SC Energy Users Committee v. SCE&G ( 2014 )

THE STATE OF SOUTH CAROLINA
In The Supreme Court
South Carolina Energy Users Committee,
Appellant/Respondent,
v.
South Carolina Electric and Gas, South Carolina Office
of Regulatory Staff and Pamela Greenlaw, Respondents,
and Sierra Club, is Respondent/Appellant.
Appellate Case No. 2013-000529
Appeal From The Public Service Commission
Opinion No. 27456
Heard April 16, 2014 – Filed October 22, 2014
AFFIRMED
Scott Elliott, of Elliott & Elliott, P.A., of Columbia, for
Appellant/Respondent.
Robert Guild, of Columbia, for Respondent/Appellant.
Belton Townsend Zeigler, of Pope Zeigler, LLC, and
James B. Richardson, Jr., both of Columbia, K. Chad
Burgess and Matthew W. Gissendanner, of Cayce,
Florence P. Belser, Nanette S. Edwards, Jeffrey M.
Nelson, and Shannon Bowyer Hudson, all of Columbia,
for Respondents.
CHIEF JUSTICE TOAL: The South Carolina Energy Users Committee (the
SCEUC) and the Sierra Club (collectively, Appellants) appeal orders of the Public
Service Commission (the Commission) approving Respondent South Carolina
Electric & Gas's (SCE&G) application for updated capital cost and construction
schedules, pursuant to the Base Load Review Act, S.C. Ann. §§ 58-33-210 to -298
(Supp. 2013) (the BLRA).1 In essence, this appeal presents the questions of
whether the Commission applied the correct section of the BLRA, and whether the
Commission must also consider the prudence of project completion at the update
stage. We affirm.
FACTS/PROCEDURAL BACKGROUND
On March 2, 2009, SCE&G obtained an initial base load review order2
authorizing it to complete a project involving the construction of two 1,117 net
megawatt nuclear units in connection with the construction of a nuclear power
plant at the V.C. Summer Nuclear Station located near Jenkinsville, South
Carolina.
On May 15, 2012, SCE&G petitioned the Commission for a base load
review order approving updates to the capital cost and construction schedules for
the project. SCE&G sought approximately $283 million in capital costs to be
recouped from its customers in rates pursuant to the BLRA. The application
comprised the following changes to the costs enumerated in the initial base load
review order: (1) an Engineering, Procurement, and Construction Contract (EPC)
change order resulting from a settlement agreement for schedule changes and
additional costs related to the time frame in which the Combined Operating
License was received from the Nuclear Regulatory Commission, the redesign and
construction of certain components, and certain Unit 2 site conditions ($137.5
1
The South Carolina Office of Regulatory Staff (ORS) is also a respondent, made
party pursuant to section 58-4-10 of the South Carolina Code. See S.C. Code Ann.
§ 58-4-10 (Supp. 2013).
2
A base load review order is "an order issued by the [C]ommission pursuant to
Section 58-33-270 establishing that if a plant is constructed in accordance with an
approved construction schedule, approved capital costs estimates, and approved
projections of in-service expenses, as defined herein, the plant is considered to be
used and useful for utility purposes such that its capital costs are prudent utility
costs and are properly included in rates." S.C. Code Ann. § 58-33-220(4).
million); (2) owner's costs ($131.6 million); (3) transmission costs ($7.9 million);
and (4) additional EPC change orders for cyber security ($5.9 million), healthcare
costs ($139,573), and wastewater piping ($8,250). With respect to updates to the
construction schedules, SCE&G sought to delay the completion date of Unit 2 by
eleven months, which would advance the date for completion of the entire project
by seven and one-half months.
The Commission received timely notices to intervene by the Sierra Club,3
the SCEUC, an organization consisting of industrial customers of SCE&G, and
Pamela Greenlaw, a residential customer.4
A hearing was convened before the Commission to assess the application on
October 2–3, 2012. By order dated November 15, 2012, the Commission approved
$278.05 million of the $283 million in cost increases to the previously approved
capital cost budget and approved the updated construction schedule, finding the
cost increases resulted from "the normal evolution and refinement of construction
plans and budgets for the Units and not the result of imprudence on the part of
SCE&G."
