S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
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,
and
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.
p. 24
PORTER V. PUBLIC SERVICE COMMISSION
Appeal From Richland County
J. Ernest Kinard, Jr., Circuit Court Judge
Opinion No. 24847
Heard October 8, 1998 - Filed October 26, 1998
AFFIRMED IN PART; REVERSED IN PART;
REMANDED
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.
WALLER., A.J.: 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
p.25
PORTER V. PUBLIC SERVICE COMMISSION
judgment.
ISSUES
1. Did the circuit court err in affirming PSGs
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.
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
1 The rate of return on common equity is a key figure used in
calculating the overall rate of return PSC allows a utility to earn on its
regulated operations in South Carolina. PSC set the overall rate of return
for BellSouth at 10.86 percent in this case.
(continued ... )
p. 26
PORTER v. PUBLIC SERVICE COMMISSION
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, 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.
1( ... continued)
PSC's staff recommended reductions that would have decreased
BellSouth's annual revenues by $58 million. Consumer Advocate
recommended annual reductions of $89 million, while BellSouth hoped to
limit annual reductions to $17 million.
2 One PSC commissioner dissented from both orders, saying the rate
(continued ... )
p. 27
PORTER v. PUBLIC SERVICE COMMISSION
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. Sery. 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 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
2( continued)
of return on common equity should not exceed 12 percent. He stated he
was "deeply concerned" by the agency's trend of "almost ignoring the
Commission staff and Consumer Advocate witnesses in its considerations
of recent cases."
p. 28
PORTER v. PUBLIC SERVICE COMMISSION
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.
Op. No. 24833 (S.C. Sup. Ct. filed August 31, 1998) (Shealy Adv. Sh. No. 30
at 41); 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 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
issue3.
3 We occasionally have upheld PSC orders which were conclusory in
(continued...
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PORTER v. PUBLIC SERVICE COMMISSION
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 that it would
recognize the net income of BAPCO as operating revenue and that it would
recognize the BAPCO investment in the rate base. PSC's staff recommended
that BellSouth's operating income from the test year include about $6 million
from BAPCO operations. Consumer Advocate presented testimony showing
3( continued)
nature. We did so in years past because no statute explicitly required an
administrative agency to make specific findings of fact or state its
reasoning as a predicate for judicial review -- although we have long
believed that is the better practice. See Greyhound Lines, Inc. v. South
Carolina Pub. Serv. Comm'n, 274 S.C. 168, 262 S.E.2d 22 (1980); Atlantic
Coast Line R.R. Co. v. South Carolina Pub. Serv. Comm'n, 245 S.C. 229,
139 S.E.2d 911 (1965). We recently stated that the "substantial evidence
test does not require that the Commission cite to facts, but that the
evidence is contained in the record as a whole." Hamm v. South Carolina
Pub. Serv. Comm'n, 315 S.C. 119, 123, 432 S.E.2d 454, 457 (1993); Hamm
v. American Tel. & Tel. Co., 302 S.C. 210, 218, 394 S.E.2d 842, 846 (1990).
As discussed above, statutes and our precedent require an
administrative agency to make specific findings of fact and explain its
rationale in sufficient detail to afford judicial review. We overrule
Greyhound Lines, Inc. v. South Carolina Pub. Serv. Comm'n, supra;
Atlantic Coast Line R.R. Co. v. South Carolina Pub. Serv. Comm'n, supra;
Hamm v. South Carolina Pub. Serv. Comm'n, 315 S.C. 119Y 432 S.E.2d
454, and Hamm v. American Tel. & Tel. Co., 302 S.C. 210, 394 S.E.2d
842, to the extent that they conflict with the approach outlined above. We
also overrule them to the extent that they suggest the Court will, sua
sponte, search the record for substantial evidence supporting a decision
when an administrative agency's order inadequately sets forth the agency's
findings of fact and reasoning.
p.30
PORTER v. PUBLIC SERVICE COMMISSION
that figure was abnormally low during the test year due to certain
nonrecurring accounting adjustments made by BellSouth in December 1994.
