PSC on

November 21, 1986, to operate as an interexchange carrier within the State of

Florida. Central currently operates in Florida under an approved tariff on file

with the PSC, which tariff became effective on September 15, 1987, and

authorizes Central to charge certain amounts for its services. Prior to the

challenged action, the PSC never placed any conditions upon Central's approved

tariffed rates.

3. Interexchange companies (IXCs) are companies which provide long

distance telephone services. They are certificated by the PSC on a statewide

basis and engage in competition with each other. Such competition, along with

the PSC's fitness screening and approval of tariffed rates, is considered

adequate to protect the public. Consequently, the PSC does not regulate the

rates of IXCs, at least minor IXCs including AOS providers. The PSC does not

set rate levels for minor IXCs and does not set an authorized rate of return on

equity for minor IXCs. Indeed, in accordance with Section 364.337, Florida

Statutes, which authorizes the PSC to exempt from the requirements of Chapter

364 a telephone company which is in competition with or duplicates the services

of another telephone company, the PSC has placed AOS providers under the

separate rules and regulations pertaining to IXCs, which are not rate base

regulated. The PSC has never established for any minor IXC a rate base or an

authorized or required rate of return.

4. Local exchange telephone companies (LECs) serve a franchised monopoly

area. The LEC agrees to provide service indiscriminately to the public without

competition, and, in return, the PSC guarantees the LEC the opportunity to earn

a fair rate of return designed to emulate what might be achieved in a

competitive market. The PSC sets rate bases and rate levels for LECs, and

authorizes the rate of return on equity. In other words, unlike IXCs, LECs are

rate base regulated utilities. LECs and/or the PSC may initiate rate relief or

rate decrease proceedings. Interim relief is often necessary and is authorized

by statute and case law due to the regulatory lag time pending the conclusion of

the proceedings. Such interim rate relief or interim rate decreases are done on

an individual case-by-case basis and are based upon the financial condition of

the particular LEC. The PSC has never provided interim rate relief or interim

rate decreases on an industry-wide basis. It has set a "generic" rate cap,

establishing a 25 cent local call rate for privately-owned pay phones, but that

was done on a prospective basis. The PSC has never imposed an industry-wide

rate cap, with a requirement to hold subject to refund monies in excess of that

cap.

5. At the request of PSC staff, the PSC opened, on December 18, 1987,

Docket Number 871394-TP styled "In re: Review of Requirements Appropriate for

Alternative Operator Services provided from Public Telephones." This was

designated as a "generic" proceeding, and emanated from numerous complaints the

PSC had received from end users (i.e., guests of hotels and motels, hospital

patients and pay telephone users) who had been charged for alternative operator

services. The nature of the complaints included end users being charged for AOS

without being aware of using the service, lack of prior knowledge of the rates

being charged, inability to use the services of their preferred IXC and

inability to access the LEC operator. The most significant complaint, however,

was the excessive rate being charged by some AOS providers. The evidence

demonstrates that the intrastate long distance rates charged by Central are

considerably higher than the rates charged by Southern Bell, an LEC.

6. Central entered an appearance in Docket No. 871394-TP on December 30,

1987. At an Agenda Conference held on February 2, 1988, the PSC voted on

various recommendations of its staff. As pertinent to this proceeding, the PSC

voted to set an expedited hearing to be held as soon as practicable to determine

whether AOS are in the public interest and various other issues concerning the

provision of AOS. The PSC also voted to require all AOS providers to place all

revenues subject to refund that are generated by charges in excess of the AT&T

rate for a comparable call. This vote exceeded the staff's recommendation,

which did not include a "hold subject to refund" requirement.

7. At an Agenda Conference held on February 16, 1988, the PSC voted to

reconsider the rate cap applicable to AOS providers and to hold the Order

reflecting their February 2nd vote pending such reconsideration.

8. At its Agenda Conference held on March 15, 1988, the PSC reconsidered

and raised the rate cap amount from the AT&T rate for a comparable call to the

LEC rate for a comparable call, thereby decreasing the amount of revenues that

AOS providers must hold subject to refund.

9. The action taken on March 15, 1988, was embodied in written Order No.

19095 issued on April 4, 1988. This Order is entitled "Order Setting for

Hearing the Issue of Whether Alternative Operator Services are in the Public

Interest and Placing Revenues Subject to Refund ..." The remainder of the title

relates to "proposed agency action" concerning other requirements for AOS

providers, which are not challenged in this proceeding. Order No. 19095

declares that paragraph 7, which requires AOS providers to hold subject to

refund all charges collected in excess of the approved rate, is effective

February 2, 1988. The Order further recites

"We are cognizant of the serious

impact this action may have on AOS

providers and their customers.

However, it is our view that we

must take immediate and effective

action to remedy the abusive

situation we perceive exists at

this time. It is in consideration

of these conflicting concerns that

we have chosen the least drastic

action available. This action does

not require AOS providers to

immediately stop charging current

rates. It does not suspend or

revoke any certificates of public

convenience and necessity. It does

not levy any fines or penalties.

It merely places revenues subject

to refund to allow for the return of

these monies if it is subsequently

decided that they were generated

from inappropriate charges."

Although not embodied within the terms of Order No. 19095, the parties

stipulated that the hearing to determine public interest is scheduled for August

9-12, 1988.

