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THE STATE OF SOUTH CAROLINA

In The Supreme Court

Philip S. Porter,

Consumer Advocate for

the State of South

Carolina, Respondent/Appellant,

v.

South Carolina Public

Service Commission and

BellSouth

Telecommunications,

Inc., of which South

Carolina Public Service

Commission is Respondent,

and BellSouth

Telecommunications is Appellant/Respondent,

and

South Carolina Public

Communications

Association, Petitioner,

v.

South Carolina Public

Service Commission and

BellSouth

Telecommunications,

d/b/a/ Southern Bell

Telephone and

Telegraph Co., of which

South Carolina Public

Service Commission is Respondent,

and BellSouth

Telecommunications is Appellant/Respondent.

p. 24

Appeal From Richland County

J. Ernest Kinard, Jr., Circuit Court Judge

Opinion No. 24847

Heard October 8, 1998 - Filed October 26, 1998

AFFIRMED IN PART; REVERSED IN PART;

REMANDED

Caroline N. Watson, Robert A. Culpepper, Harry M.

Lightsey, III, and William F. Austin, all of

Columbia, and John Hamilton Smith of Charleston,

for BellSouth Telecommunications, Inc.

Philip S. Porter, Nancy Vaughn Coombs, and Elliott

F. Elam, Jr., all of Columbia, for Consumer

Advocate for the State of South Carolina.

F. David Butler, of Columbia, for South Carolina

Public Service Commission.

WALLER., A.J.: This is a utility rate case. We affirm in part

and reverse in part.

PROCEDURAL POSTURE

The South Carolina Public Service Commission (PSC) reviewed

BellSouth Telecommunication's (BellSouth's) earnings in 1994, a test year

used to determine future rates. Based on that review, PSC adjusted certain

revenues and expenses of BellSouth and ordered the company to reduce its

future rates by $42.3 million annually. Philip S. Porter (Consumer Advocate)

filed a petition for review of PSC's orders in circuit court. The circuit court

affirmed PSC's orders with the exception of one issue, which the circuit court

reversed. Consumer Advocate and BellSouth now appeal the circuit court's

p.25

judgment.

ISSUES

1. Did the circuit court err in affirming PSGs

decision on the rate of return on common

equity?

2. Did the circuit court err in affirming PSC's

calculation of BellSouth Advertising and

Publishing Co. revenue?

3. Did the circuit court err in affirming PSC's

treatment of cash working capital?

4. Did the circuit court err in affirming PSC's

decision on the annualization, of salary and

wage expenses?

5. Did the circuit court err in reversing PSC's

decision to include Area Plus losses in test-year

calculations?

1. RATE OF RETURN ON COMMON EQUITY

Consumer Advocate contends the circuit court erred in affirming

PSC's decision on the rate of return on common equity because that decision

was not adequately documented in findings of fact or supported by

substantial evidence. We agree.

A PSC staff economist testified PSC should set the rate of return

on common equity1 between 11.5 percent and 12 percent. An economist hired

calculating the overall rate of return PSC allows a utility to earn on its

regulated operations in South Carolina. PSC set the overall rate of return

for BellSouth at 10.86 percent in this case.

(continued ... )

p. 26

by Consumer Advocate testified PSC should set the rate between 10.4 percent

and 11.6 percent. In calculating the rate, both economists compared

BellSouth with other telephone companies. They did not include "flotation

costs" associated with issuing stock because BellSouth Telecommunications,

a subsidiary of the publicly held BellSouth Corp., had no plans to issue stock.

An economist hired by BellSouth testified PSC should set the rate between

13.71 percent and 13.95 percent. In calculating the rate, BellSouth's

economist compared the company with non-regulated, non-utility companies

such as McDonald's Corp., Procter & Gamble Co., Knight-Ridder Inc., and

Pfizer Inc. He also included flotation costs associated with issuing stock.

