TOTAL ENV. SOLUTIONS v. PUBLIC SERV. COM'N

• Decision Date: 05 August 2002
• Docket Number: No. 25509.,25509.
• Citation: 568 S.E.2d 365,351 S.C. 175
• Court: South Carolina Supreme Court
• Parties: TOTAL ENVIRONMENTAL SOLUTIONS, INC., Respondent, v. SOUTH CAROLINA PUBLIC SERVICE COMMISSION, Foxwood Hills Property Owners Association, Steven W. Hamm, Consumer Advocate for the State of South Carolina, and Ernest Campbell, of whom South Carolina Public Service Commission is Respondent, and Foxwood Hills Property Owners Association, Inc. is Appellant. Total Environmental Solutions, Inc., Respondent, v. Foxwood Hills Property Owners Association, the South Carolina Department of Consumer Affairs, Ernest Campbell, and South Carolina Public Service Commission, of whom Foxwood Hills Property Owners Association is Appellant, and South Carolina Public Service Commission is Respondent. Foxwood Hills Property Owners Association, Appellant, v. South Carolina Public Service Commission, Total Environmental Solutions, Inc., and Steven W. Hamm, Consumer Advocate for South Carolina, of whom South Carolina Public Service Commission and Total Environmental Solutions, Inc. are Respondents.

351 S.C. 175

568 S.E.2d 365

TOTAL ENVIRONMENTAL SOLUTIONS, INC., Respondent, v. SOUTH CAROLINA PUBLIC SERVICE COMMISSION, Foxwood Hills Property Owners Association, Steven W. Hamm, Consumer Advocate for the State of South Carolina, and Ernest Campbell, of whom South Carolina Public Service Commission is Respondent, and Foxwood Hills Property Owners Association, Inc. is Appellant.

Total Environmental Solutions, Inc., Respondent, v. Foxwood Hills Property Owners Association, the South Carolina Department of Consumer Affairs, Ernest Campbell, and South Carolina Public Service Commission, of whom Foxwood Hills Property Owners Association is Appellant, and South Carolina Public Service Commission is Respondent.

Foxwood Hills Property Owners Association, Appellant, v. South Carolina Public Service Commission, Total Environmental Solutions, Inc., and Steven W. Hamm, Consumer Advocate for South Carolina, of whom South Carolina Public Service Commission and Total Environmental Solutions, Inc. are Respondents.

No. 25509.

Supreme Court of South Carolina.

Heard May 30, 2002.

Decided August 5, 2002.

Henry Asby Fulmer, III, of Fulmer Law Firm, of Summerville, for Appellant.

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

John F. Beach and John J. Pringle, Jr., of Beach Law Firm, of Columbia, for Respondent Total Environmental Solutions, Inc.

Justice BURNETT.

This case is before the Court on cross-appeals from consolidated cases arising from the circuit court's final order denying a utility company's appeal from the South Carolina Public Service Commission's ("Commission") Order. We affirm.

FACTS

Mountain Bay Estates Utility Company, Inc. ("Mountain Bay") a company providing water and sewer services to the Foxwood Hills resort community in Oconee County, applied for a rate increase with the Commission in January 1994. Mountain Bay was established as a private utility to serve Mountain Bay Estates, later Foxwood Hills, a private residential subdivision located on Lake Hartwell. Foxwood Corporation ("Foxwood"), the subdivision developer, owned 100% of Mountain Bay's stock.¹

At the rate hearing, Mountain Bay articulated three reasons for the increase: 1) rising cost of environmental regulatory compliance since Mountain Bay's last rate request in 1977; 2) general increase in inflation since 1977; and 3) Mountain Bay charged a rate not reflective of the true market rate in order to spur development of Foxwood, an interest it no longer had since being sold to Johnson Properties, Inc. ("Johnson"). Most of the testimony at the hearing centered upon the third reason, particularly whether lot availability fees should be counted by the Commission as operating revenue to Mountain Bay because of the relationship between the utility and Foxwood.

In 1977, the Commission approved Mountain Bays' request to charge a rate up to $8 per month for water and sewer services. As Mountain Bay was a subsidiary of Foxwood, it never charged more than $5 per month in order to increase development of the subdivision. As a result, the utility operated at a $137,568.59 loss for the test year ending June 30, 1993.