10. Central requested the PSC to hold an evidentiary hearing prior to

making the rate cap take effect, but this request was denied. The rate cap

requirement and the disposition of the revenues held by AOS providers pursuant

to Order No. 19095 are issues to be determined at the hearing to be held August

9- 12, 1988.

11. The rate cap requirement set forth in Order No. 19095 applies to all

AOS providers operating in Florida. Central's current tariff authorizes Central

to charge more than the rate cap specified in Order No. 19095. Prior to Order

No. 19095, there was no rate cap on AOS providers.

12. Regardless of whether the PSC ultimately orders a refund, the "hold

subject to refund" requirement which became effective on February 2, 1988, has

immediate and significant adverse impacts upon Central. Central is a

relatively new company and must use the revenue it generates on a daily basis.

Prior to Order No. 19095, Central was able to rely on the unconditional use of

revenues it receives under its approved Florida tariff. If Central continues to

charge its current tariffed rates, it will have to set aside the difference

between what it bills and the rate cap, place it in escrow and will not be able

to utilize those funds. It is estimated that the revenues Central might have to

refund if it continues to charge its current rates would between $1.2 and $1.7

million. Nonrecoverable commissions and the cost of a actually making the

refund would increase the potential cost of the refund. If Central were to

reduce its rates to the LEC rate, it would lose a substantial amount of revenue

and does not know where it can make up that loss. Even if this option were

chosen today, Central would still have to determine to whom it provided services

since February 2, 1988, and what the potential refund would be. Additional

staffing and/or computer equipment would be necessary to keep track of prior

users and charges. A third option is for Central to withdraw from Florida

intrastate operations pending the outcome and conclusions of the August PSC

proceedings. Central operates in many states. While its Florida business makes

up only 8 to 10 percent of its intrastate revenues, some 40 percent of Central's

entire business originates at Florida properties. If Central were to cease

paying commissions on intrastate revenues, its intrastate business originating

from Florida would go to its competitors. While Central has made the decision

not to do business in certain states due to those state's methods of rate

regulation, such decisions were made on a prospective basis. Other immediate

and adverse impacts upon Central include the administrative costs and burdens

associated with separate bookkeeping for its Florida operations, as well as

separate books within Florida to segregate the difference between the rate cap

and its tariffed rates. Central has already experienced delays in loan

financing. Lenders want to wait and see what the PSC does with AOS providers.

The valuation of the company is affected due to money taken out of the revenue

stream and placed in escrow. Central's financial statement must reflect the

contingent liability of potential refunds and full disclosure must be made to

the Federal Communication Commission.

CONCLUSIONS OF LAW

13. The position of petitioner Central Corporation is that the provision

of Order Number 19095 contained in Section 7, which requires AOS providers to

hold subject to refund all revenues in excess of the local exchange company's

most comparable rate, constitutes a "rule" within the meaning of the

Administrative Procedure Act, and is invalid for failure to follow appropriate

procedures for rulemaking. As an AOS provider in Florida subject to the

challenged requirement, and having demonstrated an immediate and substantial

adverse effect resulting from the challenged requirement, petitioner has

standing to seek an administrative determination of its validity pursuant to

Section 120.56, Florida Statutes.

14. The PSC contends that the "hold subject to refund" provision of

Section 19095 is not a "rule." Various sections within Chapter 364, Florida

Statutes, are cited for the proposition that rate changes and interim rates are

accomplished by "orders," and it is contended that rates are never set or

affected by "rules." The PSC equates the challenged requirement to the

establishment of interim rates during the pendency of a full rate-making

proceeding. Section 120.72(3), Florida Statutes, is then relied upon by the PSC

to demonstrate that the interim rate provisions of Chapter 364 are not subject

to the provisions of Chapter 120. The PSC further urges that the challenged

requirement is not "final" and is not intended to be determinative of the rights

of any given AOS provider. 1/ Instead, future proceedings in August are

contemplated to determine whether alternative operator services are in the

public interest and whether refunds are appropriate. According to the PSC, the

challenged requirement is tentative and effective only until the hearings in

August, and it is then that future policy will be developed and implemented.

The PSC cites various cases whereby the Courts have allowed it to take action

affecting rates in "order" form, as opposed to undergoing the rulemaking

requirements of Chapter 120, Florida Statutes.

15. With certain exclusions not here applicable, a "rule" within the

meaning of the Administrative Procedure Act is an

"agency statement of general applicability

that implements, interprets, or prescribes

law or policy . . . "Section 120.52(16),

Florida Statutes.

It has been held that an agency statement is a "rule" if it purports in and of

itself to create certain rights and adversely affect others or serves by its own

effect to create rights, to require compliance or otherwise to have the direct

and consistent effect of law. Balsam v. Department of Health and Rehabilitative

Services, 452 So.2d 976 (Fla. 1st DCA, 1984); State, Department of

Administration v. Harvey, 356 So.2d 323 (Fla. 1st DCA, 1978).

16. There can be no doubt that the challenged "hold subject to refund"

requirement falls within the above definitions of a "rule." The requirement is

applicable to all AOS providers in Florida. In and of itself, and by its own

effect, it requires AOS providers to either immediately change their previously

approved rates or to set monies aside for a potential refund in the future. The

fact that the requirement to hold monies may terminate, at some future point in

time at least six months subsequent to its imposition, does not lessen or

obviate the immediate, indeed retroactive, requirement of compliance. The

challenged requirement is directly and consistently applicable to all AOS

providers within Florida and its immediate effect is not limited by its somewhat

finite duration. Balsam v. Department of Health and Rehabilitative Services,

supra. The burdens of the requirement occur regardless of whether a refund is

ultimately required. The challenged requirement is easily distinguishable from

the case of Department of Commerce v. Matthews Corp., 358 So.2d 256 (Fla. 1st

DCA, 1978). There, the court held that a wage rate determination which applied

to one party, in one geographic location, for one construction project was not a

rule because it was not of general applicability and did not have the consistent

effect of law. Here, the "hold subject to refund" requirement applies to every

AOS provider operating within Florida on a daily basis for a period of at least

six months.