In Order No. 95-1757, PSC set the rate of return on common

equity at 12.75 percent, finding that rate to be "fair and reasonable" to

BellSouth, the company's stockholders, and the company's customers. PSC

described the three economists' testimony and outlined established legal

principles the agency must use in determining a fair rate of return. PSC

agreed with its staff economist and Consumer Advocate's economist that

"telecommunications companies are a better comparison group with BellSouth

than the various non-utility surrogates favored by [BellSouth's economist]."

PSC also agreed it would be improper to include costs of issuing stock in

calculations in this case. PSC stated its decision was based on "evidence

presented by the witnesses and current economic conditions."

Consumer Advocate in a petition for rehearing urged PSC to set

the rate no higher than 12 percent -- the highest estimate recommended by

the two economists upon which PSC relied in its order. In response, PSC

issued Order No. 96-75, deleting from its previous order the above sentence

in which it agreed with the two economists about the proper comparison

group. PSC concluded the 12.75 percent rate was proper because it fell

within the overall range recommended by all three economists (10.4 percent

to 13.95 percent).2 The circuit court affirmed PSC's order.

PSC's staff recommended reductions that would have decreased

BellSouth's annual revenues by $58 million. Consumer Advocate

recommended annual reductions of $89 million, while BellSouth hoped to

limit annual reductions to $17 million.

2 One PSC commissioner dissented from both orders, saying the rate

(continued ... )

p. 27

Consumer Advocate now contends PSC issued orders without

properly explaining its reasoning in findings of fact based on substantial

evidence in the record. Consumer Advocate argues PSC offered no rationale

for its decision after modifying the original order to delete any reference to

its reliance upon the two economists' testimony.

This Court employs a deferential standard of review when

reviewing a PSC decision and will affirm that decision when substantial

evidence supports it. Heater of Seabrook, Inc., v. Pub. Serv. Comm'n of

South Carolina, 324 S.C. 56, 60, 478 S.E.2d 826, 828 (1996); Hamm v. South

Carolina Pub. Serv. Comm'n, 309 S.C. 282, 422 S.E.2d 110 (1992). This

Court may not substitute its judgment for PSC's on questions about which

there is room for a difference of intelligent opinion. Because PSC's findings

are presumptively correct, the party challenging a PSC order bears the

burden of convincingly proving that the decision is clearly erroneous, or

arbitrary or capricious, or an abuse of discretion, in view of the substantial

evidence on the whole record. Heater of Seabrook, Inc., supra; Patton v.

South Carolina Pub. Sery. Comm'n, 280 S.C. 288, 290, 312 S.E.2d 257, 259

(1984); S.C. Code Ann. § 1-23-380(A)(6) (Supp. 1997).

Substantial evidence is relevant evidence that, considering the

record as a whole, a reasonable mind would accept to support an

administrative agency's action. Substantial evidence exists when, if the case

were presented to a jury, the court would refuse to direct a verdict because

the evidence raises questions of fact for the jury. It is more than a mere

scintilla of evidence, but is something less than the weight of the evidence.

Furthermore, the possibility of drawing two inconsistent conclusions from the

evidence does not prevent a court from concluding that substantial evidence

supports an administrative agency's finding. Hamm v. South Carolina Pub.

Serv. Comm'n, 315 S.C. 119, 122, 432 S.E.2d 454, 456 (1993); Lark v. Bi-Lo,

Inc., 276 S.C. 130, 135, 276 S.E.2d 304, 307 (1981).

This deferential standard of review does not mean, however, that

the Court will accept an administrative agency's decision at face value

of return on common equity should not exceed 12 percent. He stated he

was "deeply concerned" by the agency's trend of "almost ignoring the

Commission staff and Consumer Advocate witnesses in its considerations

of recent cases."

p. 28

without requiring the agency to explain its reasoning. In determining a fair

rate of return on common equity, for example, PSC must fully document its

findings of fact and base its decision on reliable, probative, and substantial

evidence on the whole record. Porter v. South Carolina Pub. Serv. Comm'n.

