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24997 - Kiawah Property Owners Group v. PSC of SC, et al.

Shearouse Adv. Sh. No. 29
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

Kiawah Property

Owners Group, Appellant,

v.

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

Utility, Inc.

F. David Butler, of Public Service Commission, of

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Kiawah Property Owners Group v. PSC of SC, et al.,





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.





FACTUAL/PROCEDURAL BACKGROUND







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

Commission's proceedings.





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

determinations.





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?

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Kiawah Property Owners Group v. PSC of SC, et al.,





LAW/ANALYSIS

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.

We disagree.





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


1KPOG alleges that due to the Developer's control over the Utility, the

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.



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Kiawah Property Owners Group v. PSC of SC, et al.,





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

reasonable.





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

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Kiawah Property Owners Group v. PSC of SC, et al.,





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

this issue.



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. ยง 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.



CONCLUSION



Based on the foregoing, we REVERSE and REMAND.



FINNEY, C.J., MOORE, WALLER, and BURNETT, JJ., concur.

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