17. With very limited exception, all forms of agency decision-making are

subject to the APA. Every requirement or policy relied upon by an agency in

reaching a decision must be codified as a rule or expressly stated in an order.

A rule has been defined above, and an "order" is defined as a "final agency

decision which does not have the effect of a rule . . ." Section 120.52(11),

Florida Statutes. As concluded above, the challenged requirement does have the

effect of a rule. Nevertheless, it is recognized that when adjudicating

individual cases, agencies may find themselves developing policies which may

generally be applicable to future cases. This hybrid of a "rule" and an "order"

has been characterized as "incipient policy," and even sanctioned, especially

where new policies are in the developmental stage and in the process of

refinement and further observation. See McDonald v. Department of Banking and

Finance, 346 So.2d 569 (Fla. 1st DCA, 1977). The courts have long recognized

that rulemaking may not be forced upon an agency, and that policy may be

developed through the adjudication of individual cases. Both rulemaking and the

adjudication of individual cases fulfill administrative due process requirements

of notice, hearing and judicial review. While the procedure to be used is left

to the agency's discretion, there is a "self- enforcing" incentive for

rulemaking. When an agency elects to adopt incipient policy in a non-rule

proceeding, there must be adequate support and a record foundation for its

decision in each proceeding. McDonald v. Department of Banking and Finance,

supra. It has been recognized that rulemaking proceedings are preferable where

established industry-wide policy is being altered, Anheuser-Busch, Inc. v.

Department of Business Regulation, 393 So.2d 1177 (Fla. 1st DCA, 1981), and it

is envisioned that resources will not be wasted by repeatedly explicating and

defending agency policy. Barker v. Board of Medical Examiners, 428 So.2d 720

(Fla. 1st DCA, 1983).

18. While an agency may thus develop, establish or announce its policy

statements through rulemaking or through adjudication on a case-by-case basis,

the PSC followed neither path in this instance. There was no rulemaking as

envisioned by Section 120.54 of the APA. There was no proceeding as envisioned

by Section 120.57 of the APA. Interested and affected persons had no forum in

which to challenge the PSC's imposition of a new requirement, and there was no

record to review to determine if the basis for the action was supported. 2/

Thus, while the challenged statement appears in an "order," it is not the type

of "order" agencies are required to utilize when making decisions affecting

substantial interests on a case-by-case basis.

19. The PSC argues that the action taken -- the "hold subject to refund"

requirement, is simply in the nature of an interim rate requirement which the

PSC has the authority to impose without compliance with APA requirements. 3/

This argument must fail for several reasons. As noted in the findings of fact,

AOS providers are not rate base regulated by the PSC, and the interim rate

provisions in Chapter 364 are inapplicable, at the present time, to AOS

providers. In addition, the interim rate procedures of Chapter 364 have never

been applied on an industry wide basis. Of necessity, the considerations are

specific to a particular utility or company and its particular financial

condition. To apply a measure characterized as an interim rate provision to all

AOS providers implements a new policy which deviates from the PSC existing

policy and manner of regulating AOS providers. Thus, whether the abrupt

discontinuance of prior policy is deemed either a new policy or an interim rate

provision, it must be done in compliance with either rulemaking requirements or

individual case-by-case adjudication, where there is opportunity for notice,

hearing and judicial review. There was none here.

20. Certainly, the PSC has the authority (indeed, the duty) to continually

evaluate its policies and procedures with regard to the regulation of utilities

in Florida. However, when it determines to take action in the form of an

industry-wide requirement which purports to have the present effect and force of

law, it must do so in the manner authorized by statute. The "hold subject to

refund" requirement constitutes a "rule," yet it was not the product of a

rulemaking proceeding. It was not the product of an individual adjudication

envisioned by Chapter 364 for interim rate relief. It was not notice of

proposed agency action. Unlike the factual situation in the case of Florida

Public Service Commission v. Indiantown Telephone System, Inc. et al, 435 So.2d

892 (Fla. 1st DCA, 1983), the challenged statement is much more than defining a

controversy or a notice designed to focus on disputed issues, with the

subsequent opportunity for challenges and adjudicatory hearings. If the PSC

felt the need for immediate action in order to protect the public welfare, it

could have utilized the emergency rule provisions contained in Section

120.54(9), Florida Statutes. This mechanism, of course, would have been

effective for only ninety days.