Op. No. 24833 (S.C. Sup. Ct. filed August 31, 1998) (Shealy Adv. Sh. No. 30

at 41); S.C. Code Ann. § 58-5-240(H) (Supp. 1997).

"An administrative body must make findings which are

sufficiently detailed to enable this Court to determine whether the findings

are supported by the evidence and whether the law has been applied properly

to those findings." Porter, supra; Hamm v. South Carolina Pub. Serv.

Comm'n, 309 S.C. 295, 422 S.E.2d 118 (1992); S.C. Code Ann. § 58-9-1160

(1976). "Where material facts are in dispute, the administrative body must

make specific, express findings of fact." Porter, supra; Able Communications,

Inc., v. South Carolina Pub. Serv. Comm'n, 290 S.C. 409, 351 S.E.2d 151

(1986); S.C. Code Ann. § 1-23-350 (1986). An administrative agency is not

required to present its findings of fact and reasoning in any particular

format, although the better practice is to present them in an organized and

regimented manner. However, "a recital of conflicting testimony followed by

a general conclusion is patently insufficient to enable a reviewing court to

address the issues." Able Communications, Inc., v. South Carolina Pub. Serv.

Comm'n, 290 S.C. at 411, 351 S.E.2d at 152.

We find the order in this case deficient because PSC made no

findings of fact or offered any explanation of its conclusion. See S.C. Code

Ann. § 58-9-570 (1976) (listing factors PSC must consider in determining just

and reasonable rates of telephone companies). PSC's order simply recites the

economists' conflicting. testimony, mentions established legal principles applied

in rate cases, and then concludes 12.75 percent is a proper rate of return on

common equity. PSC eliminated what little reasoning it had included in its

original order by deleting any reference to the two economists' opinion. See

also Hamm v. South Carolina Pub. Serv. Comm'n, 309 S.C. at 287, 422

S.E.2d at 113 (PSC's decision to set rate of return on common equity at 13.25

percent was not supported by substantial evidence where evidence showed

that maximum rate, after inappropriate adjustments were deleted, was 13

percent). Accordingly, we reverse the judgment of the circuit court on this

issue3.

(continued...

p.29

2. BAPCO REVENUE

Consumer Advocate argues the circuit court erred in affirming

PSC's decision on the amount of revenue generated by BellSouth Advertising

and Publishing Co. (BAPCO) because that decision was not adequately

documented in findings of fact or supported by substantial evidence. We

agree.

BAPCO, a subsidiary of BellSouth Telecommunications, handles

Yellow Page operations. PSC previously had determined that it would

recognize the net income of BAPCO as operating revenue and that it would

recognize the BAPCO investment in the rate base. PSC's staff recommended

that BellSouth's operating income from the test year include about $6 million

from BAPCO operations. Consumer Advocate presented testimony showing

nature. We did so in years past because no statute explicitly required an

administrative agency to make specific findings of fact or state its

reasoning as a predicate for judicial review -- although we have long

believed that is the better practice. See Greyhound Lines, Inc. v. South

Carolina Pub. Serv. Comm'n, 274 S.C. 168, 262 S.E.2d 22 (1980); Atlantic

Coast Line R.R. Co. v. South Carolina Pub. Serv. Comm'n, 245 S.C. 229,

139 S.E.2d 911 (1965). We recently stated that the "substantial evidence

test does not require that the Commission cite to facts, but that the

evidence is contained in the record as a whole." Hamm v. South Carolina

Pub. Serv. Comm'n, 315 S.C. 119, 123, 432 S.E.2d 454, 457 (1993); Hamm

v. American Tel. & Tel. Co., 302 S.C. 210, 218, 394 S.E.2d 842, 846 (1990).

