South Carolina Public Service Authority v. Citizens and Southern Nat. Bank of South Carolina

• Decision Date: 19 September 1989
• Docket Number: No. 23093,23093
• Citation: South Carolina Public Service Authority v. Citizens and Southern Nat. Bank of South Carolina, 386 S.E.2d 775, 300 S.C. 142 (S.C. 1989)
• Court: South Carolina Supreme Court
• Parties: SOUTH CAROLINA PUBLIC SERVICE AUTHORITY, Respondent, v. The CITIZENS AND SOUTHERN NATIONAL BANK OF SOUTH CAROLINA; NCNB South Carolina; The South Carolina National Bank; and Charles W. Waring, Jr., Julius Burgis, Burton A. Kaplan, and W.E. Barrett, Individually and on behalf of themselves and all others similarly situated, Appellants. . Heard

Page 775

386 S.E.2d 775

300 S.C. 142

SOUTH CAROLINA PUBLIC SERVICE AUTHORITY, Respondent, v. The CITIZENS AND SOUTHERN NATIONAL BANK OF SOUTH CAROLINA NCNB South Carolina; The South Carolina National Bank; and Charles W. Waring, Jr., Julius Burgis, Burton A. Kaplan, and W.E. Barrett, Individually and on behalf of themselves and all others similarly situated, Appellants.

No. 23093.

Supreme Court of South Carolina.

Heard Sept. 19, 1989.

Decided Oct. 23, 1989.

Gary W. Morris, Columbia, and Theodore B. Guerard, Charleston, both of Haynsworth, Marion, McKay & Guerard, for appellants.

Robert W. Dibble, Jr., and Jane W. Trinkley, both of McNair Law Firm, Columbia, for respondent.

PER CURIAM:

This case involves a declaratory judgment action brought by the South Carolina Public Service Authority (Authority), respondents, requesting that the trial court: (1) certify the case as a class action; (2) declare the rights of the parties to the case; and (3) enter a judgment declaring that a resolution changing the fiscal year does not violate any right of any bondholder or the Authority or violate any terms or covenants of any of the outstanding bond indentures or resolutions and that the Authority is entitled to implement such resolution. Judgment was entered for the Authority. Appellants, Citizens and Southern National Bank of South Carolina et al. (C & S), appeal from that portion of the trial judge's order which holds that the resolution will not violate any constitutional, statutory, or commonlaw right of any bondholder, will not impair any obligation of the authority to any person, nor otherwise adversely affect anyone holding any interest in any debt, security, or other obligation of the Authority.

We adopt the order of the circuit court as modified. The modified order of the circuit court is set forth below:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This declaratory judgment action came before me for trial in Columbia on June 23, 1989. Following presentation of evidence and arguments by counsel, the court makes the following findings of fact and conclusions of law:

FINDINGS OF FACT

Parties and Jurisdiction

The plaintiff (hereinafter referred to as Santee Cooper or the Authority) is a body corporate and politic, organized pursuant to S.C.Code Ann. §§ 58-31-10 to 58-31-200 (1976 and Supp.1988). Its principal place of business is in Moncks Corner, South Carolina. The Citizens & Southern National Bank of South Carolina ("C & S") and The South Carolina National Bank ("SCN") are national banks organized and existing under the laws of the United States. Each has its principal place of business in Richland County, South Carolina. NCNB South Carolina ("NCNB") is a South Carolina corporation and has its principal place of business in Richland County, South Carolina. Each of the individual defendants is the owner of one or more bonds issued by Santee Cooper, is a citizen of South Carolina, and has not contested this suit being brought in Richland County.

Pursuant to this Court's orders dated April 12 and 13, 1989, and after presentation to the court of proof of publication of the Notice of Class Action in accordance with these orders, this case was certified as a class action. Each of the individual defendants has served as a representative of the class of all bondholders of Santee Cooper and, through his counsel, has represented the interest of all bondholders and of his respective subclass of bondholders.

Santee Cooper has outstanding approximately two billion dollars worth of bonds. Charles W. Waring, Jr. owns one bond issued pursuant to the 1949 Indenture and is the class representative for all holders of bonds issued under the 1949 Indenture. SCN is the trustee for all holders of bonds issued under the 1949 Indenture. Julius Burgis owns two bonds issued pursuant to the 1971 Expansion Bond Resolution ("1971 Resolution") and is the class representative for all holders of bonds issued under the 1971 Resolution. C & S is the trustee for all holders of bonds issued under the 1971 Resolution. Burton A. Kaplan owns two bonds issued pursuant to the 1985 Electric Revenue Bond Resolution ("1985 Resolution") and is the class representative for all holders of bonds issued under the 1985 Resolution. NCNB is the trustee for all holders of bonds issued under the 1985 Resolution. W. E. Barrett owns ten bonds issued pursuant to the 1988 Electric Revenue Bond Resolution ("1988 Resolution") and is the class representative for all holders of bonds issued under the 1988 Resolution. SCN is the trustee for all holders of bonds issued under the 1988 Resolution.