21. The cases cited by the PSC are readily distinguishable from the

instant case. In Indiantown, supra, the Court recognized that adjudicatory

proceedings affecting several parties could be accomplished in a single docket

resulting in a single order. There, the PSC issued a "Notice of Proposed Agency

Action" to each telephone company in the state notifying of its intent to

disapprove certain existing agreements. Contained in that notice was a

statement of the facts and a statement of the policy. A procedure was then set

forth for affected parties to file petitions for hearings on the proposed agency

action, said hearings to be held in accordance with Section 120.57, Florida

Statutes. Noting that the agency action involved in the Indiantown proceeding

was "proposed," rather than final, and that opportunities for challenges and

adjudicatory hearings were afforded, the Court held that the Notice of Proposed

Agency Action was not a rule, and permitted the PSC to proceed to develop its

policy through adjudication on a case-by-case basis. As indicated above, the

"hold subject to refund" requirement was not set forth as proposed agency

action. It became effective on February 2, 1988, over two months before the

Order was even reduced to writing. It is true that at the August, 1988 hearing

to be held on the issue of whether AOS are in the public interest, interested

parties will have the opportunity to present evidence and argument on whether

refunds should be ordered. However, the challenged statement constitutes a

present requirement to either place monies in escrow or change rates NOW, or

actually from February 2, 1988, through the conclusions of the August hearings.

This is not proposed agency action. By its own effect, it immediately and

retroactively requires compliance with no opportunity for input, challenge or

hearing.

22. The PSC cites the case of United Telephone Company v. Mann, 403 So.2d

962 (Fla. 1981) as authority for establishing an interim "subject to refund"

condition pending a full scale rate-making proceeding. That case involved a

single, noncompetitive rate base regulated utility, and individual action was

taken with due regard to the particular financial condition of that single

company. The PSC has cited no judicial case law approving PSC interim rate

action taken with regard to an entire industry or a previously non-rate base

regulated entity.

23. In summary, the challenged "hold subject to refund" requirement, as

contained in Section 7 of Order Number 19095, constitutes a "rule" within the

meaning of the Administrative Procedure Act. The PSC having failed to follow

the rulemaking procedure set forth in Section 120.54, Florida Statutes, the

statement constitutes an invalid exercise of delegated legislative authority

within the meaning of Section 120.52(8), Florida Statutes, and is invalid.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, it

is ORDERED that the requirement that alternative operator services providers

hold subject to refund all revenues in excess of the local exchange company's

most comparable rate, as contained in Section 7 of Order Number 19095,

constitutes an invalid exercise of delegated legislative authority.

Ordered and entered this 24th day of June, 1988, in Tallahassee, Florida.

_________________________________

DIANE D. TREMOR

Hearing Officer

Division of Administrative

Hearings

The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 24th day of June, 1988.

ENDNOTES

1/ This argument is interesting in light of the fact that the Order itself, in

Section 7, recites that "it is our view that we must take 'immediate and

effective' action to remedy the abusive situation we perceive exists at this

time." Although the Order itself was reduced to written form on April 4, 1988,

the "hold subject to refund" requirement was made effective as of February 2,

1988. In addition, the notice attached to the Order provides that while certain

of its provisions are preliminary in nature and will become effective or final

on a future date only if a petition for hearing is not timely filed, the

provisions of Section 7 are reviewable only by a motion for reconsideration or

judicial review.

2/ Indeed, the PSC successfully objected to the receipt into evidence of a

transcript of the Agenda Conference, urging that the transcripts of Agenda

Conferences, which are simply discussions between the Commission and its

advisory staff, are not part of the official records of the Commission.

3/ Though not determinative of the issues here since it is concluded that this

is not an interim rate proceeding, the exception from APA requirements contained

within Section 120.72(3) does not appear to be applicable when the PSC itself

initiates proceedings "in the nature of interim rate" changes. That exception

appears to allow individual public utilities and regulated companies, not the

PSC itself, to proceed under the interim rate provisions of Chapter 364. It is

a mechanism designed to solve the problem of regulatory lag, and not a device to

allow the PSC to ignore Chapter 120 when imposing industry-wide requirements.

APPENDIX TO FINAL ORDER, CASE NO. 88-1978RU

The parties' proposed findings of fact have been fully considered and are

accepted and/or incorporated in this Final Order, with the following exceptions:

Central Corporation

5 - 7. Rejected as irrelevant to the issues in

dispute.

67. Rejected as an improper factual finding.

71. Rejected as argumentative.

PSC

10, last sentence Rejected as irrelevant to the issues in

dispute.

11. Rejected as argumentative.

13 - 15. Rejected as argumentative and/or legal

argument, as opposed to factual findings.

COPIES FURNISHED:

Wings S. Benton

Patrick K. Wiggins

Ransom & Wiggins, P.A.

Post Office Drawer 1657

Tallahassee, Florida 32302

Mary Jane Lord, Debra W.

Schiro, and Susan T. Clark

101 East Gaines Street

Tallahassee, Florida 32301

Steve Tribble, Clerk

Public Service Commission

101 East Gaines Street

Tallahassee, Florida 32301

David Swafford, Executive Director

Public Service Commission

101 East Gaines Street

Tallahassee, Florida 32301

Liz Cloud, Chief

Bureau of Administrative Code

1802 The Capitol

Tallahassee, Florida 32399-0250

Carroll Webb, Executive Director

Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399-1300

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED, TO JUDICIAL

REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE

GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE

COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE

DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING

FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR

WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY

RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE

ORDER TO BE REVIEWED.

=================================================================

DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL

FIRST DISTRICT, STATE OF FLORIDA

FLORIDA PUBLIC SERVICE NOT FINAL UNTIL TIME EXPIRES TO

COMMISSION, FILE MOTION FOR REHEARING AND

DISPOSITION THEREOF IF FILED.

