#27751-a-LSW

2016 S.D. 92

IN THE SUPREME COURT

OF THE

STATE OF SOUTH DAKOTA

* * * *

In the Matter of the Application of 

Black Hills Power, Inc. for authority 

to increase its electric rates.

* * * *

APPEAL FROM THE CIRCUIT COURT OF

THE SIXTH JUDICIAL CIRCUIT

HUGHES COUNTY, SOUTH DAKOTA

* * * *

THE HONORABLE MARK W. BARNETT

Judge

* * * *

MARK A. MORENO of

Moreno, Lee & Bachand, PC

Pierre, South Dakota

ANDREW P MORATZKA of

Stoel Rives, LLP

Minneapolis, Minnesota

and

CHAD T. MARRIOTT of

Stoel Rives, LLP

Portland, Oregon Attorneys for appellants GCC 

Dacotah, Inc., Pete Lien & Sons, 

Inc., Rushmore Forest Products, 

Inc., Spearfish Forest Products, 

Inc., Rapid City Regional 

Hospital, Inc. & Wharf 

Resources, Inc., together the 

Black Hills Industrial 

Intervenors

* * * *

CONSIDERED ON BRIEFS 

ON AUGUST 29, 2016

OPINION FILED 12/14/16
LEE A. MAGNUSON

NICOLE O. TUPMAN

Lindquist & Vennum LLP

Sioux Falls, South Dakota

and

TODD BRINK

AMY KOENIG of

Black Hills Power Corporation

Rapid City, South Dakota Attorneys for appellee Black 

Hills Power.

KAREN E. CREMER

Special Assistant Attorney General

South Dakota Public Utilities Commission

Pierre, South Dakota Attorneys for appellee South 

Dakota Public Utilities 

Commission.
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WILBUR, Justice

[¶1.] In March 2014, Black Hills Power, Inc., (BHP) filed an application for 

authority to increase electric rates with the South Dakota Public Utility 

Commission. In June 2014, Black Hills Industrial Intervenors (BHII)1 filed a 

motion to intervene, and the Commission granted the motion. The parties then 

agreed to a settlement stipulation regarding the increase in December 2014, but 

BHP sought to amend the stipulation in February 2015. BHII resisted the 

amendment, but the Commission granted the amended settlement stipulation and 

approved the rate increase. BHII appeals. 

Background

[¶2.] Black Hills Power is a public utility in South Dakota, providing electric 

service to approximately 65,500 customers in the western portion of the state. As a 

South Dakota public utility, BHP must provide service to all customers in a given 

area in return for a state-granted monopoly. 

[¶3.] All utilities must petition the Commission before raising their rates. 

BHP applied for a rate increase in March 2014. As required by SDCL chapter 43-

34A, BHP submitted a cost analysis with its petition. The cost analysis included 

the “test year” required by ARSD 20:10:13:43. The test year is used by the 

Commission in its analysis of whether the utility’s costs merit a rate increase. The 

utility must apply for the rate increase within six months of the end of the test year. 

 

1. BHII consists of appellants GCC Dacotah, Inc., Pete Lien & Sons, Inc., 

Rushmore Forest Products, Inc., Spearfish Forest Products, Inc., Rapid City 

Regional Hospital, Inc., and Wharf Resources (U.S.A.), Inc.
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BHP’s test year ran from September 30, 2012, to September 30, 2013. If granted, 

the rate increase for a typical customer would be approximately $10.91 per month. 

[¶4.] In June 2014, BHII filed a motion to intervene in BHP’s rate-increase 

application, which the Commission granted. The Commission, BHP, and BHII 

exchanged discovery and began negotiations to settle and stipulate to the rate 

increase. BHP filed a joint motion for approval of the settlement stipulation in 

December 2014, and the Commission held a hearing on the matter in January 2015. 

One of the issues the parties debated at the hearing was BHP’s pension expenses. 