Appellants filed petitions for reconsideration. In their petitions, along with
specific errors, Appellants averred that the Commission erred generally in
permitting the modifications after SCE&G did not anticipate the cost adjustments
when it originally filed for an initial base load review order; that SCE&G was
required to present a full evaluation of the prudence of the decision to continue to
construct the nuclear units; and that the evidence in the Record was insufficient to
meet that burden. By order dated February 14, 2013, the Commission denied
Appellants' petitions for rehearing, finding they lacked merit. This appeal of the
Commission's base load review order and decision to deny the petitions for
reconsideration followed.
ISSUES
3
The Sierra Club is a non-profit organization dedicated to "protect[ing] the wild
places of the earth" and to "promot[ing] the responsible use of the earth's
ecosystems and resources." The Sierra Club's South Carolina Chapter consists of
nine local groups and more than 5,000 members, some of whom are ratepayers of
SCE&G and neighbors to the site of the proposed nuclear plant.
4
Pamela Greenlaw is not party to this appeal.
I. Whether the Commission erred by applying the wrong section,
and therefore the wrong standard, of the BLRA?
II. Whether the Commission erred in holding that a prudency
evaluation of the need for the continued construction of the
units is not required under the BLRA?
III. Whether the evidence supports the Commission's finding that
the additional capital costs were prudent under the BLRA?
STANDARD OF REVIEW
"This Court employs a deferential standard of review when reviewing a
decision from the Commission and will affirm the Commission's decision if it is
supported by substantial evidence." S.C. Energy Users Comm. v. Pub. Serv.
Comm'n of S.C., 388 S.C. 486, 490, 697 S.E.2d 587, 589–90 (2010) (citing Duke
Power Co. v. Pub. Serv. Comm'n of S.C., 343 S.C. 554, 558, 541 S.E.2d 250, 252
(2001)). "The Commission is considered the expert designated by the legislature to
make policy determinations regarding utility rates." Id. at 490, 697 S.E.2d at 590
(citing Kiawah Prop. Owners Grp. v. Pub. Serv. Comm'n of S.C., 359 S.C. 105,
109, 597 S.E.2d 145, 147 (2004)); see also Hamm v. Pub. Serv. Comm'n of S.C.,
289 S.C. 22, 25, 344 S.E.2d 600, 601 (1986) (stating that because the Commission
is an "expert" in utility rates, "the role of a court reviewing such decisions is very
limited" (quoting Patton v. Pub. Serv. Comm'n of S.C., 280 S.C. 288, 291, 312
S.E.2d 257, 259 (1984))). "The construction of a statute by the agency charged
with its administration will be accorded the most respectful consideration and will
not be overruled absent compelling reasons." Dunton v. S.C. Bd. of Exam'rs in
Optometry, 291 S.C. 221, 223, 353 S.E.2d 132, 133 (1987); see also Nucor Steel v.
Pub. Serv. Comm'n of S.C., 310 S.C. 539, 543, 426 S.E.2d 319, 321 (1992)
("Where an agency is charged with the execution of a statute, the agency's
interpretation should not be overruled without cogent reason."). Thus,
[b]ecause the Commission's findings are presumptively correct, the
party challenging the Commission's order bears the burden of
convincingly proving the decision is clearly erroneous, or arbitrary or
capricious, or an abuse of discretion, in view of the substantial
evidence of the record as a whole.
S.C. Energy Users Comm., 388 S.C. at 491, 697 S.E.2d at 590 (citing Duke Power
Co., 343 S.C. at 558, 541 S.E.2d at 252); see also S.C. Code Ann § 1-23-380(A)(6)
(Supp. 2013).
ANALYSIS
I. Statutory Construction
Appellants argue that the Commission erred as matter of law by failing to
apply the relevant legal standard in granting SCE&G's request because the
additional capital costs could have been anticipated when SCE&G applied for an
initial base load review order in 2008, and therefore, the additional costs were
imprudent under the BLRA. In so arguing, they claim that the Commission erred
by applying the prudence standard found in section 58-33-270(E) of the South
Carolina Code, rather than the standard found in section 58-33-275(E). See S.C.
Code Ann. §§ 58-33-270(E), -275(E).