Appellant,

CASE NO. 88-1889

vs. DOAH CASE NO. 88-1978RU

CENTRAL CORPORATION,

Appellee.

__________________________/

Opinion filed October 19, 1989.

An Appeal from a Final Administrative Order.

Diane Tremor, Hearing Officer.

David E. Smith, Public Service Commission, Tallahassee, for Appellant.

Wings S. Benton and Patrick K. Wiggins of Ransom & Wiggins, Tallahassee, for

Appellee.

JOANOS, J.

The Florida Public Service Commission has appealed from a final

administrative order declaring Paragraph 7 of Public Service Commission Order

19095 to be an invalidly promulgated rule pursuant to Chapter 120, Florida

Statutes. Under the facts of this case, we affirm.

An alternative operator service (AOS) provides operator-assisted long

distance telecommunications services. Appellee Central Corporation is a type of

AOS denominated an interexchange carrier (IXC). In December 1987, after

receiving numerous general complaints from AOS users of excessive rates, the

Commission opened Docket No. 871394-TP for the purpose of reviewing the

regulatory requirements appropriate for an emerging telecommunications industry

providing long distance telephone services.

The initial action in this docket was taken when the Commission voted in

February 1988 to set an expedited hearing to determine whether the provision of

AOS service was in the public interest. In March 1988, the Commission voted

that AOS providers would be required to hold subject to refund all revenues

collected by those providers which exceeded the most comparable local exchange

rate. This decision was embodied in Paragraph 7 of Order 19095, issued April 4,

1988. The Commission explained that the revenues were being placed subject to

refund pending the results of the hearing on whether AOS was in the public

interest, in order that the excess monies could be returned if it was decided

that they were generated from inappropriate charges.

After the Commission denied its request to hold an evidentiary hearing

prior to effectuating Paragraph 7, Central petitioned for an administrative

determination that Paragraph 7 was an invalidly promulgated rule. The gravamen

of the Commission's argument in support of Paragraph 7 was that it constituted

an "interim rate order" pursuant to Section 364.055, Florida Statutes, and thus

was not subject to the requirements of the Administrative Procedures Act,

Chapter 120, Florida Statutes.

The rates which may be charged by most telephone companies regulated by the

Commission are set with reference to a "rate base," in order that a reasonable

rate of return on equity may be calculated. The Commission acknowledges that

rates which may be charged by an IXC are not set in consideration of such a

base, but are set forth by the IXC as part of the "tariff" which it is required

to maintain on file with the Commission. See Rule 25-24.485, Florida

Administrative Code.

During any proceeding for a change of rates, the Commission may authorize

the collection of "interim rates" until the entry of a final order with regard

to the change. Section 364.055(1), Fla. Stat. The difference between the

interim rate and the previously authorized rates must be collected subject to

refund in the event the final order does not authorize the rate change. Section

364.055(2)(a), Fla. Stat.

However, the specifically prescribed method for calculation of interim

rates as set forth in Section 364.055(4) and (5)(a-b), makes this section

impracticable of application to telephone companies such as Central, "those

rates are not established with regard to a rate base. Further, the instant

"hold subject to refund" provision was not entered in a "proceeding for a change

of rates," as authorized by Section 364.055(1), but rather in anticipation of a

proceeding to determine whether AOS services were in the public interest.

Therefore, we agree with the ruling of the hearing officer that Paragraph 7

cannot be classified as an interim rate order pursuant to Section 364.055(1) so

as to be exempt from the requirements of the APA. See Section 120.72(3),

Florida Statutes (1987)(notwithstanding any provision of this chapter, all

public utilities and companies regulated by the Commission shall be entitled to

proceed under the interim rate provisions of chapter 364).

However, the Commission does have the statutory authority to take action

upon receipt of consumer complaints of excessive rates. Section 364.14(1),

Florida Statutes (1987), provides that

[w]henever the Commission finds, ... upon

complaint, that the rates, charges, tolls,

or rentals demanded, exacted, charged, or

collected by any telephone company .

are unjust, unreasonable, unjustly

discriminatory, unduly preferential, or in

anywise in violation of law ... the

Commission shall determine the just and

reasonable rates, charges, tolls or rentals

to be thereafter observed and in force and

fix the same by order.

Therefore, the Commission may act by order to fix "just and reasonable rates"

upon complaints that existing rates are unjust and unreasonable. The crux of

this appeal therefore becomes whether Paragraph 7 as enacted and implemented in

this case was an "order," that is, a final agency decision which does not have

the effect of a rule, Section 120.52(11), Florida Statutes, or a "rule," an

agency statement of general applicability which prescribes law or policy,

including any form which imposes any requirement not specifically required by

statute or an existing rule. Section 120.52(16), Fla. Stat.

The hearing officer determined that Paragraph 7 had the effect of a rule in

that: 1) it was of general applicability, i.e., it affected all Florida AOS

providers, and 2) it imposed an immediate requirement not otherwise required by

statute or existing rule, that is, in light of the "hold subject to refund"

language, AOS providers either had to change previously approved rates to match

those charged by local exchange companies, or set monies aside to cover the

potential refund obligation. We agree.

The Commission argued below, and before this court, that the temporary

nature of Paragraph 7, that is, its applicability only until the August 1988

proceeding, precluded its classification as a rule. However, a temporally

limited agency action is properly denominated a rule if it has the consistent

effect of law, that is, is consistently applicable throughout its existence to

an entire group rather than to one member of that group. Balsam v. Department

of Health and Rehabilitative Services, 452 So.2d 976 (Fla. 1st DCA 1984).