BAPCO's average net income was about $551,000 per month except for
December, when it reported a loss of $25,000. BellSouth itself described the
December expenses as "extraordinary," and said they resulted from the
downsizing of the work force and planned technological improvements, among
other things, according to Consumer Advocate. BAPCO revenue ought to be
set at $6.6 million, Consumer Advocate argued.
PSC adopted the staff recommendation, concluding it was accurate
and reliable. In its order upon reconsideration, PSC explained that it
rejected Consumer Advocate's position because it was based upon "pure
speculation," not proof that BellSouth's accounting adjustments actually were
nonrecurring. The circuit court affirmed PSC's decision.
We conclude the circuit court erred in affirming PSC's decision on
this issue for two reasons. First, the record does not contain substantial
evidence supporting PSC's conclusion that Consumer Advocate's position was
"pure speculation." The operating loss in December, which followed eleven
months of profits, indicates that month was somehow unusual. BellSouth
itself described the December 1994 expenses as "extraordinary" and explained
they were related to downsizing of the work force and technological
improvements, among other things. The only conclusion that can be drawn
from the record is that those expenses were nonrecurring. See Hamm, 315
S.C. at 122, 432 S.E.2d at 456 (substantial evidence means such relevant
evidence as a reasonable mind might accept as adequate to support a
conclusion).
Second, PSC must adjust atypical test-year figures in order to
accurately perform calculations that affect the company's overall rate of
return and, ultimately, customer rates. See Hamm, 309 S.C. at 289-90, 422
S.E.2d at 114 ("object of test year figures is to reflect typical conditions. . .
. Where an unusual situation exists which shows that the test year figures
are atypical and thus do not indicate future trends, the Commission should
adjust the test year data"); see also S.C. Code Ann. § 58-9-570 (1976) (in
determining rates, PSC shall consider, among other things, reasonable
operating expenses and other costs necessary to provide the service, as well
as other matters PSC may find necessary); Chesapeake Utilities Com. v.
Delaware Pub. Serv. Comm'n, 705 A.2d 1059, 1067 (Del. Super. Ct. 1997)
(extraordinary expenses are included in rate base only if they are a
recognized component of the rate base or if the commission, in its discretion,
p.31
PORTER v. PUBLIC SERVICE COMMISSION
determines that denying them would impair a utility's effective operation).
Accordingly, we reverse the judgment of the circuit court on this issue.
3. ALLOWANCE FOR CASH WORKING CAPITAL
Consumer Advocate contends the circuit court erred in affirming
PSC's treatment of cash working capital because that decision was arbitrary,
capricious, and not supported by substantial evidence. We agree.
Cash working capital is money a utility must have on hand to
pay its own bills before it receives payments from customers. Consumer
Advocate argued PSC should use a lead-lag study prepared by BellSouth to
determine how much cash working capital to include in BellSouth's rate
base.4 Such a study shows whether a company is able to pay its own bills
before receiving revenue from customers by comparing the revenue lag (days
between company's provision of service and customers' payment) with the
expense lag (days between the incurring of an expense by company and
payment of the expense).5
Consumer Advocate presented testimony showing PSC should set
BellSouth's allowance for cash working capital at zero because the company
bills most of its customers for services in advance. BellSouth has a negative
cash working capital requirement, Consumer Advocate contended. Simply
put, customer revenue flows into BellSouth's accounts before it must pay
expenses . Therefore, BellSouth needs no allowance for cash working capital
and it is inappropriate to allow shareholders to earn a return on that money
4 "The 'rate base' is the amount of investment on which a regulated
public utility is entitled an opportunity to earn a fair and reasonable
return. A public utility's 'rate base' represents the total investments in, or
fair value of, the used and useful property which it necessarily devotes to
rendering the regulated services." Southern Bell v. Pub. Serv. Comm'n of
South Carolina, 270 S.C. 590, 600, 244 S.E.2d 278, 283 (1978).
5 "A 'lead-lag' study empirically identifies the difference in timing
between outward cash flow for labor, materials and supplies, inventory,
and other expenses, and inward cash flow from charges to customers."
