Rate Case Roundup: South Carolina

On remand from the state supreme court in a water rate case that dates back to 2015 and involves complex property tax and property rights issues, the South Carolina Public Service Commission ruled that the subject water utility, Daufuskie Island Utility Company (DIUC), may raise its rates by a little more than $950,000. The small utility, which provides water and wastewater service to only about 220 residential customers plus a few commercial accounts, had first asked for slightly more than $1.18 million in additional revenues.

The primary point of contention in the case centered on the company’s rate base claims, which included a large water storage tank located on a parcel of land which the utility admits it no longer owns. However, the utility argued that it had inadvertently been stripped of its ownership rights and that it still retained a full ownership interest in the storage facility itself.

When the commission initially ruled in the case back in December of 2015, it held that the water tank should be excluded from rate base because it was located on a small tract of land that had been purchased by an individual at a tax lien sale after the utility failed to pay associated property taxes on the parcel. Although the utility maintained that the tax sale should have been invalidated because the county failed to send notice of the delinquency to the proper address, the company later seemed to acquiesce as to its nonownership of the land. However, it continued to contend that it retained ownership of the tank itself, and DIUC initiated condemnation proceedings through which to verify its ownership status with respect to the storage facility.

In addition to trying to reclaim the water tank via proceedings in eminent domain, DIUC also appealed the commission’s December 2015 rate order to the state high court. The utility asserted that because the commission failed to recognize the water tank in rate base, it had wrongfully denied the utility a significant portion of the rate relief requested. And indeed, the commission had okayed a rate increase of just $463,000 in that earlier case.

In reviewing the matter, the court returned the case to the commission with instructions and guidance on how to value the water tank for purposes of calculating DIUC’s rate base. Importantly, the court indicated its agreement with the utility that the tax sale had been limited to the underlying land alone such that all structures and facilities on the parcel had not been transferred along with the land. That is, the court found that the utility had made a good case for including the storage facility in its rate base.

Upon reconsideration, the commission affirmed recognition of the water tank and connected utility systems in the company’s rate base, thereby almost doubling the rate relief originally afforded DIUC. At the same time, however, the commission noted that the topic of rate base was sure to arise in future rate proceedings, as a number of parties, irrespective of the water tank issue, had objected to certain other components allowed in DIUC’s rate base.

Such opponents, citing the utility’s history as a product of real estate development firms, alleged that DIUC was the beneficiary of donations of property and facilities from the developers. As donated property, they said, the utility itself never invested in vast portions of the water system. Consequently, they argued, DIUC should not be able to earn a return on the donated assets now. But the commission held that those particular rate base arguments should be deferred to DIUC’s next rate case.

However, on the issue of return, the commission rejected the ROE proposal put forth by the utility, which relied on an ROE of 10.5%. The commission instead approved the 9.31% ROE recommended by commission staff. In doing so, the commission said that the ROE cost models run by staff were more reliable and “grounded in sound analysis.” Re Daufuskie Island Utility Co., Inc., Docket No. 2014-346-WS, Order No. 2018-68, Jan. 31, 2018 (S.C.P.S.C.).