Heater of Seabrook, Inc. v. Public Service Com'n of South Carolina, 24473

Decision Date05 June 1996
Docket NumberNo. 24473,24473
Citation324 S.C. 56,478 S.E.2d 826
CourtSouth Carolina Supreme Court
PartiesHEATER OF SEABROOK, INC., Appellant, v. The PUBLIC SERVICE COMMISSION OF SOUTH CAROLINA, Town of Seabrook Island, and South Carolina Department of Consumer Affairs, Respondents. . Heard

Darra W. Cothran, of Woodward, Cothran & Herndon, Columbia, for Appellant.

F. David Butler, Columbia, for Public Service Commission of South Carolina; Elliott F. Elam, Jr., Columbia, for Consumer Affairs; Stephen P. Groves, Michael A. Molony and Stephen L. Brown, all of Young, Clement, Rivers & Tisdale, Charleston, for Town of Seabrook Island, all Respondents.

TOAL, Justice:

In this rate case, Appellant Heater of Seabrook, Inc. ("Heater") appeals the circuit court's order affirming the Public Service Commission's denial of Heater's request for an increase in its water and sewer rates. We reverse, finding the Public Service Commission ("Commission" or "PSC") abused its discretion in several respects.

FACTUAL/PROCEDURAL BACKGROUND

Heater is a utility company providing water and sewer services to the Town of Seabrook Island ("Town"). On January 13, 1994, Heater filed an application for an increase in its water and sewer rates. Consumer Advocate Steven Hamm, Town, and R. Sid Crim intervened in the action. At some point, Town asked Commission to dismiss the application because Town was negotiating to purchase the utility from Heater and considered the rate filing a tactic to increase the purchase price of the utility. Commission did not dismiss the application, and a hearing was held on June 8, 1994.

In its Order denying Heater a rate increase, Commission deviated from its past practice of considering availability fees as contributions in aid of construction. Instead, it included availability fees as operating revenues. Additionally, although Heater presented several witnesses who recommended using the rate of return on rate base methodology to determine an appropriate rate, Commission used the operating margin methodology. Commission determined that an 8.6% operating margin was sufficient to allow Heater to meet its expenses and to provide its investors with a fair rate of return on equity.

Heater appealed Commission's denial of the rate increase, and the circuit court affirmed. Heater now appeals the decision of the circuit court.

LAW/ANALYSIS

Heater argues PSC erred in the following respects: (1) in comparing Heater's test year 1 expenses with prior calendar This Court employs a deferential standard of review when reviewing decisions of the Public Service Commission. If there is substantial evidence to support a decision by PSC, the Court will affirm the decision. Hamm v. South Carolina Pub. Serv. Comm'n, 309 S.C. 282, 422 S.E.2d 110 (1992). On questions about which there is room for a difference of intelligent opinion, this Court may not substitute its judgment for that of Commission. Id. Because Commission's findings are presumptively correct, the party challenging a Commission order bears the burden of showing that the decision is "clearly erroneous in view of the substantial evidence on the whole record." Patton v. South Carolina Pub. Serv. Comm'n, 280 S.C. 288, 290-91, 312 S.E.2d 257, 259 (1984).

years' expenses, rather than with the expenses of the prior test year, in determining Heater had not justified its need for a rate increase; (2) in treating availability fees 2 as operating revenues rather than as contributions in aid of construction; (3) in considering the acquisition of the utility by Town as a relevant factor in the rate case; and (4) in employing the "operating margin" approach to rate setting rather than the rate of return on rate base approach. Finally, Heater argues PSC has set its rates so low as to be confiscatory in violation of due process.

A. USE OF TEST YEAR EXPENSE FIGURES

Heater argues Commission abused its discretion by failing to use test year expense figures properly. We agree.

When calculating expenses in rate cases, Commission should use only test year data and known and measurable changes occurring after the test year. Southern Bell Tel. & Tel. Co. v. South Carolina Pub. Serv. Comm'n, 270 S.C. 590, 244 S.E.2d 278 (1978). Here, it used only test year data to calculate Heater's operating expenses; in fact, Heater agreed with the Commission staff's calculation of test year operating expenses. Plainly Commission did not fail to use test year data in determining Heater's operating margin.