Santee Cooper was created in 1934 and has operated on a fiscal year which begins on July 1 and ends on June 30 of the succeeding year. Most of Santee Cooper's competitors in the business of producing, generating, transmitting, distributing and selling electricity operate on a fiscal year based upon the Gregorian calendar.

During 1988, the General Assembly of South Carolina passed Act No. 658 of 1988 (Effective date June 8, 1988). Section 31 of Act No. 658 authorized Santee Cooper to adopt the calendar year as its fiscal year. On January 23, 1989, the Board of Directors of Santee Cooper adopted a resolution changing its present July 1 to June 30 fiscal year to a calendar year beginning January 1, 1990. Subsequently, Santee Cooper notified C & S, NCNB and SCN (as trustees of the bondholders) of the adoption of the resolution. Thereafter, C & S advised Santee Cooper that it believed the change in fiscal year would violate the rights of the bondholders for a number of reasons, all of which have been presented to the court, argued and briefed by counsel, and will be addressed herein. There exists between the parties an actual controversy concerning the propriety of the change.

Purpose of Change in Fiscal Year

In recent years, members of the power industry have become increasingly competitive for territorial allocations and large industrial customers who can choose their provider of power. The competitive nature of the business affects publicly owned utilities whose accountability is to their customers and to the legislative bodies by whose grace they exist. Consequently, Santee Cooper has found itself having to justify to the General Assembly, as well as to its customers, its efficiency and the cost effectiveness of its operation. Furthermore, in areas where competition exists between providers, Santee Cooper must be able to demonstrate competitive rates to obtain and retain the business of customers who have a choice among providers of electricity. Ken Ford, President of Santee Cooper, testified that Santee Cooper's management and Board of Directors determined that changing Santee Cooper's fiscal year to a calendar year is necessary to enable Santee Cooper to compete effectively in the present market and to operate in a more efficient and prudent manner. Because all of the outstanding bonds are revenue bonds which will be repaid with revenues received by Santee Cooper, any actions that improve Santee Cooper's financial stability or competitive position also benefit the bondholders by enhancing their security.

Mr. Ford was a well-qualified and credible witness who was qualified as an expert to render opinions about the nature of the power industry, the effect that different fiscal years have on the planning, operations and business decisions of Santee Cooper and the need for Santee Cooper to change its fiscal year. Mr. Ford has worked in the public power industry for twenty-nine years. He is a certified public accountant with vast experience in the financial affairs of public utilities, including accounting, auditing, budgeting, rate-setting and planning. Based upon Mr. Ford's testimony, this court finds that Santee Cooper's purpose in changing its fiscal year is to improve its efficiency and that such improvements in efficiency as may occur as a result will inure to the benefit of the bondholders as well as to its customers.

A key part of Santee Cooper's internal evaluation of its operation is comparisons made with other utilities. Comparisons are made of operating costs, maintenance costs, debt to equity ratios and various other facets of the utility business. These comparisons are used to identify areas where Santee Cooper is out of line with comparable or similar utilities and to target areas where improvements in efficiency may be possible. They are also used to demonstrate Santee Cooper's relative efficiency and cost effectiveness. Lack of truly comparable data based on the same fiscal year as other utilities operating in the State and elsewhere reduces the credibility of the comparison data and hampers Santee Cooper's efforts to demonstrate its relative efficiency to potential customers, existing customers, the General Assembly, the financial community, bondholders and potential investors.

All of the investor owned utilities with which Santee Cooper compares itself operate on a calendar year. ¹ The majority of the publicly owned utilities with which Santee Cooper compares itself operate either on a calendar year or a federal fiscal year (one beginning October 1 and ending September 30). The utilities used for these comparisons are selected for their geographical proximity, comparable type of generating source and comparable mix of industrial and residential customers. Santee Cooper's most direct competitors are the largest providers in South Carolina, South Carolina Electric & Gas Company, Duke Power Co. and Carolina Power & Light, all of which are investor owned utilities operating on a calendar year.

Weather variations are the key variable in determining the revenue of a power company. Revenues are highest in the winter and summer months of peak usage. Because of differences from year to year in months in which the peaks fall, comparisons made between utilities who operate on different fiscal years are essentially comparing apples to oranges. Since...