The purpose of the BLRA "is to provide for the recovery of the prudently
incurred costs associated with new base load plants . . . when constructed by
investor-owned electrical utilities, while at the same time protecting customers of
investor-owned electrical utilities from responsibility for imprudent financial
obligations or costs." S.C. Energy Users Comm., 388 S.C. at 494–95, 697 S.E.2d
at 592 (citing S.C. Code Ann. § 58–33–210 (Supp. 2009) (Editor's Note)).
Therefore, the objectives of the BLRA are:
(1) to allow SCE&G to recover its "prudently incurred costs"
associated with the nuclear facility; and (2) to protect customers "from
responsibility for imprudent financial obligations or costs."
Id.In an initial application for the approval of capital and construction costs
pursuant to the BLRA, the Commission shall issue a base load review order
approving rate recovery for capital costs if it determines, inter alia, that "the
utility's decision to proceed with construction of the plant is prudent and
reasonable considering the information available to the utility at the time." S.C.
Code Ann. § 58-33-270(A)(1). The Commission's order must establish:
(1) the anticipated construction schedule for the plant including
contingencies;
(2) the anticipated components of capital costs and the anticipated
schedule for incurring them, including specified contingencies;
(3) the return on equity established in conformity with Section 58-33-
220(16);
(4) the choice of the specific type of unit or units and major
components of the plant;
(5) the qualification and selection of principal contractors and
suppliers for construction of the plant; and
(6) the inflation indices used by the utility for costs of plant
construction, covering major cost components or groups of related
cost components. Each utility shall provide its own indices, including:
the source of the data for each index, if the source is external to the
company, or the methodology for each index which is compiled from
internal utility data, the method of computation of inflation from each
index, a calculated overall weighted index for capital costs, and a five-
year history of each index on an annual basis.
Id. § 58-33-270(B)(1)–(6); see also Friends of the Earth v. Pub. Serv. Comm'n of
S.C., 387 S.C. 360, 370, 692 S.E.2d 910, 915 (2010) (listing the necessary
components of an initial base load review order).
However,
(E) As circumstances warrant, the utility may petition the
commission, with notice to the [ORS], for an order modifying any of
the schedules, estimates, findings, class allocation factors, rate
designs, or conditions that form part of any base load review order
issued under this section. The commission shall grant the relief
requested if, after a hearing, the commission finds:
(1) as to the changes in the schedules, estimates, findings,
or conditions, that the evidence of record justifies a
finding that the changes are not the result of imprudence
on the part of the utility; and
(2) as to the changes in the class allocation factors or rate
designs, that the evidence of record indicates the
proposed class allocation factors or rate designs are just
and reasonable.
S.C. Code Ann. § 58-33-270(E) (emphasis added).
Appellants argue that the Commission erred in applying section 58-33-270
to SCE&G's application. They argue that the proper legal standard in this case is
found in section 58-33-275 of the BLRA, which provides:
So long as the plant is constructed or being constructed in accordance
with the approved schedules, estimates, and projections set forth in
Section 58-33-270(B)(1) and 58-33-270(B)(2), as adjusted by the
inflation indices set forth in Section 58-33-270(B)(5), the utility must
be allowed to recover its capital costs related to the plant through
revised rate filings or general rate proceedings.
S.C. Code Ann. § 58-33-275(C). However,
[i]n cases where a party proves by a preponderance of the evidence
that there has been a material and adverse deviation from the
approved schedules, estimates, and projections set forth in Section 58-
33-270(B)(1) and 58-33-270(B)(2), as adjusted by the inflation
indices set forth in Section 58-33-270(B)(5), the commission may
disallow the additional capital costs that result from the deviation, but
only to the extent that the failure by the utility to anticipate or avoid
the deviation, or to minimize the resulting expense, was imprudent
considering the information available at the time that the utility could
have acted to avoid the deviation or minimize its effect.
Id. § 58-33-275(E) (emphasis added).
In South Carolina Energy Users Committee v. SCE&G, we found that the
Commission abused its discretion in allowing SCE&G to recoup contingency costs
in an initial base load review order. 388 S.C. at 491, 697 S.E.2d at 590. In so
finding, we said:
[T]he enactment of section 58-33-270(E) of the South Carolina Code .
