Public Utilities – Ratemaking – Water & Sewer – Rebranded Company – Upgraded Office – Victory Tweet

A water and sewer company with a history of poor service told its customers that it was rebranding itself as Blue Granite Water Company at no cost to them. However, Blue Granite then relocated its headquarters to an office that cost nearly treble its prior rent; renovated the 10-person office space at a cost of $500,000; and asked the Public Service Commission (PSC) to allow it to pass on these costs to its customers. While we agree with the PSC that most of the upgrade costs may not be passed on to Blue Granite’s customers, the company should be able to recoup some of its office-rental expenses.

We reverse the PSC’s disallowance of all rental expenses for Blue Granite’s Greenville office and remand for further consideration. We affirm the PSC’s determination of return on equity.

As to the upfit expenses, there is a wealth of evidence supporting the PSC’s finding that the headquarters relocation was caused by Blue Granite’s self-created “legacy brand issues,” and not merely by its employee-retention problems. In fact, Blue Granite conceded that its employee-retention problems were caused, at least in part, by the utility’s poor reputation in the community. Therefore the PSC’s finding—that “Blue Granite’s customers should not have to pay the cost to upfit the Greenville office, given the move was necessitated by legacy brand problems the Company created”—is supported by substantial evidence.

Blue Granite promised its customers its rebranding would come at no cost to them. Because there is substantial evidence in the record tending to show the rebranding required moving the utility’s headquarters, the upfit costs associated with that headquarters relocation also directly stemmed from the rebranding. The PSC’s decision to hold Blue Granite to its promise not to pass along rebranding costs to its customers was in no way whimsical or irrational.

Further, the amount of upfit costs incurred was entirely unreasonable, particularly for a small utility such as Blue Granite. Blue Granite chose to move to a historic building that required extensive modernization to turn it into a functional office space. The utility produced no evidence that it attempted to evaluate the cost of other potential office locations in Greenville, much less that other potential locations would have required similar upfit expenses.

It is not unreasonable for Blue Granite to want to provide its executives opulent offices as a job perk. However, it is unacceptable to pass the costs associated with that opulence on to ratepayers, who receive no quantifiable benefit from an expenditure of that type. The PSC’s decision to deny the upfit expenses was not arbitrary or capricious.

The decision to rebrand the company while simultaneously moving into an unnecessarily-expensive office location is yet another example of Blue Granite self-inflicting wounds to its reputation and requesting its customers reimburse it for the associated expense. There is overwhelming evidence in the record to support the PSC’s refusal to allow the full amount of the rental expenses requested, as the rental expenses—like the upfit costs—stemmed directly from Blue Granite’s poor reputation and subsequent effort to rebrand itself.

However, it was arbitrary and capricious for the PSC to deny all rental expenses. Blue Granite is entitled to collect from ratepayers some reasonable amount for its headquarters office rental.

ROE

Witnesses testifying about the proper rate of return on equity (ROE) testified that their research produced ranges for ROE, but the witnesses selected the high values of their ranges in deference to the PSC’s prior concern that Blue Granite’s size could affect its level of risk. The PSC apparently reevaluated and discarded that prior concern after hearing witnesses’ explanations for why such a concern was unwarranted. Once the PSC’s prior concern—that Blue Granite’s small size could affect its cost of equity—was diminished, the PSC could select an ROE number from the low end of one witness’s models.

The PSC specifically stated that it set the ROE at the low end of the proffered ranges in an effort to incentivize Blue Granite to improve its admittedly poor business practices, as the PSC is authorized to do under S.C. Code Ann. § 58-3-140(A).

Because there is a basis on which a reasonable person could find a 7.46-percent ROE appropriate, the PSC’s decision is supported by substantial evidence in the record.

Victory Tweet

Following the issuance of the PSC’s final order, the Department of Consumer Affairs posted a “victory tweet” on Twitter, sharing its excitement that Blue Granite had failed to prevail on its request for a substantial rate increase, and that the decision was a win for consumers during the midst of the coronavirus pandemic. A gloating victory tweet by a prevailing party may be unbecoming, but it is understandable.

Regrettably, the PSC then retweeted the victory tweet on its own official account, reveling in the defeat of Blue Granite’s requested rate increase. As a quasi-judicial body, the PSC’s retweet was inappropriate. The PSC must not only be fair and impartial, but it must also be diligent in its duty to avoid the appearance of impropriety.

While we are confident that no commissioner of the PSC sanctioned the publication of the victory tweet, we trust the PSC will give more care and consideration to its social media posts in the future. Regardless, when we consider the conscientious manner in which the PSC handled this complicated proceeding, together with its proper and detailed order, we commend the PSC. We do not find the retweet a basis to reverse the PSC’s entire final decision.

Affirmed in part, reversed in part and remanded

In re Application of Blue Granite Water Co. (Lawyers Weekly No. 010-052-21, 20 pp.) (John Kittredge, J.) Appealed from the Public Service Commission. Franke Ellerbe and Samuel Wellborn for appellant; Andrew Bateman, Alexander Knowles, Christopher Huber, Steven Hamm, Carri Grube Lybarker, Roger Hall, Connor Parker, Richard Whitt, Michael Kendree, Jahue Moore, John Julius Pringle and Laura Valtorta for respondents. S.C. S. Ct.