Paragraph 7 is by its terms applicable to every AOS provider in Florida,

regardless of the actual rates being charged by individual providers, for the

entire duration of its applicability.

The Commission further argues that Paragraph 7 does not explicitly require

AOS providers to take any previously unrequired action. It merely notifies them

that they might be required to meet a contingent liability in the future,

leaving it to their sole discretion how to meet that contingency. We find that

this contention ignores reality, in that some action, of whatever nature, must

be taken by these companies to meet the liability for these rate differentials

in the event it is imposed.

We are not unmindful of the principle that rulemaking cannot be forced upon

an agency and that policy may be developed through the adjudication of

individual cases. See McDonald v. Department of Banking and Finance, 346 So.2d

569 (Fla. 1st DCA 1977)(while the Florida Administrative Procedures Act requires

rulemaking for policy statements of general applicability, it also recognizes

the inevitability and desirability of refining incipient agency policy through

adjudication of individual cases).

However, both rulemaking and the adjudication of individual cases fulfill

administrative due process requirements of notice, hearing and judicial review.

Here, the PSC followed neither path. There was no rulemaking as envisioned by

Section 120.54, Florida Statutes, nor was there a proceeding as envisioned by

Section 120.57, Florida Statutes. Interested and affected persons had no forum

in which to challenge the PSC's imposition of a new requirement, and there was

no record to review to determine if the basis for the action was supported.

Thus, the instant agency action is not the type of order agencies are required

to utilize when making decisions affecting substantial interests on a case-by-

case basis.

Therefore, because Paragraph 7 of PSC Order 19095 is consistently

applicable throughout its existence to every Florida AOS provider, and because

its effect is to impose requirements on these companies previously unimposed by

statute or preexisting rule, we find that the hearing officer was correct in her

classification of this provision as a rule subject to the requirements of

Section 120.54, Florida Statutes. Because those requirements were admittedly

not followed by the Commission in this case, the provisions of Paragraph 7

cannot be enforced.

We do not by this opinion hold that the Commission cannot, by order, fix

reasonable rates for a telephone company against whom complaints of excessive

rates have been filed, pursuant to the authority granted by Section 364.14,

Florida Statutes. It simply cannot do so in the form of a rule without

following the statutory procedures for the promulgation of such rules.

The order of the hearing officer is affirmed.

SHIVERS, C.J., CONCURS. ERVIN, J., DISSENTS WITH OPINION.

ERVIN, J., dissents.

I had assumed that following this court's seminal decision in McDonald v.

Department of Banking & Fin., 346 So.2d 569 (Fla. 1st DCA 1977), we had moved

away from the sterile exercise of attempting to classify agency action as either

a rule or an order, as exemplified in such pre-McDonald opinions as Price Wise

Buying Group v. Nuzum, 343 So.2d 115 (Fla. 1st DCA 1977), and State of Fla.,

Dep't of Admin. v. Stevens, 344 So.2d 290 (Fla. 1st DCA 1977). The majority's

opinion unfortunately furnishes a bright signal to litigants that this type of

review mechanism remains not only alive but exceedingly well--despite the

absence of any explicit authority in our Administrative Procedure Act (APA) for

invalidating agency action having the characteristics of a rule, as defined in

Section 120.52(16), Florida Statutes (1987), but not formally adopted as such.

I conclude that Public Service Commission Order No. 19095 is just what it

purports to be: an order rather than a rule. As such, it does not fall within

the definition of a rule as provided in section 120.52(16):

"Rule" means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the organization, procedure, or

practice requirements of an agency and

includes any form which imposes any

requirement or solicits any information not

specifically required by statute or by an

existing rule.

(Emphasis added.)

Order No. 10995 requires alternate operator services (AOS) providers to

hold, subject to refund, all revenues in excess of an amount certain, until the

disposition of the revenues is determined by the hearing set in the order. The

appellee argues that this order is a rule, chiefly because it is generally

applicable to all AOS providers, and because it is immediately enforceable; thus

it is argued, the order prescribes law or policy without being subject to the

stricture of rulemaking. To the contrary, the Public Service Commission

(Commission) argues that although orders may also prescribe law, the order on

review cannot possibly be a rule, because its only effect is to ensure certain

monies be set aside until policy can be developed and enunciated--"prescribed,"

within the meaning of section 120.52(16).

In order to decide whether the subject order is a rule, it is necessary for

us to examine some of the primary objective behind rulemaking and determine

whether those considerations are applicable to the action on review. Perhaps

the most important goal of the rule adoption is fair notice to the public of the

agency's intended action, described by this court as "clos[ing] the gap between

what the agency and its staff know about the agency's law and policy and what an

outsider can know." McDonald, 346 So.2d at 580 (quoting K. Davis, Discretionary

Justice 102 (1969)(hereinafter Davis)). Rulemaking is also designed to assure

"'mature consideration of rules of general application,'" 1/ as well as to impel

"agencies to 'confine their own discretion' by 'moving from vague standards to

definite standards to broad principles to rules.'" Id. (quoting Davis, at 55).