In its cost analysis, BHP averaged its pension expenses over the five-year period 

from 2010 to 2014, while BHII argued that the actual costs from 2014 should be 

used. BHII would later argue that a five-year period from 2011 to 2015 would be 

most appropriate. 

[¶5.] Before the Commission voted on the matter, BHP filed an amended 

settlement stipulation. This amendment removed a previous cost allocation of 

$286,000 to one of BHP’s affiliates and replaced that amount with $413,000 for 

expenses related to a power plant. The Commission considered the amended 

stipulation and voted to approve the settlement. 

[¶6.] BHII appealed the approval of the amended settlement stipulation to 

the circuit court, which affirmed the Commission’s decision. BHII now appeals to 

this Court, arguing three issues: 

1. Whether the Commission misinterpreted 

ARSD 20:10:13:44 by allowing BHP to make adjustments 

to its cost calculation after its initial application.
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2. Whether the Commission erred by allowing BHP to 

exclude the year 2015 from its five-year normalization of 

pension expenses. 

3. Whether the Commission erred when it concluded that 

BHP met its burden of proof regarding the inclusion of its 

incentive-compensation plan in the cost analysis.

Decision

[¶7.] 1. Whether the Commission misinterpreted ARSD 20:10:13:44 by

allowing BHP to make adjustments to its cost calculation after 

its initial application.

[¶8.] This issue involves the interpretation of the language of an 

administrative rule. “Administrative regulations are subject to the same rules of 

construction as are statutes.” Citibank, N.A. v. S.D. Dep’t of Revenue, 2015 S.D. 67, 

¶ 12, 868 N.W.2d 381, 387 (quoting Westmed Rehab, Inc. v. Dep’t of Soc. Servs., 

2004 S.D. 104, ¶ 8, 687 N.W.2d 516, 518). We review the agency’s interpretation de 

novo. See Nelson v. S.D. State Bd. of Dentistry, 464 N.W.2d 621, 624 (S.D. 1991).2 

 

2. The parties spend a significant amount of argument in the briefs debating 

the correct standard of review, focusing on whether the agency’s 

interpretation of its own long-standing rule is entitled to deference. An 

agency is normally entitled to a “reasonable range of informed discretion” 

when the language of the rule is “technical in nature or ambiguous, or when 

the agency interpretation is one of long standing.” Nelson, 464 N.W.2d at 

623. In promulgating this rule, the Court in Nelson cited the decisions of 

other state courts. Id. These cases collectively provide that, where the 

language of the rule is unambiguous, deference need not be given. Iowa 

Fed'n of Labor v. Iowa Dep't of Job Serv., 427 N.W.2d 443, 449 (Iowa 1988) 

(evaluating the reasonableness of an agency’s interpretation according to 

statutory rules of construction); In re Se. Minn. Cit. Action Coun., 359 N.W.2d 

60, 63 (Minn. Ct. App. 1984) (“However, we need not defer when the language 

employed or the standard delineated is clear and capable of understanding.”); 

In re Stone Creek Channel Improvements, 424 N.W.2d 894, 900 (N.D. 1988) 

(“No deference is called for when the regulating language is clear.”). As the 

language is not ambiguous, deference to the Commission’s interpretation is 

unnecessary. 
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[¶9.] “When regulatory language is clear, certain and unambiguous, [the 

Court’s] function is confined to declaring its meaning as clearly expressed.” 

Citibank, 2015 S.D. 67, ¶ 12, 868 N.W.2d at 387 (quoting Westmed Rehab, 2004 S.D. 

104, ¶ 8, 687 N.W.2d at 518). “[I]t is fundamental ‘that the words of a [rule] must 

be read in their context and with a view to their place in the overall [regulatory] 

scheme.’” In re Certification of a Question of Law from U.S. Dist. Court, Dist. of 

S.D., S. Div., 2014 S.D. 57, ¶ 8, 851 N.W.2d 924, 927 (quoting In re Expungement of 

Oliver, 2012 S.D. 9, ¶ 9, 810 N.W.2d 350, 352).

