S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Philip S. Porter,
Consumer Advocate for
the State of South
Carolina, Appellant,
v.
South Carolina Public
Service Commission and
Piedmont Natural Gas
Company, Respondents.
Appeal From Richland County
Thomas J. Ervin, Circuit Court Judge
Opinion No 24833
Heard June 4, 1998 - Filed August 31, 1998
AFFIRMED AND REMANDED IN PART;
REVERSED IN PART.
Phillip S. Porter, Nancy Vaughn Coombs, and Hana
Pokorna-Williamson, all of the South Carolina
Department of Consumer Affairs, of Columbia, for
appellant.
F. David Butler, of South Carolina Public Service
Commission, of Columbia, for respondent South
Carolina Public Service Commission.
Dwight Drake and John E. Schmidt, both of Nelson
Mullins Riley & Scarborough, of Columbia and Jerry
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Porter v. SCPSC
W. Amos, of Amos & Jeffries, L.L.P., of Greensboro,
N.C., for respondent Piedmont Natural Gas Company.
FINNEY, C.J.: The Consumer Advocate appeals the circuit court
order affirming the Public Service Commission's (PSC) order in this utility
rate case. We reverse in part and affirm in part.
ISSUE I
Did the circuit court err in upholding the PSC's inclusion of
Demand Side Management (DSM) costs in Piedmont's expenses?
ANALYSIS
Piedmont Natural Gas Co. (Piedmont) filed a request on May 8,
1995, for an increase in rates and charges and approval of revised
depreciation rates. Piedmont also sought approval of DSM expenses.
Piedmont had not incurred expenses related to DSM activities during the test
year upon which the application was based, however, actual expenses were
incurred during July and August 1995. The expenses for this two month
period were annualized to reflect an on-going level of DSM costs. The PSC
order issued on November 7, 1995, granted the rate increase and included the
annualized expenses. The circuit court affirmed the PSC order.
The Consumer Advocate appeals the approval of DSM expenses
on the basis that Piedmont did not comply with the requirements set forth
in Piedmont's Integrated Resources Plan (IRP) Order. The Consumer
Advocate contends that Piedmont did not provide any cost benefit analyses
of its DSM programs as required in the Stipulation Agreement, therefore it
failed to satisfy the conditions for recovery of DSM costs.
The circuit court held the Advocate's conclusion is inconsistent
with the clear wording of the stipulation which states: "The failure of the
Company to achieve the projected level of benefits for any specific DSM
program, in and of itself, does not mean that the costs relating to the
program are not recoverable." The PSC stated in its order that the intent
and understanding of the parties who signed the stipulation is the best
evidence of the meaning of the stipulation.
The Stipulation Agreement which was agreed to by all parties
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Porter v. SCPSC
except the Consumer Advocate provides that certain criteria must be met
before the recovery of any DSM cost is appropriate. The three criteria for
cost recovery of DSM relate to the times: 1) prior to implementation, 2)
during implementation, and 3) at the time recovery is sought. In particular,
the stipulation requires that:
(iii) At the time that the Company seeks to recover its
DSM Costs, the Company must demonstrate that the
level of benefits achieved from the program is
consistent with the projected benefits and that the
program has achieved an appropriate level of benefits
at a reasonable cost. The Company must contrast
the projected cost/benefits with the actual
cost/benefits achieved and justify any failure to
achieve the projected benefits. The failure of the
Company to achieve the projected level of benefits for
any specific DSM program, in and of itself, does not
mean that the costs relating to the program are not
recoverable. The DSM costs and benefits which are
appropriate for the consideration of DSM Programs
for purposes of cost-recovery are South Carolina
system related costs and benefits.
(Emphasis added.)
The PSC's January 27, 1995, order approving the stipulation
agreement states that the "Commission is not approving cost allocation or
cost-recovery associated with IRP at this time, but such cost allocation and
cost-recovery will be addressed in the Company's next general rate
proceeding." The order provides that based on the stipulation it would be
appropriate to seek DSM costs at the next general rate increase, however, it
does not eliminate meeting the requirements set forth in the stipulation
agreement.
The stipulation agreement provides that the Company must
demonstrate a cost/benefit analysis when seeking recovery of DSM costs, The
Consumer Advocate's witness testified that no demonstration of cost/benefit
analysis was provided. While the stipulation provides that failure to achieve
the projected benefits would not mean that costs are not recoverable,
Piedmont did not comply with the threshold conditions for recovery of DSM
costs as set forth in the stipulation agreement. Accordingly, the circuit
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Porter v. SCPSC
court's order affirming the PSC on this issue is reversed as erroneous in view
of the evidence in the record. S.C. Code Ann. 1-23-380(A)(6)(e) (Supp.
1997).