As discussed above, statutes and our precedent require an

administrative agency to make specific findings of fact and explain its

rationale in sufficient detail to afford judicial review. We overrule

Greyhound Lines, Inc. v. South Carolina Pub. Serv. Comm'n, supra;

Atlantic Coast Line R.R. Co. v. South Carolina Pub. Serv. Comm'n, supra;

Hamm v. South Carolina Pub. Serv. Comm'n, 315 S.C. 119Y 432 S.E.2d

454, and Hamm v. American Tel. & Tel. Co., 302 S.C. 210, 394 S.E.2d

842, to the extent that they conflict with the approach outlined above. We

also overrule them to the extent that they suggest the Court will, sua

sponte, search the record for substantial evidence supporting a decision

when an administrative agency's order inadequately sets forth the agency's

findings of fact and reasoning.

p.30

that figure was abnormally low during the test year due to certain

nonrecurring accounting adjustments made by BellSouth in December 1994.

BAPCO's average net income was about $551,000 per month except for

December, when it reported a loss of $25,000. BellSouth itself described the

December expenses as "extraordinary," and said they resulted from the

downsizing of the work force and planned technological improvements, among

other things, according to Consumer Advocate. BAPCO revenue ought to be

set at $6.6 million, Consumer Advocate argued.

PSC adopted the staff recommendation, concluding it was accurate

and reliable. In its order upon reconsideration, PSC explained that it

rejected Consumer Advocate's position because it was based upon "pure

speculation," not proof that BellSouth's accounting adjustments actually were

nonrecurring. The circuit court affirmed PSC's decision.

We conclude the circuit court erred in affirming PSC's decision on

this issue for two reasons. First, the record does not contain substantial

evidence supporting PSC's conclusion that Consumer Advocate's position was

"pure speculation." The operating loss in December, which followed eleven

months of profits, indicates that month was somehow unusual. BellSouth

itself described the December 1994 expenses as "extraordinary" and explained

they were related to downsizing of the work force and technological

improvements, among other things. The only conclusion that can be drawn

from the record is that those expenses were nonrecurring. See Hamm, 315

S.C. at 122, 432 S.E.2d at 456 (substantial evidence means such relevant

evidence as a reasonable mind might accept as adequate to support a

conclusion).

Second, PSC must adjust atypical test-year figures in order to

accurately perform calculations that affect the company's overall rate of

return and, ultimately, customer rates. See Hamm, 309 S.C. at 289-90, 422

S.E.2d at 114 ("object of test year figures is to reflect typical conditions. . .

. Where an unusual situation exists which shows that the test year figures

are atypical and thus do not indicate future trends, the Commission should

adjust the test year data"); see also S.C. Code Ann. § 58-9-570 (1976) (in

determining rates, PSC shall consider, among other things, reasonable

operating expenses and other costs necessary to provide the service, as well

as other matters PSC may find necessary); Chesapeake Utilities Com. v.

Delaware Pub. Serv. Comm'n, 705 A.2d 1059, 1067 (Del. Super. Ct. 1997)

(extraordinary expenses are included in rate base only if they are a

recognized component of the rate base or if the commission, in its discretion,

p.31

determines that denying them would impair a utility's effective operation).

Accordingly, we reverse the judgment of the circuit court on this issue.

3. ALLOWANCE FOR CASH WORKING CAPITAL

Consumer Advocate contends the circuit court erred in affirming

PSC's treatment of cash working capital because that decision was arbitrary,

capricious, and not supported by substantial evidence. We agree.

Cash working capital is money a utility must have on hand to

pay its own bills before it receives payments from customers. Consumer

Advocate argued PSC should use a lead-lag study prepared by BellSouth to

determine how much cash working capital to include in BellSouth's rate

base.4 Such a study shows whether a company is able to pay its own bills

before receiving revenue from customers by comparing the revenue lag (days

between company's provision of service and customers' payment) with the

expense lag (days between the incurring of an expense by company and

payment of the expense).5

Consumer Advocate presented testimony showing PSC should set

BellSouth's allowance for cash working capital at zero because the company

bills most of its customers for services in advance. BellSouth has a negative

cash working capital requirement, Consumer Advocate contended. Simply

put, customer revenue flows into BellSouth's accounts before it must pay

expenses . Therefore, BellSouth needs no allowance for cash working capital

and it is inappropriate to allow shareholders to earn a return on that money

public utility is entitled an opportunity to earn a fair and reasonable

return. A public utility's 'rate base' represents the total investments in, or

fair value of, the used and useful property which it necessarily devotes to

rendering the regulated services." Southern Bell v. Pub. Serv. Comm'n of

South Carolina, 270 S.C. 590, 600, 244 S.E.2d 278, 283 (1978).

