Daufuskie Island Util. Co. v. S.C. Office of Regulatory Staff

440 S.C. 523

892 S.E.2d 302

DAUFUSKIE ISLAND UTILITY COMPANY, INC., Appellant, v. SOUTH CAROLINA OFFICE OF REGULATORY STAFF, Haig Point Club and Community Association, Inc., Melrose Property Owner's Association, Inc., Blood Point Property Owner's Association, and Beach Field Properties, LLC, Respondents.

Appellate Case No. 2022-000463

Opinion No. 28176

Supreme Court of South Carolina.

Heard March 30, 2023

Filed August 30, 2023

Thomas P. Gressette Jr. and George Trenholm Walker, both of Walker Gressette Freeman & Linton, LLC, of Charleston, for Appellant.

Andrew McClendon Bateman, Benjamin Parker Mustian, and Steven W. Hamm, all of Columbia, for Respondent the South Carolina Office of Regulatory Staff; and John Julius Pringle Jr. and Lyndey Ritz Zwing Bryant, both of Adams and Reese LLP, of Columbia, for Respondents the Haig Point Club and Community Association, Inc., Melrose Property Owner's Association, Inc., and Bloody Point Property Owner's Association.

JUSTICE KITTREDGE :

This case is the third appeal of the Daufuskie Island Utility Company (DIUC) from decisions by the Public Service Commission (PSC) regarding DIUC's 2015 application for ratemaking. In the PSC's first two decisions, it granted only part of the 109% rate increase requested by DIUC. DIUC appealed both decisions, and both times, this Court reversed and remanded to the PSC for further consideration. On the final remand, the parties entered a settlement agreement allowing DIUC to recover rates equivalent to the 109% rate increase it initially requested in 2015. However, the parties continued to disagree over the propriety of DIUC's additional request for a "reparations surcharge"—essentially, a request to retroactively recover the 109% rate increase from the date of the PSC's first order, rather than from the date of the PSC's acceptance of the settlement agreement. The PSC rejected DIUC's request for the reparations surcharge, finding it would amount to impermissible retroactive ratemaking. The propriety of the reparations surcharge is the only matter at issue in this appeal.

We find the General Assembly has not authorized the PSC to grant utilities relief via a reparations surcharge, and the PSC therefore correctly rejected DIUC's request. A utility's exclusive remedy to collect higher rates during the pendency of an appeal (or multiple appeals, as in this case) is set forth in section 58-5-240(D) of the South Carolina Code, which requires the utility to either secure an appellate bond or make "other arrangements satisfactory to the [PSC]." ¹ DIUC chose not to avail itself of the statutory remedy prior to this final appeal. Accordingly, we affirm the decision of the PSC and end this lengthy ratemaking process.

I.

A.

DIUC provides water and sewer service to Daufuskie Island in Beaufort County. In June 2015, DIUC filed a ratemaking application (the 2015 application), seeking an increase in revenue of $1,182,301—a 109% increase in its prior rates. ² In December 2015, the PSC granted DIUC around 39% of the revenue increase requested, which amounted to an approximate 43% increase in the prior rates charged to ratepayers (the first order).

DIUC appealed the first order. Simultaneously, it filed a motion with the PSC for approval of an appellate bond pursuant to section 58-5-240(D). The PSC granted the motion and set a bond amount that would cover a one-and-a-half-year period, specifically leaving open the possibility for DIUC to extend the bonding period beyond that date if necessary depending on the length of the appeal. Thereafter, DIUC began charging under bond the full 109% increase in rates sought in the 2015 application.

This Court heard oral arguments in December 2016 and issued its decision in July 2017, reversing the first order on the merits and remanding to the PSC for a de novo hearing. See Daufuskie Island Util. Co. v. S.C. Off. of Regul.Staff (DIUC I ), 420 S.C. 305, 320, 803 S.E.2d 280, 288 (2017).

B.

Following the remand, DIUC's appellate bond approached the initial expiration date, and DIUC claimed it was financially unable to secure the appellate bond for a longer period of time. DIUC therefore requested an expedited proceeding so it could continue collecting the higher rates requested in the 2015 application. While declining to rule outright that DIUC could not afford an extension of its appellate bond, the PSC erred "on the side of caution" and granted the request, issuing its second decision by December 2017 (the second order).