Colorado Mun. League v. Pub. Util. Comm'n. 687 P.2d 416, 420 (Colo.
1984).
p.32
PORTER v. PUBLIC SERVICE COMMISSION
by including it in the rate base, Consumer Advocate argued.6
PSC rejected Consumer Advocate's position, instead adopting its
staffs' recommendation to include an allowance for cash working capital of
$10.4 million in BellSouth's rate base. PSC's staff based its calculations on
a method that uses a company's average daily cash balances to determine the
requirement. In its orders, PSC stated it had long used such a method and
believed it to be appropriate in this case. Companies must have cash on
hand for daily operations and there is no such thing as a "negative cash
working capital requirement," PSC stated. PSC considers cash working
capital to be an investment made by shareholders upon which they are
entitled to earn a return. PSC also concluded the lead-lag method penalizes
good cash management and rewards inefficient cash management. The
circuit court affirmed PSC's decision.
Consumer Advocate now contends PSC's decision was arbitrary,
capricious, and not supported by substantial evidence. In some states, courts
have approved a regulatory agency's decision either to establish a negative
cash working capital requirement and deduct it from the rate base, or set the
requirement at zero.7 In others, courts have upheld a regulatory agency's
decision to include an allowance for cash working capital in the rate base,
6 Assuming a rate of return on common equity of 12.75 percent,
BellSouth would have to reduce its rates by an additional $1.1 million
annually if PSC set the cash working capital requirement at zero.
Assuming a rate of return on common equity of 12 percent, BellSouth
would have to reduce its rates by $5.7 million annually, according to
Consumer Advocate.
7 E.g., Cincinnati Gas & Elec. Co. v. Pub. Util. Comm'n. 620 N.E.2d
821 (Ohio 1993) (affirming commission's decision to subtract negative
working capital from total working capital allowance approved for utility);
Colorado Mun. League v. Pub. Util. Comm'n,687 P.2d 416, 419-21 (Colo.
1984) (affirming commission's decision to set the cash working capital
allowance at zero instead of attributing negative working capital to utility);
Barasch v. Pub. Util. Comm'n, 533 A.2d 1108, 1112-14 (Pa. Commw. Ct.
1987) (same).
p.33
PORTER v. PUBLIC SERVICE COMMISSION
although it usually is limited to investor-supplied capital.8
It is within PSC's discretion to adopt the rate-setting method it
believes is appropriate, provided that method complies with the statutes. See
Heater of Seabrook, Inc., 324 S.C. at 64, 478 S.E.2d at 830 (PSC generally
has wide latitude to determine an appropriate rate-setting methodology);
Nucor Steel v. South Carolina Pub. Serv. Comm'n. 312 S.C. 79, 85, 439
S.E.2d 270, 273 (1994) (nothing in statute requires PSC to adopt any
particular price-setting methodology in determining fair rate of return). As
an Arkansas court stated, as long as a regulatory agency operates within the
statutes, "[i]t is apparent that no particular methodology is precise and . . .
a determination of working capital is in many respects an exercise of
discretion as to what particular method yields the most fair and equitable
result in each case." General Tel. Co. v. Arkansas Pub. Serv. Comm'n, 744
S.W.2d 392~ 397 (Ark. Ct. App.), aff'd, 751 S.W.2d 1 (1988).