5 "A 'lead-lag' study empirically identifies the difference in timing

between outward cash flow for labor, materials and supplies, inventory,

and other expenses, and inward cash flow from charges to customers."

Colorado Mun. League v. Pub. Util. Comm'n. 687 P.2d 416, 420 (Colo.

1984).

p.32

by including it in the rate base, Consumer Advocate argued.6

PSC rejected Consumer Advocate's position, instead adopting its

staffs' recommendation to include an allowance for cash working capital of

$10.4 million in BellSouth's rate base. PSC's staff based its calculations on

a method that uses a company's average daily cash balances to determine the

requirement. In its orders, PSC stated it had long used such a method and

believed it to be appropriate in this case. Companies must have cash on

hand for daily operations and there is no such thing as a "negative cash

working capital requirement," PSC stated. PSC considers cash working

capital to be an investment made by shareholders upon which they are

entitled to earn a return. PSC also concluded the lead-lag method penalizes

good cash management and rewards inefficient cash management. The

circuit court affirmed PSC's decision.

Consumer Advocate now contends PSC's decision was arbitrary,

capricious, and not supported by substantial evidence. In some states, courts

have approved a regulatory agency's decision either to establish a negative

cash working capital requirement and deduct it from the rate base, or set the

requirement at zero.7 In others, courts have upheld a regulatory agency's

decision to include an allowance for cash working capital in the rate base,

BellSouth would have to reduce its rates by an additional $1.1 million

annually if PSC set the cash working capital requirement at zero.

Assuming a rate of return on common equity of 12 percent, BellSouth

would have to reduce its rates by $5.7 million annually, according to

Consumer Advocate.

7 E.g., Cincinnati Gas & Elec. Co. v. Pub. Util. Comm'n. 620 N.E.2d

821 (Ohio 1993) (affirming commission's decision to subtract negative

working capital from total working capital allowance approved for utility);

Colorado Mun. League v. Pub. Util. Comm'n,687 P.2d 416, 419-21 (Colo.

1984) (affirming commission's decision to set the cash working capital

allowance at zero instead of attributing negative working capital to utility);

Barasch v. Pub. Util. Comm'n, 533 A.2d 1108, 1112-14 (Pa. Commw. Ct.

1987) (same).

p.33

although it usually is limited to investor-supplied capital.8

It is within PSC's discretion to adopt the rate-setting method it

believes is appropriate, provided that method complies with the statutes. See

Heater of Seabrook, Inc., 324 S.C. at 64, 478 S.E.2d at 830 (PSC generally

has wide latitude to determine an appropriate rate-setting methodology);

Nucor Steel v. South Carolina Pub. Serv. Comm'n. 312 S.C. 79, 85, 439

S.E.2d 270, 273 (1994) (nothing in statute requires PSC to adopt any

particular price-setting methodology in determining fair rate of return). As

an Arkansas court stated, as long as a regulatory agency operates within the

statutes, "[i]t is apparent that no particular methodology is precise and . . .

a determination of working capital is in many respects an exercise of

discretion as to what particular method yields the most fair and equitable

result in each case." General Tel. Co. v. Arkansas Pub. Serv. Comm'n, 744

S.W.2d 392~ 397 (Ark. Ct. App.), aff'd, 751 S.W.2d 1 (1988).