Applying the above considerations to the case at hand, it is obvious that

the Commission's order is not impressed with any of the benchmarks of policy for

which the provisions of Section 120.54, Florida Statutes (1987), relating to

rulemaking, are required. The Commission itself identifies the order as an

interim measure designed to ensure consumer protection during the time that the

Commission examines the issues presented by the complaints it has received. As

such, the order under review can neither be impressed with the "mature

consideration" intended for a rule, nor can it be viewed as the initial step in

a progression from vague standards to definite standards and finally to broad

principles, given the agency's confession of a lack of adequate information on

the merits presented by the complaints of excessive charges by AOS. Due to the

agency's lack of formulation of any policy at the time of the entry of the order

on review, we are not confronted with any gap between what the agency knows and

what the public is unaware of. Indeed, at the time of the order's entry, it

appears that the agency itself knew little more than would an interested

outsider, in that the purpose of the public hearing, as provided in the order,

was to obtain information from which the Commission hoped to develop an

intelligent policy judgment that it was then unable to state. In my judgment,

none of the considerations that are relevant to rule adoption is present here.

As observed in McDonald, the framers of the APA "had no intention of

building an impenetrable wall between policymaking and adjudication." McDonald,

346 So.2d at 581. "The folly of imposing rulemaking procedures on all

statements of incipient policy is evident[,]" because to do so will hardly

encourage agencies to "structure their discretion progressively by vague

standards, then definite standards, then broad principles, then rules." Id. at

580 (emphasis added). Although the definition of a rule "obviously could be

read literally to encompass virtually any utterance by an agency," 2/

nevertheless, to do so makes it impossible for an agency to "wisely sharpen its

purposes through adjudication before casting rules." Id. at 581 (citing Shapiro,

The Choice of Rulemaking or Adjudication in the Development of Administrative

Policy, 78 Harv. L. Rev. 921, 927 (1965)).

In a number of cases this court has recognized that it is unwise to force

agencies to pigeonhole their activities into "rule" versus "order" categories.

For example, in Florida Pub. Serv. Comm'n v. Indiantown Tel. Sys. Inc., 435

So.2d 892 (Fla. 1st DCA 1983), holding that the Commission could proceed to

develop policy through adjudication rather than rulemaking, this court said that

"there is no authority to compel the agency to choose rulemaking over

adjudication." Id. at 895-96. Furthermore, in Department of Revenue v. U.S.

Sugar Corp., 388 So.2d 596, 598 (Fla. 1st DCA 1980)(Ervin, J., concurring), it

was noted that the classification of agency action as a rule or order is not

important; rather the relevant inquiry is whether the agency has adequately

explained its action, and, if it has, whether its action is within the

discretion delegated to it. If an agency has explained itself and has acted

within its delegated authority, then the court should sustain the action even

though the agency's statement "may have all the characteristics of section

120.52[16]'s definition of rule." Id. As was observed in White Advertising

Int'l v. State of Fla. Dept. of Transp., 368 So.2d 411, 413 n.5 (Fla. 1st DCA

1979)(Ervin, J., concurring and dissenting)(citing 1 K. Davis, Administrative

Law Treatise 286 (1958)), "Professor Davis' solution to deciding whether such

borderline activities [i.e., categorizing as rule or order] should be validated

is 'to avoid classifying them--to skip the labeling and to proceed directly to

the problem at hand.'"

More than six years ago this court rejected an argument that the Board of

Medical Examiners' interpretation of Section 458.311(1)(b), Florida Statutes

(1979), which resulted in the applicant being barred for licensure as a medical

practitioner because he had not graduated from an approved medical school, was

invalid for the reason that the interpretation had not been adopted as a rule.

Barker v. Board of Medical Examiners, 428 So.2d 720 (Fla. 1st DCA 1983). In

upholding the Board's nonrule policy decision, we made the following

observations:

The fact, however, that no rule was extant

at the time Barker applied for licensure does

not necessarily mean the Board's action was

void. The time has long since passed (if

ever it existed) that agency action was

mechanically invalidated simply because no

rule was in effect. Certain opinions from

this court during our early experience with

Florida's 1974 Administrative Procedure Act

may have so indicated. Our academic

endeavors in attempting to label the action

either rule or nonrule to determine whether

or not it fell within section 120.52(14)'s

[now renumbered as 120.52(16)] definition of

a rule have now been largely discarded.

There are, however, costs exacted upon an

agency which avoids the rulemaking procedure

provided by section 120.54, chief among those

being that the agency may be required

repeatedly to defend its nonrule policy

decisions in each case.

Id. at 722 (citations omitted).

The above approach appears to have been approved by the Florida Supreme

Court, insofar as it relates to an agency's formation of policy. In City of

Tallahassee v. Florida Pub. Serv. Comm'n, 433 So.2d 505 (Fla. 1983), the supreme

court, while denying the city's petition to force the Commission to initiate

rulemaking, made the following observations:

The statutes outlining the PSC's

jurisdiction and duties are necessarily

general in nature, providing for

flexibility in the exercise of its power.

To the extent the PSC solidifies its

position on policy in a particular area,

we believe such established policy should

be codified by rule. However, as in the

instant case, if the PSC seeks to

exercise its authority on a case-by-case

basis until it has focused on a common

scheme of inquiry derived through

experience gained from adversary

proceedings, then we hold that there

should be erected no impediment to the

PSC's election of such course.

* * *

Currently, by its own actions and

admissions, the PSC has shown that ...

it is in a formulative stage regarding

policy. As such, no greater restraints

should be imposed on the exercise of the

PSC's authority other than those already

found in section 366.06(1) as well as

those factors it has, and subsequently

will, expressly raise either in its

orders or through adversary proceedings

in this Court.