We conclude the circuit court erred in affirming PSC's decision on
this issue because the record does not contain any testimony or other
substantial evidence supporting PSC's conclusion. PSC decided the issue
arbitrarily, adhering to its past practice and simply announcing BellSouth is
entitled to an allowance for cash working capital in its rate base without
attempting to explain or support that decision. See Hamm., 309 S.C. at 289,
422 S.E.2d at 114 (a previously adopted policy may not furnish the sole basis
for PSC's action). PSC made no effort to explain or support its conclusion
8 E.g., Chesapeake Util. Corp. v. Delaware Pub. Service Comm'n
705 A.2d 1069, 1069 (Del. Super. Ct. 1997) (interpreting statute to allow
commission to include allowance for investor-supplied cash working capital
in rate base); General Tel. Co. v. Arkansas Pub. Serv. Comm'n, 744
S.W.2d 392, 395-98 (Ark. Ct. App.) (upholding commission's decision to use
modified balance sheet approach instead of lead-lag study to determine
allowance for cash working capital), aff'd, 751 S.W.2d 1 (1988); People's
Counsel v. Pub. Service Comm'n, 399 A.2d 43, 46 (D.C. Ct. App. 1979)
(approving an allowance for cash working capital in the rate base where
utility's customers paid after service was rendered, and noting such an
allowance is not allowed to extent that customers provide cash working
capital because that forces customers to pay a return on funds they
advanced); Chesapeake and Potomac Tel. Co. v. Pub. Service Comm'n, 93
A.2d 249 (Md. 1952) (affirming commission's decision not to include cash
working capital in rate base where utility's customers paid in advance).
p.34
PORTER v. PUBLIC SERVICE COMMISSION'
that the lead-lag method penalizes good cash management and rewards
inefficient cash management. In addition, PSC's statement that there is no
such thing as a negative cash working capital requirement is simply
incorrect. Other regulatory agencies and courts have discussed and applied
the concept. E.g., Colorado Mun. League, 687 P.2d at 419 (explaining that
positive working capital is provided by shareholders, while negative working
capital is provided by advance customer payments or other funds received
before a company's own bills are due); Barasch v. Pub. Util. Comm'n, 530
A.2d 936 (Pa. Commw. Ct. 1987) (same); cases cited in footnote 7. In short,
PSC's arbitrary pronouncement stands in stark contrast to the debate
engaged in by regulatory agencies and courts in other states on this issue.
Accordingly, we reverse the judgment of the circuit court on this issue.
4. WAGE AND SALARY EXPENSES
Consumer Advocate contends the circuit court erred in affirming
PSC's decision on the annualization. of salary and wage expenses because that
decision was not adequately documented in findings of fact or supported by
substantial evidence. We disagree.
BellSouth reduced the number of employees after the end of the
1994 test year due to reorganization, technological advances, and corporate
"downsizing." PSC's staff examined BellSouth's salary, wage, and payroll tax
expenses from March to May 1995, the most recent available when the staff
calculated the reduction in those expenses. A PSC accountant testified the
calculations did not include more recent actual reductions in the work force
because the staff preferred to use actual, audited figures.
When PSC heard the case, Consumer Advocate argued the agency
should examine more recent data for May and June 1995, which BellSouth
had provided, because it more accurately reflected employee reductions.
Consumer Advocate presented testimony showing PSC should reduce the
salary and wage expense by about $2.9 million more than the staff s
recommended reduction of $5.2 million.
PSC adopted the staff recommendation, finding it fairly reflected
BellSouth's salary and wage expenses while accounting for employee
reductions. In its order denying Consumer Advocate's petition for
reconsideration, PSC rejected Consumer Advocate's argument by saying it
preferred to rely upon actual, audited figures -- not the unaudited data that
included the month of June 1995. The circuit court affirmed the PSC's
p.35
PORTER v. PUBLIC SERVICE COMMISSION
decision.
Consumer Advocate now contends that PSC's decision was not
adequately documented in findings of fact or supported by substantial
evidence. Consumer Advocate also argues that PSC had to consider the June
1995 data under Southern Bell v. Pub. Serv. Comm'n of South Carolina, 270
S.C. 590, 602, 244 S.E.2d 278, 284 (1978) (PSC should consider known and
measurable changes in expenses, revenues and investments occurring after
the test year so that resulting rates will reflect the actual rate base, net
operating income, and cost of capital).
We conclude PSC adequately explained its findings of fact and
reasoning when the original order and order upon reconsideration are read
together. The original order, standing alone, would be insufficient under the
principles outlined in Issue 1 because PSC merely recited the conflicting
testimony and then stated its conclusion. The order upon reconsideration,
however, reveals PSC chose not to consider the June 1995 data because it
preferred to rely upon audited data. The order cites the PSC accountant's
testimony, which constitutes substantial evidence supporting the agency's
decision.
