Opinion ID: 2396599
Heading Depth: 2
Heading Rank: 1

Heading: Fairness of a Rate Increase

Text: Distribution-only customers from nine subdivisions testified the price of Utility's service was unreasonable by comparison to the prices charged by the water systems from which Utility purchased its water. In addition, distribution-only customers testified that, because they are charged a pro rata portion of the total water purchased by Utility from its suppliers, they are made to pay for water that leaks when Utility equipment fails. This concern was corroborated by ORS. Accordingly, ORS recommended a change to Utility's rate structure: it recommended the PSC place a cap on the amount of unaccounted for water that may be charged to Utility's distribution-only customers. The PSC found customer testimony about the rates charged by Utility versus by its suppliers raised questions of fairness with regard to [Utility's] price. The PSC stated that [i]f the difference in rates is justifiable, the customers deserve to know why. Moreover, the PSC stated it could not find evidence in the record supporting an increase in the distribution-only customers' rates. Utility now argues the concept of fairness, unaccompanied by objective criteria, is an arbitrary standard improper for consideration by the PSC in ratemaking proceedings. We agree. We have held the PSC's duty to fix just and reasonable rates includes a duty to distribute fairly the revenue requirements [of the utility], considering the price at which the company's service is rendered and the quality of that service. Seabrook Island Property Owners Ass'n v. S.C. Public Service Comm'n, 303 S.C. 493, 499, 401 S.E.2d 672, 675 (1991) (emphasis added). The PSC retained its duty to fix just and reasonable rates following the 2004 amendments to its role in ratemaking. Accordingly, the PSC is not precluded from considering fairness, provided it does so in the context of an objective and measurable framework. Nevertheless, to the extent the PSC questioned the fairness of Utility's distribution-only rates solely because those rates were higher than the rates charged by neighboring entities, the PSC erred as a matter of law. We have held on several occasions that it is improper for the PSC to draw comparisons with other entities without stating its basis for finding the entities sufficiently similar for comparison purposes. E.g., Heater of Seabrook II, 332 S.C. at 26, 503 S.E.2d at 742 ([T]he order refers to Carolina Water Service . . . as the comparison standard. However, there is no evidence whatsoever in the record giving any information about Carolina Water Service. . . . [I]t would be impossible for an appellate court to afford meaningful review to any comparison findings regarding this utility.). On remand, the PSC may consider whether the structure of the requested rate increase is unfair, such that a different method of raising the necessary revenues might be preferable. See Seabrook Island Property Owners, 303 S.C. at 499, 401 S.E.2d at 675 (stating the PSC had a duty to distribute fairly the revenue requirements [of the utility]). It may not, however, require Utility to explain as a general matter why its rates are higher than the rates charged by other entities, absent a showing that those entities are sufficiently similar to the applicant to allow a meaningful comparison.