In determining whether Heater's expenses had increased enough to justify a rate increase, however, Commission did not compare the test year expenses from Heater's previous rate case with those from this rate case. Instead, it simply chose random calendar years in which Heater's expenses in various categories exceeded the expenses for those categories in the test year for this proceeding. The purpose of such comparisons was to show that Heater had not experienced increases in expenses sufficient to justify a rate increase.

To show that its expenses have increased, Heater need only introduce data comparing the expenses from the test year used in the previous rate case with those from the test year in this case, including, of course, any known and measurable changes occurring after the test year. Any other comparison is irrelevant. Therefore, Commission's comparison of prior non-test years with the test year for the current case is seriously misleading. In determining whether Heater's expenses had increased enough to justify a rate increase, Commission should have compared the current test year, including any known and measurable changes after the test year, with the test year from the prior case. Its failure to do so constitutes reversible error.

B. AVAILABILITY FEES

Heater argues the circuit court erred in affirming Commission's decision to treat availability fees as operating revenues rather than as contributions in aid of construction. We agree.

At the hearing on Heater's application for a rate increase, both the Commission staff and the Consumer Advocate proposed treating availability fees as operating revenues. Philip Miller, an expert witness for the Consumer Advocate, testified that during Heater's test year, Heater billed annual availability Jerry Tweed testified in rebuttal that "[t]he use of availability fees to reduce rate base does benefit existing customers by reducing depreciation expense and interest expense and, if the rates are set based upon return on rate base, a further benefit will be received by the current customers." Tweed also addressed Miller's argument that under Heater's proposal, expenses relating to availability fees were not excluded from operating expenses, but the fees themselves were excluded from operating revenues. He testified that "[w]ith regard to the maintenance on the distribution lines, all of the lines are necessary to serve existing customers and there would be no additional cost to be considered." Tweed also testified that most of the cost associated with billing and collection of availability fees was included in the salary of a Heater employee and that the portion of the employee's salary relating to the availability fees was capitalized. Finally, Tweed acknowledged that the business license fee added $193 in operating expenses, which amount would not be matched by operating revenues.

fees of $66,640. Miller disagreed with Heater's proposal to use those fees as a reduction to rate base, arguing that Heater's proposal did not eliminate from operating expenses certain expenses associated with availability fees. According to Miller, the expenses associated with the availability fees that were not excluded from Heater's operating expenses...

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8 cases
  • Porter v. SC PUBLIC SERVICE COM'N, 24847.
    • United States
    • South Carolina Supreme Court
    • October 26, 1998
    ...a PSC decision and will affirm that decision when substantial evidence supports it. Heater of Seabrook, Inc. v. Pub. Serv. Comm'n of South Carolina, 324 S.C. 56, 60, 478 S.E.2d 826, 828 (1996); Hamm v. South Carolina Pub. Serv. Comm'n, 309 S.C. 282, 422 S.E.2d 110 (1992). This Court may not......
  • Porter v. South Carolina Public Service Com'n
    • United States
    • South Carolina Supreme Court
    • September 17, 1997
    ...no abuse of discretion where substantial evidence supports the finding of a just and reasonable rate. Heater of Seabrook, Inc. v. Pub. Serv. Comm'n, 324 S.C. 56, 478 S.E.2d 826 (1996). Here, the Commission based its reduction of cash working capital on known amounts supported by the record.......
  • KIAWAH PROPERTY v. THE PUBLIC SERVICE, 25782.
    • United States
    • South Carolina Supreme Court
    • February 9, 2004
    ...Solutions, Inc. v. South Carolina Pub. Serv. Comm'n, 351 S.C. 175, 568 S.E.2d 365 (2002); Heater of Seabrook, Inc. v. Pub. Serv. Comm'n of South Carolina, 324 S.C. 56, 478 S.E.2d 826 (1996). We will not substitute our judgment for that of the PSC where there is room for a difference of inte......
  • Utilities Serv. of South Carolina Inc. v. the South Carolina Office of Regulatory Staff
    • United States
    • South Carolina Supreme Court
    • March 28, 2011
    ...a utility has incurred additional expenses requiring additional revenue. Cf. Heater of Seabrook, Inc. v. Public Service Comm'n of S.C. (Heater of Seabrook I), 324 S.C. 56, 61, 478 S.E.2d 826, 828 (1996) (“To show that its expenses have increased, Heater need only introduce data comparing th......
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