Southern Bell, supra, does not require PSC to consider unaudited
or speculative data. It merely requires PSC to consider known and
measurable changes that occur after the test year in order to accurately
calculate figures that affect the company's overall rate of return and customer
rates. PSC complied with Southern Bell by considering the audited data
from March to May 1995. Accordingly, we affirm the judgment of the circuit
court on this issue.
5. AREA PLUS LOSSES
BellSouth argues the circuit court erred in reversing PSC's
decision to include Area Plus losses in test-year calculations because that
decision was supported by substantial evidence. We disagree.
In February 1993, BellSouth asked PSC to approve its rate plan
for a new service called Area Plus.9 PSC approved the plan. Several long-
9 Area Plus is an optional service that expands a subscriber's local
(continued...
p.36
PORTER v. PUBLIC SERVICE COMMISSION
distance carriers appealed the decision in circuit court. In April 1994, PSC,
BellSouth, the long-distance carriers, and Consumer Advocate entered into an
agreement resolving the dispute. The parties made several stipulations,
including the following: "BellSouth will not come before [PSC] requesting
rate relief for any possible losses resulting from the introduction of Area Plus
service, the execution of Area Calling Plan Principles Agreement, or this
Stipulation." The parties further stipulated that PSC must review the
agreement three years after its approval to determine whether any
modifications are appropriate.
In the present case, PSC's staff and BellSouth recommended that
Area Plus revenue from the first half of 1995 be included in test-year
calculations. Consequently, PSC allowed BellSouth to recognize nearly $4.5
million in losses attributable to Area Plus service. Consumer Advocate
protested that BellSouth was barred from recognizing those losses under the
April 1994 agreement. Recognizing the losses would increase BellSouth's
need for revenue from other ratepayers, which was what the stipulation was
intended to prevent, Consumer Advocate argued.
PSC rejected those contentions, saying BellSouth had not
requested rate relief because PSC -- not BellSouth -- had initiated the review
of the company's earnings. Therefore, neither PSC nor BellSouth had
violated the stipulation. The circuit court reversed PSG's decision. The court
concluded PSC had abused its discretion because the parties reasonably
expected to rely on the April 1994 agreement, and PSC had offered no reason
for nullifying the stipulation.
BellSouth now argues the circuit court erred because substantial
evidence supported PSC's decision to include known and measurable Area
Plus losses in test-year calculations. Including them did not violate the
stipulation because BellSouth had not asked for rate relief, but merely
submitted the information during an earnings review initiated by PSC.
BellSouth also argues the parties intended for stipulations in the April 1994
agreement to be considered only if BellSouth asked to withdraw its Area Plus
9( ... continued) ,
calling area. BellSouth charges substantially lower rates for calls within
that area than it usually charges. BellSouth's revenue under the former
billing system decreases when subscribers switch to Area Plus and the
volume of calls remains the same.
p.37
PORTER v. PUBLIC SERVICE COMMISSION
service or if PSC considered another specific type of long-distance service in
South Carolina.
"A stipulation is an agreement, admission or concession made in
judicial proceedings by the parties thereto or their attorneys. Stipulations,
of course, are binding upon those who make them." Kirkland v. Allcraft Steel
Co., 329 S.C. 3891 392, 496 S.E.2d 624, 626 (1998) (citations omitted). A
stipulation is an agreement, an understanding. The court must construe it
like a contract, i.e., interpret it in a manner consistent with the parties'
intentions. Webster v. Holly Hill Lumber Co., 268 S.C. 416, 421, 234 S.E.2d
232, 234 (1977).