We conclude the circuit court erred in affirming PSC's decision on

this issue because the record does not contain any testimony or other

substantial evidence supporting PSC's conclusion. PSC decided the issue

arbitrarily, adhering to its past practice and simply announcing BellSouth is

entitled to an allowance for cash working capital in its rate base without

attempting to explain or support that decision. See Hamm., 309 S.C. at 289,

422 S.E.2d at 114 (a previously adopted policy may not furnish the sole basis

for PSC's action). PSC made no effort to explain or support its conclusion

705 A.2d 1069, 1069 (Del. Super. Ct. 1997) (interpreting statute to allow

commission to include allowance for investor-supplied cash working capital

in rate base); General Tel. Co. v. Arkansas Pub. Serv. Comm'n, 744

S.W.2d 392, 395-98 (Ark. Ct. App.) (upholding commission's decision to use

modified balance sheet approach instead of lead-lag study to determine

allowance for cash working capital), aff'd, 751 S.W.2d 1 (1988); People's

Counsel v. Pub. Service Comm'n, 399 A.2d 43, 46 (D.C. Ct. App. 1979)

(approving an allowance for cash working capital in the rate base where

utility's customers paid after service was rendered, and noting such an

allowance is not allowed to extent that customers provide cash working

capital because that forces customers to pay a return on funds they

advanced); Chesapeake and Potomac Tel. Co. v. Pub. Service Comm'n, 93

A.2d 249 (Md. 1952) (affirming commission's decision not to include cash

working capital in rate base where utility's customers paid in advance).

p.34

that the lead-lag method penalizes good cash management and rewards

inefficient cash management. In addition, PSC's statement that there is no

such thing as a negative cash working capital requirement is simply

incorrect. Other regulatory agencies and courts have discussed and applied

the concept. E.g., Colorado Mun. League, 687 P.2d at 419 (explaining that

positive working capital is provided by shareholders, while negative working

capital is provided by advance customer payments or other funds received

before a company's own bills are due); Barasch v. Pub. Util. Comm'n, 530

A.2d 936 (Pa. Commw. Ct. 1987) (same); cases cited in footnote 7. In short,

PSC's arbitrary pronouncement stands in stark contrast to the debate

engaged in by regulatory agencies and courts in other states on this issue.

Accordingly, we reverse the judgment of the circuit court on this issue.

4. WAGE AND SALARY EXPENSES

Consumer Advocate contends the circuit court erred in affirming

PSC's decision on the annualization. of salary and wage expenses because that

decision was not adequately documented in findings of fact or supported by

substantial evidence. We disagree.

BellSouth reduced the number of employees after the end of the

1994 test year due to reorganization, technological advances, and corporate

"downsizing." PSC's staff examined BellSouth's salary, wage, and payroll tax

expenses from March to May 1995, the most recent available when the staff

calculated the reduction in those expenses. A PSC accountant testified the

calculations did not include more recent actual reductions in the work force

because the staff preferred to use actual, audited figures.

When PSC heard the case, Consumer Advocate argued the agency

should examine more recent data for May and June 1995, which BellSouth

had provided, because it more accurately reflected employee reductions.

Consumer Advocate presented testimony showing PSC should reduce the

salary and wage expense by about $2.9 million more than the staff s

recommended reduction of $5.2 million.

PSC adopted the staff recommendation, finding it fairly reflected

BellSouth's salary and wage expenses while accounting for employee

reductions. In its order denying Consumer Advocate's petition for

reconsideration, PSC rejected Consumer Advocate's argument by saying it

preferred to rely upon actual, audited figures -- not the unaudited data that

included the month of June 1995. The circuit court affirmed the PSC's

p.35

decision.

Consumer Advocate now contends that PSC's decision was not

adequately documented in findings of fact or supported by substantial

evidence. Consumer Advocate also argues that PSC had to consider the June

1995 data under Southern Bell v. Pub. Serv. Comm'n of South Carolina, 270

S.C. 590, 602, 244 S.E.2d 278, 284 (1978) (PSC should consider known and

measurable changes in expenses, revenues and investments occurring after

the test year so that resulting rates will reflect the actual rate base, net

operating income, and cost of capital).