. . reveals that the General Assembly anticipated that construction
costs could increase during the life of the project. Under section 58-
33-270(E), SCE&G may petition the Commission for an order
modifying rate designs.
Id. at 496, 697 S.E.2d at 592–93. This is exactly the course that SCE&G followed
here.
Thus, we find the BLRA contemplates changes to an initial base load review
order and provides the mechanism to accomplish such changes in section 58-33-
270, not section 58-33-275, as Appellants argue. Cf. Friends of the Earth, 387
S.C. at 369, 692 S.E.2d at 914–15 (stating that "section 58-33-270(E) . . . provides
that once a final order by the Commission has been issued, a 'utility may petition
the [C]ommission . . . for an order modifying any of the schedules, estimates,
findings, class allocation factors, rate designs, or conditions that form part of any
base load review order issued under this section,'" and that "[c]learly the General
Assembly did not contemplate the Commission's ability to prevent subsequent
modification of its orders under the [BLRA], as subsection (E) expressly provides
the utility that right"). On the other hand, section 58-33-275(E) applies only after a
utility has already deviated from an existing base load review order and attempts to
recoup costs from the deviation. In that situation, a party must demonstrate by a
preponderance of the evidence that the utility has deviated from the original base
load review order, and then the utility may only recoup costs that were not the
result of imprudence. Thus, the Commission correctly rejected Appellants' attempt
to convert the modification proceeding into a deviation proceeding, and because
SCE&G sought to update the existing base load review order, section 58-33-270
plainly applied. See Hodges v. Rainey, 341 S.C. 79, 85, 533 S.E.2d 578, 581
(2000) ("[I]t is not the court's place to change the meaning of a clear and
unambiguous statute."); see also Sloan v. S.C. Bd. of Physical Therapy Exam'rs,
370 S.C. 452, 468, 636 S.E.2d 598, 606 (2006) ("A statute as a whole must receive
practical, reasonable, and fair interpretation consonant with the purpose, design,
and policy of lawmakers.").5
5
The titles of the sections lend further support to SCE&G's and ORS's positions as
section 58-33-270 is entitled "Base load review orders; contents; petitions for
modification; settlement agreements between [ORS] and applicant," whereas,
section 58-33-275 is entitled "Base load review order; parameter; challenges;
recovery of capital costs." (Emphasis added). See Beaufort Cnty. v. S.C. State
Election Comm'n, 395 S.C. 366, 373 n.2, 718 S.E.2d 432, 436 n.2 (2011) ("This
Court may, of course, consider the title or caption of an act in determining the
intent of the Legislature." (citation omitted)).
Therefore, we find the Commission did not err in applying section 58-33-
270 to SCE&G's application for an additional base load review order to update the
capital costs and construction schedules contained in the original base load review
order.
II. Continued Construction
Relying on section 58-33-280(K) of the BLRA, Appellants next argue that
the Commission should have conducted a prudency evaluation of the entire
construction project "going forward" at the time of the modification request. We
disagree.
Section 58-33-280(K) provides:
Where a plant is abandoned after a base load review order approving
rate recovery has been issued, the capital costs and AFUDC[6] related
to the plant shall nonetheless be recoverable under this article
provided that the utility shall bear the burden of proving by a
preponderance of the evidence that the decision to abandon
construction of the plant was prudent. Without limiting the effect of
Section 58-33-275(A), recovery of capital costs and the utility's cost
of capital associated with them may be disallowed only to the extent
that the failure by the utility to anticipate or avoid the allegedly
imprudent costs, or to minimize the magnitude of the costs, was
imprudent considering the information available at the time that the
utility could have acted to avoid or minimize the costs. The
commission shall order the amortization and recovery through rates of
the investment in the abandoned plant as part of an order adjusting
rates under this article.
The mere fact that the BLRA provides for a course of action in the event of
the abandonment of a construction project has no relevance under these
circumstances. In fact, the express language of the BLRA contradicts Appellants'
contention. Section 58-33-275(A) provides:
6
"AFUDC" is "the allowance for funds used during construction of a plant
calculated according to regulatory accounting principles." S.C. Code Ann. § 58-33-
220(1) (Supp. 2013).