Because the court construes it like a contract, a stipulation that
is unambiguous and explicit must be construed according to the terms the
parties have used, as those terms are understood in their plain, ordinary, and
popular sense. See C.A.N. Enterprises, Inc. v. South Carolina Health and
Human Services Fin. Comm'n, 296 S.C. 373, 377, 373 S.E.2d 584, 586 (1988)
(court must construe unambiguous contracts according to plain meaning of
terms used by parties); Chapman v. Metropolitan Life Ins. Co., 172 S.C. 2501
256, 173 S.E. 801, 804 (1934) (it plainly is "the duty of the court to construe
a written contract if there be no ambiguous language which is susceptible of
more than one meaning"); accord 83 C.J.S. Stipulations § 11 (1953); 73
Am.Jur.2d Stipulations § 7 (1974).
A party who has entered into a stipulation may seek the written
consent of other parties to abrogate the stipulation. A party also may ask
the court to abrogate a stipulation for good cause or because the interests of
justice require it. Whether to abrogate the stipulation is addressed to the
sound discretion of the trial judge, and an appellate court will not interfere
with that decision except when there is a manifest abuse of discretion.
Strange v. South Carolina Dep't of Highways and Pub. Transp., 314 S.C. 427,
430, 445 S.E.2d 439, 441 (1994); Edens v. Cole, 261 S.C. 556, 561, 201 S.E.2d
382, 384 (1973); Brown v. Pechman. 55 S.C. 555, 563, 33 S.E. 732, 737
(1899); accord 83 C.J.S. Stipulations §§ 30-37; 73 Am.Jur.2d Stipulations §§
12-14. When a party has not asked the court to relieve it from the terms of
a stipulation, that party remains bound by the stipulation. American Surety
Co. v. Hamrick Mills, 194 S.C. 221, 232, 9 S.E.2d 433, 438 (1940).
We conclude the circuit court properly enforced the plain meaning
of the stipulation at issue in this case. Regardless of which entity initiated
the earnings review, BellSouth asked PSC to recognize losses attributable to
p.38
PORTER v. PUBLIC SERVICE COMMISSION
Area Plus. It is true that in the end, PSC reduced BellSouth's rates by
$42.3 million annually. But BellSouth plainly requested rate relief because
it wanted to use Area Plus losses to avoid a further reduction in its rates,
and that was precisely what BellSouth promised not to do in the April 1994
agreement. BellSouth never asked the other parties, PSC, or the court to
relieve it from the stipulation. The record contains no evidence supporting
PSC's decision to ignore the stipulation. In fact, a PSC engineer conceded
under questioning by Consumer Advocate that BellSouth would receive rate
relief if PSC allowed the company to recognize the losses. See Porter v.
South Carolina Pub. Sery. Comm'n, Op. No. 24833 (S.C. Sup. Ct. filed August
31, 1998) (Shealy Adv. Sh. No. 30 at 41) (reversing circuit court order that
upheld PSC's approval of certain expenses, where utility had not complied
with stipulation that plainly required it to perform a cost/benefit analysis
when seeking recovery of those costs).
This result does not mean, of course, that BellSouth may never
ask PSC to recognize Area Plus losses. The April 1994 agreement stated
PSC would review the agreement after three years, and BellSouth may ask
PSC to reconsider the stipulation sooner. See Strange v. South Carolina
Dep't of Pub. Highways and Transp., supra; Edens v. Cole, supra; Brown v.
Pechman, supra. Accordingly, we affirm the judgment of the circuit court on
this issue.
CONCLUSION
We reverse the judgment of the circuit court on Issue 1 (rate of
return on common equity), Issue 2 (BAPCO revenue), and Issue 3 (allowance
for cash working capital). We remand this case to PSC for it to reconsider
those issues solely on the basis of the record on appeal in this case. See
Parker v. South Carolina Pub. Serv. Comm'n, 288 S.C. 304, 342 S.E.2d 403
(1986) (administrative agency may not consider additional evidence upon
remand unless Court allows it because that affords a party two bites at the
apple). We affirm the judgment of the circuit court on Issue 4 (annualization
of wage and salary expenses) and Issue 5 (Area Plus losses).
AFFIRMED IN PART; REVERSED IN PART; REMANDED.
TOAL, A.C.J., MOORE and BURNErr, ii., concur. FINWy, C.J.1,
not participating.
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