We conclude PSC adequately explained its findings of fact and

reasoning when the original order and order upon reconsideration are read

together. The original order, standing alone, would be insufficient under the

principles outlined in Issue 1 because PSC merely recited the conflicting

testimony and then stated its conclusion. The order upon reconsideration,

however, reveals PSC chose not to consider the June 1995 data because it

preferred to rely upon audited data. The order cites the PSC accountant's

testimony, which constitutes substantial evidence supporting the agency's

decision.

Southern Bell, supra, does not require PSC to consider unaudited

or speculative data. It merely requires PSC to consider known and

measurable changes that occur after the test year in order to accurately

calculate figures that affect the company's overall rate of return and customer

rates. PSC complied with Southern Bell by considering the audited data

from March to May 1995. Accordingly, we affirm the judgment of the circuit

court on this issue.

5. AREA PLUS LOSSES

BellSouth argues the circuit court erred in reversing PSC's

decision to include Area Plus losses in test-year calculations because that

decision was supported by substantial evidence. We disagree.

In February 1993, BellSouth asked PSC to approve its rate plan

for a new service called Area Plus.9 PSC approved the plan. Several long-

(continued...

p.36

distance carriers appealed the decision in circuit court. In April 1994, PSC,

BellSouth, the long-distance carriers, and Consumer Advocate entered into an

agreement resolving the dispute. The parties made several stipulations,

including the following: "BellSouth will not come before [PSC] requesting

rate relief for any possible losses resulting from the introduction of Area Plus

service, the execution of Area Calling Plan Principles Agreement, or this

Stipulation." The parties further stipulated that PSC must review the

agreement three years after its approval to determine whether any

modifications are appropriate.

In the present case, PSC's staff and BellSouth recommended that

Area Plus revenue from the first half of 1995 be included in test-year

calculations. Consequently, PSC allowed BellSouth to recognize nearly $4.5

million in losses attributable to Area Plus service. Consumer Advocate

protested that BellSouth was barred from recognizing those losses under the

April 1994 agreement. Recognizing the losses would increase BellSouth's

need for revenue from other ratepayers, which was what the stipulation was

intended to prevent, Consumer Advocate argued.

PSC rejected those contentions, saying BellSouth had not

requested rate relief because PSC -- not BellSouth -- had initiated the review

of the company's earnings. Therefore, neither PSC nor BellSouth had

violated the stipulation. The circuit court reversed PSG's decision. The court

concluded PSC had abused its discretion because the parties reasonably

expected to rely on the April 1994 agreement, and PSC had offered no reason

for nullifying the stipulation.

BellSouth now argues the circuit court erred because substantial

evidence supported PSC's decision to include known and measurable Area

Plus losses in test-year calculations. Including them did not violate the

stipulation because BellSouth had not asked for rate relief, but merely

submitted the information during an earnings review initiated by PSC.

BellSouth also argues the parties intended for stipulations in the April 1994

agreement to be considered only if BellSouth asked to withdraw its Area Plus

calling area. BellSouth charges substantially lower rates for calls within

that area than it usually charges. BellSouth's revenue under the former

billing system decreases when subscribers switch to Area Plus and the

volume of calls remains the same.

p.37

service or if PSC considered another specific type of long-distance service in

South Carolina.

"A stipulation is an agreement, admission or concession made in

judicial proceedings by the parties thereto or their attorneys. Stipulations,

of course, are binding upon those who make them." Kirkland v. Allcraft Steel

Co., 329 S.C. 3891 392, 496 S.E.2d 624, 626 (1998) (citations omitted). A

stipulation is an agreement, an understanding. The court must construe it

like a contract, i.e., interpret it in a manner consistent with the parties'

intentions. Webster v. Holly Hill Lumber Co., 268 S.C. 416, 421, 234 S.E.2d

232, 234 (1977).

