Porter v. SC PUBLIC SERVICE COM'N, No. 24847.

• Court: United States State Supreme Court of South Carolina
• Writing for the Court: WALLER, Justice
• Citation: 507 S.E.2d 328,333 S.C. 12
• Decision Date: 26 October 1998
• Docket Number: No. 24847.
• Parties: Philip S. PORTER, Consumer Advocate for the State of South Carolina, Respondent/Appellant, v. SOUTH CAROLINA PUBLIC SERVICE COMMISSION and BellSouth Telecommunications, Inc., of which South Carolina Public Service Commission is Respondent, and BellSouth Telecommunications is Appellant/Respondent. South Carolina Public Communications Association, Petitioner, v. South Carolina Public Service Commission and BellSouth Telecommunications, d/b/a Southern Bell Telephone and Telegraph Co., of which South Carolina Public Service Commission is Respondent, and BellSouth Telecommunications is Appellant/Respondent.

333 S.C. 12
507 S.E.2d 328

Philip S. PORTER, Consumer Advocate for the State of South Carolina, Respondent/Appellant,
v.
SOUTH CAROLINA PUBLIC SERVICE COMMISSION and BellSouth Telecommunications, Inc., of which South Carolina Public Service Commission is Respondent,
and BellSouth Telecommunications is Appellant/Respondent.
South Carolina Public Communications Association, Petitioner,
v.
South Carolina Public Service Commission and BellSouth Telecommunications, d/b/a Southern Bell Telephone and Telegraph Co., of which South Carolina Public Service Commission is Respondent,
and BellSouth Telecommunications is Appellant/Respondent

No. 24847.

Supreme Court of South Carolina.

Heard October 8, 1998.

Decided October 26, 1998.

333 S.C. 17

Caroline N. Watson, Robert A. Culpepper, Harry M. Lightsey, III, and William F. Austin, all of Columbia, and John Hamilton Smith of Charleston, for BellSouth Telecommunications, Inc

Philip S. Porter, Nancy Vaughn Coombs, and Elliott F. Elam, Jr., all of Columbia, for Consumer Advocate for the State of South Carolina.

F. David Butler, of Columbia, for South Carolina Public Service Commission.

333 S.C. 18

WALLER, Justice

This is a utility rate case. We affirm in part and reverse in part.

PROCEDURAL POSTURE

The South Carolina Public Service Commission (PSC) reviewed BellSouth Telecommunication's (BellSouth's) earnings in 1994, a test year used to determine future rates. Based on that review, PSC adjusted certain revenues and expenses of BellSouth and ordered the company to reduce its future rates by $42.3 million annually. Philip S. Porter (Consumer Advocate) filed a petition for review of PSC's orders in circuit court. The circuit court affirmed PSC's orders with the exception of one issue, which the circuit court reversed. Consumer Advocate and BellSouth now appeal the circuit court's judgment.

ISSUES

1. Did the circuit court err in affirming PSC's decision on the rate of return on common equity?

2. Did the circuit court err in affirming PSC's calculation of BellSouth Advertising and Publishing Co. revenue?

3. Did the circuit court err in affirming PSC's treatment of cash working capital?

4. Did the circuit court err in affirming PSC's decision on the annualization of salary and wage expenses?

5. Did the circuit court err in reversing PSC's decision to include Area Plus losses in test-year calculations?

1. RATE OF RETURN ON COMMON EQUITY

Consumer Advocate contends the circuit court erred in affirming PSC's decision on the rate of return on common equity because that decision was not adequately documented in findings of fact or supported by substantial evidence. We agree.

333 S.C. 19

A PSC staff economist testified PSC should set the rate of return on common equity¹ between 11.5 percent and 12 percent. An economist hired by Consumer Advocate testified PSC should set the rate between 10.4 percent and 11.6 percent. In calculating the rate, both economists compared BellSouth with other telephone companies. They did not include "flotation costs" associated with issuing stock because BellSouth Telecommunications, a subsidiary of the publicly held BellSouth Corp., had no plans to issue stock. An economist hired by BellSouth testified PSC should set the rate between 13.71 percent and 13.95 percent. In calculating the rate, BellSouth's economist compared the company with non-regulated, non-utility companies such as McDonald's Corp., Procter & Gamble Co., Knight-Ridder Inc., and Pfizer Inc. He also included flotation costs associated with issuing stock

In Order No. 95-1757, PSC set the rate of return on common equity at 12.75 percent, finding that rate to be "fair and reasonable" to BellSouth, the company's stockholders, and the company's customers. PSC described the three economists' testimony and outlined established legal principles the agency must use in determining a fair rate of return. PSC agreed with its staff economist and Consumer Advocate's economist that "telecommunications companies are a better comparison group with BellSouth than the various non-utility surrogates favored by [BellSouth's economist]." PSC also agreed it would be improper to include costs of issuing stock in calculations in this case. PSC stated its decision was based on "evidence presented by the witnesses and current economic conditions."