[¶10.] The parties argue about the meaning of ARSD 20:10:13:44, which 

reads in full: 

The statement of the cost of service shall contain an analysis of 

system costs as reflected on the filing utility’s books for a test 

period consisting of 12 months of actual experience ending no 

earlier than 6 months before the date of filing of the data 

required by §§ 20:10:13:40 and 20:10:13:43 unless good cause for 

extension is shown. The analysis shall include the return, taxes, 

depreciation, and operating expenses and an allocation of such 

costs to the services rendered. The information submitted with 

the statement shall show the data itemized in this section for 

the test period, as reflected on the books of the filing public 

utility. Proposed adjustments to book costs shall be shown 

separately and shall be fully supported, including schedules 

showing their derivation, where appropriate. However, no 

adjustments shall be permitted unless they are based on 

changes in facilities, operations, or costs which are known with 

reasonable certainty and measurable with reasonable accuracy 

at the time of the filing and which will become effective within 

24 months of the last month of the test period used for this 

section and unless expected changes in revenue are also shown 

for the same period.

The phrase “at the time of filing” in the last sentence of the rule is the point of 

disagreement between the parties. BHII argues that the “filing” in the phrase 

refers to the filing of the initial petition. Under this interpretation, “adjustments”
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would refer to adjustments in the test-year data and would not be permitted after 

the filing of the initial application. BHP and the Commission assert that the word 

“filing” refers to the filing of the adjustment itself, thus permitting adjustments to 

the cost analysis after the initial application. 

[¶11.] The plain meaning of the rule indicates that the Commission’s 

interpretation is correct. The latter half of the rule reads:

Proposed adjustments to book costs shall be shown separately 

and shall be fully supported, including schedules showing their 

derivation, where appropriate. However, no adjustments shall 

be permitted unless they are based on changes in facilities, 

operations, or costs which are known with reasonable certainty 

and measurable with reasonable accuracy at the time of the 

filing and which will become effective within 24 months of the 

last month of the test period used for this section and unless 

expected changes in revenue are also shown for the same period.

ARSD 20:10:13:44 (emphasis added). The emphasized language shows that 

the noun “adjustments” precedes “filing” in the same sentence. Additionally, 

the phrase “proposed adjustments” begins the sentence prior. The only 

reference to the filing of the initial application occurs in the first sentence of 

the rule. Interpreting the rule as referring to the filing of the initial 

application requires adding “of the initial application” after “filing” in the last 

sentence. Such an interpretation is prohibited. City of Sioux Falls v. Ewoldt, 

1997 S.D. 106, ¶ 13, 568 N.W.2d 764, 767 (“[The Court] may not, under the 

guise of judicial construction, add modifying words to the statute or change 

its terms.” (quoting State v. Franz, 526 N.W.2d 718, 720 (S.D. 1995))). As the 

phrase “at the time of the filing” refers to the filing of the individual 
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adjustment and not to the filing of the application itself, the Commission 

correctly allowed BHP to file the adjustments to its cost analysis.3 

[¶12.] 2. Whether the Commission erred by allowing BHP to 

exclude the year 2015 from its five-year normalization of 

pension expenses.

[¶13.] In its cost analysis, BHP included a normalization of its pension 

expenses from 2010 to 2014. Had it included the five-year period from 2011 to 2015, 

the normalization would have been higher. BHII argues that if the Commission 

allowed BHP to make adjustments to its cost analysis with new data that would 

require the new rate to be higher, BHP should be mandated to include other 

adjustments that would decrease the rate. Nothing in the language of 

ARSD 20:10:13:44 indicates that adjustments are mandatory rather than 

permissive. The clause concerning adjustments begins: “Proposed adjustments to 

book costs shall be shown separately and shall be fully supported, including 

schedules showing their derivation, where appropriate.” ARSD 20:10:13:44 

(emphasis added). The emphasized language indicates that any adjustment is to be 

proposed by the utility. The rule does not state that the utility must propose all 

possible adjustments to its cost analysis. Without any language indicating all 

possible adjustments are mandatory, BHII’s argument is unpersuasive. 