* * *

We have held in the past and continue

to hold in this case, that administrative

agencies may develop policies by

adjudication and that formal rulemaking

is not initially necessary in all cases.

Id. at 507-08 (emphasis added).

In the instant case, despite the contrary admonition of a number of

scholars and judges, appellee asks this court to approve the hearing officer's

order that places the agency's action into the rulemaking category--an exercise

which appears to me to be one of mere labeling--rather than permit the agency to

proceed with incipient policymaking by interim order, and then to final action.

If the latter course were approved, this court would be in a position of

reviewing whether the action taken was correct, rather than being restricted to

the limited question, at this truncated juncture, of whether the action should

be invalidated, because not adopted as a rule.

Appellee also argues, relying upon Balsam v. Department of Health &

Rehabilitative Servs., 452 So.2d 976 (Fla. 1st DCA 1984), that action which has

industry-wide effect is necessarily a rule, regardless of the duration of the

agency action. I do not regard Balsam as standing for such a broad proposition.

The court's holding in Balsam, which invalidated a moratorium imposed by the

agency on receipt of certificate of need (CON) applications, appears largely

motivated by the court's recognition that if appellant, a party substantially

affected by the agency's imposition of the moratorium, had not been afforded the

review mechanism provided by the rulemaking procedures of Chapter 120, the

appellant would have had no review until the next "batching cycle" of CON

applications. Id. at 977. By that time, appellant would have been deprived of

a competitive advantage. Id. In fact, the result of our decision in Balsam was

to order HRS to make a determination on appellants' application for a CON "as

soon as possible." Id. at 978. 3/ In the present case, Central Corporation,

however, has been provided a point of entry into the administrative proceeding,

and indeed has now had a full section 120.57(1) hearing, pursuant to the very

order it challenges. Thus, in my judgment, the policy underpinning our decision

in Balsam is inapplicable to the instant case.

The very fact that Central has been afforded dual entries into the

administrative arena via both the rule challenge and adversary adjudicatory

avenues is perhaps an even more fundamental reason why the order on review

should not be invalidated as a nonadopted rule, or why the rule challenge

proceeding should not be entertained. The practice of allowing simultaneous,

dual administrative proceedings was condemned in Fox v. State Bd. of Osteopathic

Medical Examiners, 395 So.2d 192 (Fla. 1st DCA 1981), in which we held that

declaratory statement proceedings brought pursuant to section 120.565 of the APA

could not be pursued on issues simultaneously litigated in a section 120.57

adjudicatory proceeding. See also Couch v. State of Fla. Dep't. of Health &

Rehabilitative Servs., 377 So.2d 32 (Fla. 1st DCA 1979). Similarly, in the case

at hand, issues were simultaneously litigated under Sections 120.57 and 120.56,

Florida Statutes (1987). In my judgment, it is questionable whether the party

affected by the agency's action has the legal right to proceed under both

statutes, in that the order which it is challenging as a nonadopted rule itself

provides the party with a formal hearing, which was sought, and which has now

been concluded. One has to question whether permitting such dual reviews, under

the circumstances at bar, results in an undesirable manipulation of the

procedural protections provided in the APA.

For the above reasons I would reverse the hearing officer's order of

invalidation.

ENDNOTES

1/ McDonald, 346 So.2d at 580 n.6 (quoting NLRB v. Wyman-Gordon Co., 394 U.S.

759, 764, 89 S.Ct. 1426, 1429, 22 L.Ed.2d 709, 714 (1969)).

2/ McDonald, 346 So.2d at 581 (quoting Pacific Gas & Elec. Co. v. Federal Power

Comm'n, 506 F.2d 33, 37 (D.C. Cir. 1974)).

3/ Another pertinent reason for invalidating the agency's action in Balsam was

that there was no statutory authority for the imposition of a moratorium, in

that Section 381.494(5), Florida Statutes (1981), required the agency, by rule,

to provide for the submission of CON applications on a "timetable or cycle

basis." Balsam, 452 So.2d at 977. Consequently a moratorium on such

applications would clearly have been in contravention of the authority delegated

to the agency by the legislature. In contrast, the agency here is specifically

given the authority by Section 364.14(1), Florida Statutes (1987), to determine

by order whether the rates demanded are "just and reasonable."

M A N D A T E

From

DISTRICT COURT OF APPEAL OF FLORIDA

FIRST DISTRICT

To the Honorable, the Judges of the Diane Demor

Hearing Officer

WHEREAS, in that certain cause filed in this Court styled:

FLORIDA MANUFACTURED HOUSING

ASSOCIATION, INC., A Florida

incorporated association not

for profit

Case No. 88-1889

vs. Your Case No. 88-1978-R

DEPARTMENT OF BUSINESS

REGULATION, DIVISION OF FLORIDA

LAND CONDOMINIUMS AND MOBILE

HOMES

vs.

FEDERATION OF MOBILE HOME OWNERS

OF FLORIDA, INC.

The attached opinion was rendered on October 19, 1989.

YOU ARE HEREBY COMMANDED that further proceedings be had in accordance with said

opinions, the rules of this Court and the laws of the State of Florida.

WITNESS the Honorable Douglass B. Shivers

Chief Judge of the District Court of Appeal of Florida, First District and the

Seal of said court at Tallahassee, the Capitol, on this 21st day of November,

1989.

_______________________________

Clerk, District Court of Appeal of Florida,

First District