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24833 - Porter v. SCPSC

Davis Adv. Sh. No. XX
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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