[¶14.] BHII alternatively argues that the Commission’s decision to allow 

BHP to submit its pension expenses from 2010 to 2014 rather than including 2015 

is arbitrary and capricious. SDCL 1-26-36 states that “[t]he court may reverse or 

 

3. BHII’s additional arguments that the Commission should have rejected three 

of BHP’s cost adjustments and one line-item adjustment rest on its incorrect 

interpretation of ARSD 20:10:13:44 or are otherwise without merit.
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modify the [Commission’s] decision if substantial rights of the appellant have been 

prejudiced because the administrative findings, inferences, conclusions, or decisions 

are: . . . (6) [a]rbitrary or capricious[.]” A decision is arbitrary or capricious when it 

is not governed by any fixed rules but when it is based on “personal, selfish, or 

fraudulent motives, or on false information, and is characterized by a lack of 

relevant and competent evidence to support the action taken.” In re Jarman, 

2015 S.D. 8, ¶ 19, 860 N.W.2d 1, 9 (quoting Huth v. Beresford Sch. Dist. #61-2, 

2013 S.D. 39, ¶ 14, 832 N.W.2d 62, 65). 

[¶15.] The Commission took a great deal of evidence regarding pension 

expenses. This evidence indicated strong fluctuation from year to year. There is no 

indication that the Commission’s acceptance of the 2010–2014 pension 

normalization was in any way based on “personal, selfish, or fraudulent motives” or 

that the information was in any way false. Id. The Commission’s consideration of 

the 2010–2014 normalized expenses while not including 2015 was not arbitrary and 

capricious. 

[¶16.] 3. Whether the Commission erred when it concluded that 

BHP met its burden of proof regarding the inclusion of its 

incentive-compensation plan in the cost analysis.

[¶17.] BHII argues that a de novo standard should be applied because 

“determining whether the uncontroverted facts or the facts as established satisfy 

the legal standard of proof . . . is a mixed question of law and fact, reviewable de 

novo.” Erdahl v. Groff, 1998 S.D. 28, ¶ 30, 576 N.W.2d 15, 21. We agree. In 

essence, BHII challenges the sufficiency of the evidence, i.e., whether there is 

enough evidence to support as reasonable and necessary the amount cited by BHP 
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for its incentive-compensation plan. BHP had the burden to prove that the costs of 

the incentive-compensation plan were “prudent, efficient, and economical and are 

reasonable and necessary[.]” SDCL § 49-34A-8.4. “[T]he burden of proof for 

administrative hearings is preponderance of the evidence.” Irvine v. City of Sioux 

Falls, 2006 S.D. 20, ¶ 10, 711 N.W.2d 607, 610.

[¶18.] The evidence provided was sufficient for BHP to meet its burden of 

proof, and the Commission did not err in finding that a portion of BHP’s incentivecompensation plan is a cost that it can pass on to customers. BHP’s compensation 

plan is not based solely on corporate financial success. A significant amount of the 

plan concerns employee safety and other nonfinancial goals, such as retaining key 

employees. The Commission found these portions of the incentive-compensation 

plan to be in the customers’ interest, whereas it excluded BHP’s incentivecompensation plan that related to financial corporate success. The Commission also 

heard live testimony that the incentive-compensation plan was both reasonable and 

necessary. The facts support the Commission’s conclusion that these expenses were 

necessary to provide service to BHP’s customers. The evidence was sufficient to 

support the Commission’s decision.

Conclusion

[¶19.] The Commission properly interpreted ARSD 20:10:13:44 when it ruled 

that BHP could submit adjustments to the settlement stipulation after the filing of 

the initial application. The Commission also did not act arbitrarily or capriciously 

in its consideration of the pension expenses, and the evidence was sufficient to 

support its inclusion of portions of BHP’s incentive-compensation plan.
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[¶20.] Affirmed. 

[¶21.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN, 

Justices, concur.