ISSUE II
Did the circuit court violate the S.C. Energy
Conservation and Efficiency Act of 1992 (Energy Act)
by upholding the Commission's inclusion of DSM
costs in Piedmont's expenses?
ANALYSIS
The Consumer Advocate asserts the order affirming the
Commission's decision to allow recovery of projected DSM expenses without
examining their cost effectiveness violates the Energy Act's mandate to
provide investment incentives and reward cost-effective programs. We
disagree.
The Energy Act states in part:
The South Carolina Public Service Commission may
adopt procedures that encourage electrical utilities
and public utilities providing gas services subject to
the jurisdiction of the commission to invest in cost-
effective energy efficient technologies and energy
conservation programs. If adopted, these procedures
must: provide incentives and cost recovery for energy
suppliers and distributors who invest in energy
supply and end-use technologies that are cost-effective
. . . .
S.C. Code Ann. 58-37-20 (Supp. 1997). The statute cited refers specifically
to procedures adopted by the Commission. The Advocate essentially asserts
this section expresses an intent that cost effectiveness be a part of energy
conservation programs in general. This section alone would not require a
reversal of the PSC's finding allowing recovery of DSM expenses. We affirm.
ISSUE III
Is the Consumer Advocate barred from interpreting
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Porter v. SCPSC
the Stipulation Agreement which he did not sign?
ANALYSIS
The circuit court stated in his order that since the Consumer
Advocate failed to sign the stipulation he is not in a position to argue that
the parties who signed the stipulation misinterpreted the agreement. We
disagree.
The Consumer Advocate argues with respect to recovery of DSM
expenses, that Piedmont did not comply with its own agreement. The
Advocate does not assert that the stipulation was misinterpreted, but rather
it has not been followed. The circuit court states in essence that unless the
Advocate signed the agreement he cannot later complain. Following the
reasoning in Issue I, the Consumer Advocate is not barred from asserting
non-compliance with the agreement.
ISSUE IV
Did the circuit court err in affirming the
commission's approval of a return on common equity
of 12.5%?
ANALYSIS
The Consumer Advocate contends that the PSC failed to set forth
sufficient findings of fact to support its decision to allow Piedmont to charge
a rate of return of 12.5%. We agree.
The determination of a fair rate of return must be documented
fully in its findings of fact and based exclusively on reliable, probative, and
substantial evidence on the whole record. S.C. Code Ann. 58-5-240 (Supp.
1997). Further, the Administrative Procedures Act requires that findings of
fact, if set forth in statutory language, be accompanied by a "concise and
explicit statement of the underlying facts supporting the findings." S.C. Code
Ann. 1-23-350 (1986). "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." Hamm v. South Carolina Public Service
Commission, 309 S.C. 295, 422 S.E.2d 118 (1992). "Where material facts are
in dispute, the administrative body must make specific, express findings of
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Porter v. SCPSC
fact." Able Communications, Inc. v. S.C. Public Service Commission, 290 S.C.
209, 351 S.E.2d 151 (1986).
Piedmont originally sought approval of a return on common equity
of 13%. The Commission staff's witness recommended approval of a return
on common equity in a range between 11.25% and 11.75%. The Consumer
Advocate's witness recommended a return on equity in a range of 10.50% and
11.50%. Piedmont's witness recommended 13.0%. The Commission approved
a return on equity of 12.5% and the circuit court affirmed. The circuit court
rejected the Advocate's assertion that the 12.5% rate was arbitrary and
capricious and found the rate was supported by substantial evidence in the
record.
The PSC did not provide its reasoning to support its finding that
12.5% is fair and reasonable. The PSC stated in its order that a reasonable
expectation for the potential equity investor is actually incorporated by a
figure in between the analyses presented by the witnesses, i.e. 12.5%. The
PSC concluded that it believed Piedmont's witness overstated the cost of
equity and the PSC and Consumer Advocate's witnesses understated the cost
of equity. The PSC did not make findings of fact which explain how it
arrived at a rate which was not recommended by any of the witnesses. The
circuit court relied on the PSC's listing of factors it considered. The circuit
court found that the PSC's finding was supported by a list of factors it
considered in addition to expert testimony from witnesses supporting ranges
between 10.75% - 11.75% and 13.0%. However, the mere recitation of general
factors without describing their relevancy to this case as well as no
explanation as to what and why certain portions of the expert testimony were
adopted cannot serve as a substitute for a finding of facts. The record as a
whole does not contain sufficient detail to allow this Court to make a
meaningful review whether the findings are supported by the evidence and
whether the law has been properly applied to those findings. Hamm v. South
Carolina Public Service Commission, supra; Able Communications, Inc. v.
South Carolina Public Service Commission, supra. Accordingly, we reverse
and remand for further proceedings in accordance with this opinion.
Reversed and remanded in part and affirmed in part.
TOAL, MOORE, WALLER and BURNETT, JJ., concur.
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