The second order granted DIUC additional revenue as compared to the first order—around 80% of the total revenue requested—amounting to an approximate 88% increase in rates to ratepayers as compared to the rates charged before the 2015 application was filed. Pursuant to section 58-5-240(D) and the expiration of the appellate bond, the second order also required DIUC to issue refunds to its customers for the "excess" rates collected during the appeal, i.e., the difference between the 109% increased rates DIUC had been charging and the 88% increased rates the PSC had approved in the second order. See S.C. Code Ann. § 58-5-240(D) ("In all cases in which a refund is due, the [PSC] shall order a total refund of the difference between the amount collected under bond and the amount finally approved.").

DIUC appealed the second order, contesting only the PSC's ruling regarding its denial of a portion of DIUC's rate case expenses (management fees and legal fees incurred in seeking the rate increase). Notably, DIUC did not seek a second appellate bond or propose "other arrangements satisfactory to the [PSC] for the protection of parties interested." See id. Moreover, DIUC never raised to either the PSC or this Court any argument about the impropriety of the refunds issued in the second order, its alleged inability to obtain an appellate bond, or the unfairness of forcing the utility to get an appellate bond it could not afford. As a result, DIUC began charging the 88% rate increase rather than the 109% rate increase it had been collecting during the first appeal and remand.

Following oral arguments in April 2019, this Court issued its decision in July 2019, again reversing and remanding to the PSC for a de novo hearing. See Daufuskie Island Util. Co. v. S.C. Off. of Regul.Staff (DIUC II ), 427 S.C. 458, 464, 832 S.E.2d 572, 575 (2019). However, in stark contrast to DIUC I , the Court explained its decision to reverse and remand a second time was not based on the merits of DIUC's arguments on appeal and should not be read to suggest the Court's views on the merits. Id.

C.

Following the second remand, the PSC accepted the parties’ settlement agreement allowing DIUC to collect rates equivalent to the 109% rate increase requested in the 2015 application (the third order). However, the breakdown of the rates requested in the 2015 application and those granted in the third order were vastly different from one another. ³ Nonetheless, the PSC agreed with the parties that the rates were "just and reasonable and [would] allow [DIUC] the opportunity to earn a reasonable rate on the basis of its [2015 application]."

D.

The settlement agreement and third order resolved all of the outstanding issues between the parties except one: the propriety of DIUC's request for a reparations surcharge. The requested surcharge consisted of two parts. The first part centered around the refund issued to DIUC customers after the second order and expiration of the appellate bond. Specifically, DIUC claimed that since it had ultimately been granted the ability to collect rates equivalent to the 109% rate increase sought in the 2015 application, the earlier refund—the difference between the 109% increase collected under bond and the 88% increase approved in the second order—was improperly credited to the ratepayers. The second part of the surcharge involved the period of time between the issuance of the second and third orders. During that time, due to DIUC's failure to secure an appellate bond or make "other arrangements satisfactory to the [PSC]," DIUC charged its customers the 88% rate increase granted in the second order. However, DIUC later contended that, because the third order approved rates equivalent to the 109% increase originally requested, it should have been able to charge the full 109% rate increase all along. ⁴

Ultimately, the PSC denied DIUC's request for a reparations surcharge in a thoughtful and detailed order (the fourth order). In relevant part, the PSC found the reparations surcharge amounted to illegal retroactive ratemaking. The PSC explained DIUC's sole statutory remedy was set forth in section 58-5-240(D), and that statute did not authorize the award of a reparations surcharge. The PSC believed section 58-5-240(D) provided DIUC's sole statutory remedy for two reasons: (1) "[w]hen a statute creates a substantive right and provides a remedy for infringement of that right, the plaintiff is limited to that statutory remedy," quoting Dockins v. Ingles Markets, Inc. , 306 S.C. 496, 498, 413 S.E.2d 18, 19 (1992) ; and (2) section 58-5-240(D) was the General Assembly's sound policy declaration to balance the interests of utilities and their customers, and should the PSC fail to require compliance with the statute, it "would signal to utilities that they need not follow the bond statute and still may recover additional monies" via a belated reparations surcharge.

The PSC additionally noted that although the revenue increase requested in the 2015 application and the revenue increase approved in the third order were nearly identical in total , the composition of the figures was "dramatically different," and, therefore, "the similarities between revenue settled upon and revenue originally applied for [did] not indicate that the rates DIUC originally applied for were de facto just and reasonable." Thus, the PSC held DIUC did not have lost revenue it was entitled to collect during the second appeal because DIUC...