A base load review order shall constitute a final and binding
determination that a plant is used and useful for utility purposes, and
that its capital costs are prudent utility costs and expenses and are
properly included in rates so long as the plant is constructed or is
being constructed within the parameters of:
(1) the approved construction schedule including contingencies;
and
(2) the approved capital costs estimates including specified
contingencies.
S.C. Code Ann. § 58-33-275(A). Moreover, "[d]eterminations under Section 58-
33-275(A) may not be challenged or reopened in any subsequent proceeding,
including proceedings under [s]ection 58-27-810 and other applicable provisions
and [s]ection 58-33-280 and other applicable provisions of this article." Id. § 58-
33-275(B).
Practically speaking, it would be nonsensical to include such a requirement
at this stage. As the Commission aptly noted,
[T]he BLRA was intended to cure a specific problem under the prior
statutory and regulatory structure. Before adoption of the BLRA, a
utility's decision to build a base load generating plant was subject to
relitigation if parties brought prudency challenges after the utility had
committed to major construction work on the plant. The possibility of
prudency challenges while construction was underway increased the
risks of these projects as well as the costs and difficulty of financing
them. In response, the General Assembly sought to mitigate such
uncertainty by providing for a comprehensive, fully litigated and
binding prudency review before major construction of a base load
generating facility begins. The BLRA order related to [the initial base
load review order], is the result of such a process. It involved weeks
of hearings, over 20 witnesses, a transcript that is more than a
thousand pages long and rulings that have been the subject of two
appeals to the South Carolina Supreme Court.
The Commission found that the BLRA did not require it to reassess the
prudency of the entire construction project at that base load order review stage, and
we adopt its logic:
Update proceedings are likely to be a routine part of administering
BLRA projects going forward (including future projects proposed by
other electric utilities), such that under the Sierra Club's argument, the
prudence of the decision to build the plant will be open to repeated
relitigation during the construction period if a utility seeks to preserve
the benefits of the BLRA for its project. Reopening the initial
prudency determinations each time a utility is required to make an
update filing would create an outcome that the BLRA was intended to
prevent and would defeat the principal legislative purpose in adopting
the statute.[7]
Therefore, we find Appellants' argument that the Commission should have
conducted a prudency evaluation of the entire construction project at this
modification stage unavailing.
III. Sufficiency of the Evidence
Next, Appellants argue that SCE&G failed to meet its burden to establish
that the costs were prudent. We disagree.
As pointed out in SCE&G's brief, Appellants do not argue that the decision
is not supported by substantial evidence, but that the Commission should have
decided the modification application differently.
7
However, we agree with ORS that Appellants received the review they sought
because the Commission addressed the prudency of the entire construction project
anyway:
In any event, although not required by the terms of the BLRA, the
record in this proceeding has provided the Commission with the
sufficient evidence on which to examine and evaluate the positions of
SCE&G and the Sierra Club on the factual issue of whether
continuing with the construction of the Units is prudent and whether
the additional costs and schedule changes are prudent. Based on the
evidence of the record before us, the Commission concludes that the
construction of the Units should continue and that the additional costs
and schedule changes are not the result of imprudence on the part of
SCE&G . . . .
We agree that Appellants failed to demonstrate that the factual findings are
unsupported by reliable, probative, and substantial evidence in the record. See
Waters v. S.C. Land Res. Conservation Comm'n, 321 S.C. 219, 226, 467 S.E.2d
913, 917 (1996) ("Substantial evidence is not a mere scintilla of evidence nor
evidence viewed blindly from one side, but is evidence which, when considering
the record as a whole, would allow reasonable minds to reach the conclusion that
the agency reached. The possibility of drawing two inconsistent conclusions from
the evidence will not mean the agency's conclusion was unsupported by substantial
evidence. Furthermore, the burden is on appellants to prove convincingly that the
agency's decision is unsupported by the evidence." (internal citations and quotation
marks omitted)). To the contrary, the Commission parsed all of the evidence
presented during the hearing and provided a detailed summary of all of the
testimony on which it based its very technical findings. Thus, there is no doubt
that the Commission's findings are supported by substantial evidence in the
Record. Therefore, we find that this issue lacks merit.
CONCLUSION
For the foregoing reasons, we affirm the Commission's orders.
PLEICONES, BEATTY, KITTREDGE and HEARN, JJ., concur.