Because the court construes it like a contract, a stipulation that

is unambiguous and explicit must be construed according to the terms the

parties have used, as those terms are understood in their plain, ordinary, and

popular sense. See C.A.N. Enterprises, Inc. v. South Carolina Health and

Human Services Fin. Comm'n, 296 S.C. 373, 377, 373 S.E.2d 584, 586 (1988)

(court must construe unambiguous contracts according to plain meaning of

terms used by parties); Chapman v. Metropolitan Life Ins. Co., 172 S.C. 2501

256, 173 S.E. 801, 804 (1934) (it plainly is "the duty of the court to construe

a written contract if there be no ambiguous language which is susceptible of

more than one meaning"); accord 83 C.J.S. Stipulations § 11 (1953); 73

Am.Jur.2d Stipulations § 7 (1974).

A party who has entered into a stipulation may seek the written

consent of other parties to abrogate the stipulation. A party also may ask

the court to abrogate a stipulation for good cause or because the interests of

justice require it. Whether to abrogate the stipulation is addressed to the

sound discretion of the trial judge, and an appellate court will not interfere

with that decision except when there is a manifest abuse of discretion.

Strange v. South Carolina Dep't of Highways and Pub. Transp., 314 S.C. 427,

430, 445 S.E.2d 439, 441 (1994); Edens v. Cole, 261 S.C. 556, 561, 201 S.E.2d

382, 384 (1973); Brown v. Pechman. 55 S.C. 555, 563, 33 S.E. 732, 737

(1899); accord 83 C.J.S. Stipulations §§ 30-37; 73 Am.Jur.2d Stipulations §§

12-14. When a party has not asked the court to relieve it from the terms of

a stipulation, that party remains bound by the stipulation. American Surety

Co. v. Hamrick Mills, 194 S.C. 221, 232, 9 S.E.2d 433, 438 (1940).

We conclude the circuit court properly enforced the plain meaning

of the stipulation at issue in this case. Regardless of which entity initiated

the earnings review, BellSouth asked PSC to recognize losses attributable to

p.38

Area Plus. It is true that in the end, PSC reduced BellSouth's rates by

$42.3 million annually. But BellSouth plainly requested rate relief because

it wanted to use Area Plus losses to avoid a further reduction in its rates,

and that was precisely what BellSouth promised not to do in the April 1994

agreement. BellSouth never asked the other parties, PSC, or the court to

relieve it from the stipulation. The record contains no evidence supporting

PSC's decision to ignore the stipulation. In fact, a PSC engineer conceded

under questioning by Consumer Advocate that BellSouth would receive rate

relief if PSC allowed the company to recognize the losses. See Porter v.

South Carolina Pub. Sery. Comm'n, Op. No. 24833 (S.C. Sup. Ct. filed August

31, 1998) (Shealy Adv. Sh. No. 30 at 41) (reversing circuit court order that

upheld PSC's approval of certain expenses, where utility had not complied

with stipulation that plainly required it to perform a cost/benefit analysis

when seeking recovery of those costs).

This result does not mean, of course, that BellSouth may never

ask PSC to recognize Area Plus losses. The April 1994 agreement stated

PSC would review the agreement after three years, and BellSouth may ask

PSC to reconsider the stipulation sooner. See Strange v. South Carolina

Dep't of Pub. Highways and Transp., supra; Edens v. Cole, supra; Brown v.

Pechman, supra. Accordingly, we affirm the judgment of the circuit court on

this issue.

CONCLUSION

We reverse the judgment of the circuit court on Issue 1 (rate of

return on common equity), Issue 2 (BAPCO revenue), and Issue 3 (allowance

for cash working capital). We remand this case to PSC for it to reconsider

those issues solely on the basis of the record on appeal in this case. See

Parker v. South Carolina Pub. Serv. Comm'n, 288 S.C. 304, 342 S.E.2d 403

(1986) (administrative agency may not consider additional evidence upon

remand unless Court allows it because that affords a party two bites at the

apple). We affirm the judgment of the circuit court on Issue 4 (annualization

of wage and salary expenses) and Issue 5 (Area Plus losses).

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

TOAL, A.C.J., MOORE and BURNErr, ii., concur. FINWy, C.J.1,

not participating.

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