Consumer Advocate in a petition for rehearing urged PSC to set the rate no higher than 12 percent—the highest estimate recommended by the two economists upon which PSC relied in its order. In response, PSC issued Order No. 96-75,

333 S.C. 20

deleting from its previous order the above sentence in which it agreed with the two economists about the proper comparison group. PSC concluded the 12.75 percent rate was proper because it fell within the overall range recommended by all three economists (10.4 percent to 13.95 percent).² The circuit court affirmed PSC's order.

Consumer Advocate now contends PSC issued orders without properly explaining its reasoning in findings of fact based on substantial evidence in the record. Consumer Advocate argues PSC offered no rationale for its decision after modifying the original order to delete any reference to its reliance upon the two economists' testimony.

This Court employs a deferential standard of review when reviewing 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 substitute its judgment for PSC's on questions about which there is room for a difference of intelligent opinion. Because PSC's findings are presumptively correct, the party challenging a PSC order bears the burden of convincingly proving that the decision is clearly erroneous, or arbitrary or capricious, or an abuse of discretion, in view of the substantial evidence on the whole record. Heater of Seabrook, Inc., supra; Patton v. South Carolina Pub. Serv. Comm'n, 280 S.C. 288, 290, 312 S.E.2d 257, 259 (1984); S.C.Code Ann. § 1-23-380(A)(6) (Supp.1997).

Substantial evidence is relevant evidence that, considering the record as a whole, a reasonable mind would accept to support an administrative agency's action. Substantial evidence exists when, if the case were presented to a jury, the court would refuse to direct a verdict because the evidence raises questions of fact for the jury. It is more than a mere scintilla of evidence, but is something less than the weight of

333 S.C. 21

the evidence. Furthermore, the possibility of drawing two inconsistent conclusions from the evidence does not prevent a court from concluding that substantial evidence supports an administrative agency's finding. Hamm v. South Carolina Pub. Serv. Comm'n, 315 S.C. 119, 122, 432 S.E.2d 454, 456 (1993); Lark v. Bi-Lo, Inc., 276 S.C. 130, 135, 276 S.E.2d 304, 307 (1981).

This deferential standard of review does not mean, however, that the Court will accept an administrative agency's decision at face value without requiring the agency to explain its reasoning. In determining a fair rate of return on common equity, for example, PSC must fully document its findings of fact and base its decision on reliable, probative, and substantial evidence on the whole record. Porter v. South Carolina Pub. Serv. Comm'n, 332 S.C. 93, 504 S.E.2d 320 (1998); S.C.Code Ann. § 58-5-240(H) (Supp.1997).

"An administrative body must make findings which are sufficiently detailed to enable this Court to determine whether the findings are supported by the evidence and whether the law has been applied properly to those findings." Porter, supra; Hamm v. South Carolina Pub. Serv. Comm'n, 309 S.C. 295, 422 S.E.2d 118 (1992); S.C.Code Ann. § 58-9-1160 (1976). "Where material facts are in dispute, the administrative body must make specific, express findings of fact." Porter, supra; Able Communications, Inc. v. South Carolina Pub. Serv. Comm'n, 290 S.C. 409, 351 S.E.2d 151 (1986); S.C.Code Ann. § 1-23-350 (1986). An administrative agency is not required to present its findings of fact and reasoning in any particular format, although the better practice is to present them in an organized and regimented manner. However, "a recital of conflicting testimony followed by a general conclusion is patently insufficient to enable a reviewing court to address the issues." Able Communications, Inc. v. South Carolina Pub. Serv. Comm'n, 290 S.C. at 411, 351 S.E.2d at 152.

We find the order in this case deficient because PSC made no findings of fact or offered any explanation of its conclusion. See S.C.Code Ann. § 58-9-570 (1976) (listing factors PSC must consider in determining just and reasonable rates of telephone companies). PSC's order simply recites the economists' conflicting testimony, mentions established legal principles

333 S.C. 22

applied in rate cases, and then Concludes 12.75 percent is a proper rate of return on common equity. PSC eliminated what little reasoning it had included in its original order by deleting any reference to the two economists' opinion. See also Hamm v. South Carolina Pub. Serv. Comm'n, 309 S.C. at 287, 422 S.E.2d at 113 (PSC's decision to set rate of return on common equity at 13.25 percent was not supported by substantial evidence where evidence showed that maximum rate, after inappropriate adjustments were deleted, was 13 percent). Accordingly, we reverse the judgment of the circuit court on this issue.³

2. BAPCO REVENUE

Consumer Advocate argues the circuit court erred in affirming PSC's decision on the amount of revenue generated by BellSouth Advertising and Publishing Co. (BAPCO) because that decision was not adequately documented in findings of fact or supported by substantial evidence. We agree.

BAPCO, a subsidiary of BellSouth Telecommunications, handles Yellow Page operations. PSC previously had determined

333 S.C. 23

that it would...