Foxwood charged each purchaser of a lot in the subdivision a yearly "availability fee" of $60 payable to the developer until the purchaser became a customer and connected to Mountain Bay. The fee was designed to reimburse Foxwood for its capital costs of building the initial water and sewer infrastructure. Once the purchaser connected to Mountain Bay's utility system and became a utility customer, the purchaser was no longer required to pay the availability fee. Under the terms of the purchasing agreement, Foxwood, not Mountain Bay, would bill and collect the fee. The amount of the availability fees totaled $171,947.04 for the test year.

While Foxwood mistakenly placed the availability fees on Mountain Bay's books for accounting purposes, the evidence presented at the hearing showed the lot owners were contractually obligated to pay the fees to Foxwood, and the fees were not used for utility purposes. The Commission's accountant testified he did not recognize the availability fee as revenue to Mountain Bay because it was not received directly by the utility and was not being collected for utility purposes. The Commission's accountant found the availability fees were not "ongoing revenues of the utility." The accountant testified if Mountain Bay did collect the availability fees, they should not be treated as operating revenue, but as a deduction from the rate base, the accounting equivalent to contributions in aid of construction.

Johnson purchased all Mountain Bay's stock in July 1993, a month after the test year ended. The stock purchase was not approved by the Commission. In the stock purchase agreement, Foxwood promised to assign the availability fees to Johnson within two years of the closing date or July 1995. Foxwood retained the right under its sole discretion to modify or terminate the availability fees on a case-by-case basis until that date.

Further, Foxwood had no obligation to include availability fees in any future lot sales agreements. The availability fees assigned to Johnson were not required to be used to benefit Mountain Bay, but could be used by Johnson as income for any purpose. If Johnson sold Mountain Bay's stock to another entity, it was not required to transfer the availability fees or assign its rights to the other entity.

After the hearing, the Commission denied the rate increase. Central to the Commission's denial was Commission's treatment of the availability fees as operating revenue to Mountain Bay. Additionally, the Commission concluded Johnson Properties would not have bought Mountain Bay unless it "either continued to have the use of the availability fees and/or it received a rate increase. Clearly, availability fees were used as consideration in the sale of the utility's stock." The Commission further concluded Mountain Bay was not required to obtain Commission approval prior to the transfer of its capital stock.

Mountain Bay appealed the denial of the rate increase because the Commission improperly attributed the availability fee as operating revenue to the utility. The Foxwood Hills Property Owners Association, Inc. ("POA") also appealed claiming the Commission erred in concluding Mountain Bay did not need permission to transfer 100% of its capital stock.

The circuit court concluded the Commission erred in attributing the availability fees to Mountain Bay, and the Commission was not required to approve the stock transfer.²

ISSUES

I. Did the South Carolina Public Service Commission err in ruling lot availability fees should be treated as Mountain Bay operating revenue?

II. Did the South Carolina Public Service Commission err in ruling it was not required to approve the July 1993 stock transfer between Foxwood Corporation and Johnson Properties?

DISCUSSION

This Court is deferential in reviewing decisions by the Commission and will affirm those decisions supported by substantial evidence. Heater of Seabrook, Inc. v. Public Serv. Comm'n of South Carolina, 324 S.C. 56, 478 S.E.2d 826 (1996). This Court refrains from substituting its judgment for that of the Commission's where there is room for difference of intelligent opinion. Id. The Commission's findings are presumptively correct requiring the party challenging the Commission's order to bear the burden of showing the decision is "clearly erroneous in view of the substantial evidence on the whole record." Id. at 60, 478 S.E.2d at 828 (quoting Patton v. South Carolina Pub. Serv. Comm'n, 280 S.C. 288, 290-91, 312 S.E.2d 257, 259 (1984)).

I Availability Fees

The Commission decision to include availability fees as operating revenue for Mountain Bay is based on the relationship between the utility company and the developer, Foxwood. The Commission acknowledges availability fees "are normally the result of a contract between the lot owner and the developer," but insists "where the developer and the utility are the same entity or closely related entities, the Commission may choose to apply the fees to the utility in some manner, especially when such fees appear on the utility's books."

The Commission avers Mountain Bay historically undercharged customers to benefit the developer, Foxwood, which, in turn, supported the utility "if not through availability fees, then through other funding from the developer." The Commission argues that rationale combined with the fact Johnson Properties was not required to use availability fees to benefit Mountain Bay, required it to find the proposed rate increase was not a function of increased operating costs but of new ownership and accounting treatment of the availability fees. The Commission further concluded the availability fees were used as consideration in the sale of Mountain Bay's stock, "and that by arranging the terms of the contract in such a way as to limit the utility's access to revenues, the developer and Johnson Properties utilized the stock transaction to the benefit of Johnson Properties and to the disadvantage of Mountain Bay's ratepayers."...