THE STATE OF SOUTH CAROLINA
In The Supreme Court
Owners Group, Appellant,
The Public Service
Commission of South
Carolina and Kiawah
Island Utility, Inc., Respondents.
Appeal From Richland County
J. Derham Cole, Circuit Court Judge
Opinion No. 24997
Heard June 22, 1999 - Filed September 7, 1999
REVERSED AND REMANDED
Stephen P. Groves, Sr., Michael A. Molony and
Stephen L. Brown, all of Young, Clement, Rivers &
Tisdale, LLP, of Columbia, for appellant.
G. Trenholm Walker, of Pratt-Thomas, Pearce,
Epting & Walker, P.A., of Charleston; and Lucas C.
Padgett, Jr., of McNair Law Firm, P.A., of
Charleston, both for respondent Kiawah Island
F. David Butler, of Public Service Commission, of
Columbia, for respondent The Public Service
Commission of South Carolina.
TOAL, A.J.: This case is an appeal from the circuit court's order
upholding the decisions of the Public Service Commission ("PSC"). We
reverse and remand.
Kiawah Island Utility, Inc. ("the Utility") provides water and sewer
service to the residents of Kiawah Island. The Utility is wholly owned by
Kiawah Resort Associates ("the Developer"). In July of 1996, the Utility applied
to the Public Service Commission ("PSC") for an increase in its existing rates
and charges for water and sewer service. The petitioner, Kiawah Property
Owners Group KPOG"), as well as the consumer advocate and the Town of
Kiawah Island, intervened in opposition to the increase and participated in the
Prior to the 1996 adjudication, the rates and charges of the Utility had
been approved by the PSC in 1992. The Utility sought to increase its operating
margin by 5.43%. After the hearings, the PSC issued an order granting the
Utility an increase of only 3.55%. After the PSC's first order in January of
1997~ KPOG and the consumer advocate filed a Petition for Rehearing and/or
Reconsideration. In February 1997, the PSC issued its second order addressing
the Petition for Rehearing and/or Reconsideration and upheld all of its earlier
Following the second order, KPOG appealed the PSC orders to the circuit
court. In March 1998, the circuit court issued its opinion upholding the PSC.
KPOG then appealed to this Court raising the following issue:
Did the circuit apply the appropriate level of review to transactions
between the Utility and the Developer as these two entities are
affiliated companies with the same management and therefore do
not transact business at arms length?
A. STANDARD OF REVIEW
KPOG argues that the circuit court applied the wrong level of review to
the PSC's analysis of the transactions between the Developer and the Utility.
KPOG argues a heightened standard is required where the Developer
controls the Utility, the so-called intercompany transactions.1 This Court
addressed intercompany dealings in Hilton Head Plantation Utilities, Inc. v.
Public Serv. Comm'n of South Carolina, 312 S.C. 448, 451, 441 S.E.2d 321, 323
(1994), and stated:
Charges arising out of intercompany relationships between
affiliated companies should be scrutinized with care, and if there is
an absence of data and information from which the reasonableness
and propriety of the services rendered and the reasonable cost of
rendering such services can be ascertained by the Commission,
allowance is properly refused.
This language from Hilton Head does not create a "Stricter" level of review as
argued by KPOG. Normally, the expenses of an Utility are presumed to be
reasonable when incurred in good faith. See Hamm v. S.C. Public Serv.
Comm'n, 309 S.C. 2822 422 S.E.2d 110 (1992). However, when payments are
made to an affiliate, a mere showing of actual payment does not establish a
prima facie case of reasonableness. Hilton Head Plantation Utilities, Inc., 312
S.C. at 451, 441 S.E.2d at 323. This language from Hilton Head merely
requires the PSC to review and analyze these intercompany dealings and
determine if they are reasonable.
Hilton Head does not require intercompany deals to meet a level of review
Developer entered into deals with the Utility that would result in greater profit
to the Developer and higher rates for the Utility's customers. KPOG's position
is that no independent utilities would have entered into such deals with a
developer because those deals were bad for the Utility and the ratepayers. This
relationship between the Utility and the Developer forms the basis for each of
KPOG's individual issues on appeal.
stricter than the other analysis done by the PSC. We disagree with KPOG's
argument that the PSC ignored the intercompany relationship. The PSC did
not ignore the intercompany relationship, it found that the dealings were
B. SUFFICIENCY OF THE PSC ORDERS
Even though the PSC reviewed the reasonableness of the intercompany
transactions, the PSC orders addressing these transactions are so inadequate
in substance that they cannot be upheld by this Court. "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 v. S. C. Public Serv.
Comm'n, 333 S.C. 12, 507 S.E.2d 328 (1998). This Court will not accept an
administrative agency's decision at face value without requiring the agency to
explain its reasoning. Id. As with all agency orders, when the PSC issues their
determination about the reasonableness of intercompany dealings, their
findings of fact must be sufficiently detailed to enable the reviewing court to
determine whether the findings are supported by the evidence in the record and
whether the law has been properly applied. See Able Communications, Inc. v.
S. C. Public Serv. Comm'n, 290 S.C. 409, 411, 351 S.E.2d 151, 152 (1986).
Where material facts are in dispute, the administrative body must make
specific, express findings of fact. Id. In the current case, the PSC failed to meet
the required standard.
Even though the PSC complied with the mandate of Hilton Head by
actually addressing the intercompany dealings and their reasonableness, the
orders of the PSC fail to address the basis for their determinations. " [A] recital
of conflicting testimony followed by a general conclusion is patently insufficient
to enable a reviewing court to address the issues." See Able Communications,
Inc., 290 S.C. at 411, 351 S.E.2d at 152. These orders by the PSC do not even
go as far as the PSC orders found unacceptable in Able. On many issues before
this Court the PSC does not even recite the testimony in the record of the
opposing parties, but merely recites each party's general position on the issue
and then announces the one it chooses to follow. As a result, it is impossible for
this Court to review the basis of the orders "since the reasons underlying the
decision are left to speculation." Id.
As an example, one of the intercompany transactions challenged by
KPOG involved the cost of transmission and transfer lines, related facilities,
and fire hydrant expenses to the Utility. When addressing this issue in its first
order, the PSC stated:
We have examined this matter, and believe that the Staff and
Company position and adjustment are appropriate, and therefore,
adopt same. We were not persuaded by the testimony of KPOG on
The second order adds nothing more to this conclusory statement. Unlike the
PSC, the circuit court order goes through the record in an attempt to support
with evidence the conclusions reached by the PSC. On this topic, the circuit
court found the testimony by KPOG's witness was unreliable because he had no
engineering or utility operation experience. The circuit court pointed out that
the items are necessary for the operation of the Utility and are currently in use.
The circuit court's order further discusses the expert testimony supporting the
reasonableness of the market price of the items sold to the Utility by the
Developer. Such a discussion could be an appropriate PSC order.
However, it is not the circuit court's responsibility to create an acceptable
order when the PSC fails to do so. The circuit court sits as a reviewing court
that must determine if the PSC's decision is supported by substantial evidence
in the record. See S.C. Code Ann. § 1-23-380 (Supp. 1998). While the circuit
court made a respectable attempt at salvaging the PSC orders, due to the total
lack of explanation and citation in the PSC orders, the circuit court's
determinations are speculation at best. The circuit court should have remanded
the orders so that the PSC could have fulfilled its responsibilities to the parties.
Based on the foregoing, we REVERSE and REMAND.
FINNEY, C.J., MOORE, WALLER, and BURNETT, JJ., concur.