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In re Application of Duke Energy Corp.

Court of Appeals of North Carolina

March 4, 2014

IN THE MATTER OF: APPLICATION OF DUKE ENERGY CORPORATION AND PROGRESS ENERGY, INC., TO ENGAGE IN A BUSINESS COMBINATION TRANSACTION AND TO ADDRESS REGULATORY CONDITIONS AND CODES OF CONDUCT

Heard in the Court of Appeals November 6, 2013.

Counsel Amended March 4, 2014.

N.C. Utilities Commission. Nos. E-2, Sub 998, E-7, Sub 986.

Allen Law Offices, PLLC, by Dwight W. Allen, Britton H. Allen, and Brady W. Allen; Duke Energy Corporation Deputy General Counsel Lawrence B. Somers; and Womble Carlyle Sandridge & Rice, LLP, by James P. Cooney, III, for Appellee Duke Energy Corporation.

Spiegel & McDiarmid, LLP, by James N. Horwood and Peter J. Hopkins, pro hac vice; and Schiller & Schiller, PLLC, by David G. Schiller, for Intervenor-Appellant City of Orangeburg, South Carolina.

The Law Offices of F. Bryan Brice, Jr., by Matthew D. Quinn; and John D. Runkle, for Intervenor-Appellant N.C. Waste Awareness Reduction Network.

Public Staff Chief Counsel Antoinette R. Wike and Staff Attorney Gisele L. Rankin, for Appellee Public Staff-North Carolina Utilities Commission.

Mr. Sam Watson, General Counsel, for Appellee Utilities Commission.

McCULLOUGH, Judge. Judges ELMORE and STEPHENS concur.

OPINION

Page 383

McCULLOUGH, Judge.

Appeal by City of Orangeburg, South Carolina and N.C. Waste Awareness and Reduction Network from order entered 29 June 2012 by the N.C. Utilities Commission. Heard in the Court of Appeals 6 November 2013.

Intervenors City of Orangeburg, South Carolina (" Orangeburg" ) and N.C. Waste Awareness and Reduction Network (" NC WARN" ) appeal from order of the N.C. Utilities Commission (the " Commission" ) entered 29 June 2012. For the following reasons, we affirm the Commission's order and dismiss Orangeburg's appeal.

Page 384

I. Background

In accordance with N.C. Gen. Stat. § 62-111(a), on 4 April 2011, Duke Energy Corporation (" Duke" ) and Progress Energy, Inc. (" Progress" ) (collectively the " applicants" ) submitted an application to the Commission for authorization to: " engage in a business combination transaction; revise and apply Duke Energy Carolinas, LLC's (" DEC" ) Regulatory Conditions and Code of Conduct to Progress and Progress Energy Carolinas, Inc. (" PEC" ); and nullify PEC's Regulatory Conditions and Code of Conduct." DEC and PEC, wholly-owned subsidiaries of Duke and Progress, respectively, are electric utilities organized, existing, and operating under the laws of the State of North Carolina. Pursuant to the terms of the Agreement and Plan of Merger (the " merger agreement" ) entered into by the applicants and attached to the application as Exhibit 1, the business combination transaction (the " merger" ) would occur at the holding company level with Diamond Acquisition Corporation, a wholly-owned subsidiary of Duke, merging with and into Progress with the result that Progress survives the merger as a wholly-owned subsidiary of Duke.[1] Progress and PEC would remain separate legal entities following the merger, with the plan that PEC and DEC would merge into a single legal entity in the future.

On 27 April 2011, the Commission entered an Order Scheduling Hearing, Establishing Procedural Deadlines, and Requiring Public Notice. By the terms of the order, a Commission hearing on the application was scheduled to begin on 20 September 2011.

In the interim, the Commission allowed the intervention of thirty-seven (37) different parties, including the Commission's public staff and appellants NC WARN and Orangeburg. Regarding appellants, NC WARN filed a petition to intervene on 27 May 2011 that the Commission granted by order entered 7 June 2011; Orangeburg filed a petition to intervene on 5 August 2011 that the Commission granted by order entered 12 August 2011. Also in the interim, on 2 September 2011, the applicants and the public staff entered into an agreement and stipulation of settlement (the " Stipulation" ) for consideration by the Commission pursuant to N.C. Gen. Stat. § 62-69.

By Commission order entered following a pre-hearing conference on 19 September 2011, the application, certain exhibits, the revised Joint Dispatch Agreement, the Stipulation, and the corrected Regulatory Conditions and Code of Conduct were admitted into evidence as if introduced at the hearing on the application set to begin the following day.

The Commission hearings on the application then began as scheduled on 20 September 2011. The hearings lasted three days, concluding on 22 September 2011. A supplemental hearing was later held on 25 June 2012.

On 27 June 2012, NC WARN filed an offer of proof alleging that many facts relevant to the merger had changed significantly since the September 2011 hearings and, therefore, the Commission should reopen the hearing process. The Commission, however, determined the offer of proof was defective and on 29 June 2012 entered an Order Approving Merger Subject to Regulatory Conditions and Code of Conduct (the " merger order" ). In the merger order, which includes 41 findings of fact and over 80 pages of analysis discussing the evidence and reasoning supporting the findings, the Commission stated its conclusions as follows:

The Commission concludes that the Stipulation, Regulatory Conditions, Code of Conduct, Supplemental Stipulation, as amended, guaranteed fuel and fuel-related savings, Applicants' contributions to various work force development, low-income assistance, environmental and charitable programs, and the potential for future merger cost savings for ratepayers are sufficient to ensure that: (1) the merger will have no adverse impact on the rates and service of DEC's and PEC's North Carolina retail ratepayers; (2) DEC's and

Page 385

PEC's North Carolina retail ratepayers are protected as much as reasonably possible from potential costs and risks resulting from the merger; and (3) there are sufficient benefits from the merger to offset the potential costs and risks. Therefore, the Commission further concludes that the proposed business combination between Duke and Progress is justified by the public convenience and necessity.

In accordance with the terms of the merger order, the applicants filed a statement notifying the Commission they accepted and agreed with all terms, conditions, and provisions of the merger order on 2 July 2010, the same day the merger was finalized.

On 26 July 2012, NC WARN filed a motion for reconsideration of the merger order. The Commission denied NC WARN's motion by order entered 10 December 2012.

Orangeburg and NC WARN appealed from the merger order to this Court.[2]

II. Discussion

NC WARN and Orangeburg raise distinct issues on appeal. On the one hand, NC WARN challenges the merger as a whole, claiming there is not substantial evidence to support the Commission's decision to approve the merger. On the other hand, Orangeburg challenges the constitutionality of certain regulatory conditions imposed in connection with the Commission's approval of the merger. We address these issues separately.

A. Standard of Review

The scope of this Court's review of a Commission decision is governed by statute. As our Supreme Court has recognized, " '[t]he decision of the Commission will be upheld on appeal unless it is assailable on one of the statutory grounds enumerated in [N.C. Gen. Stat. § ] 62--94(b).'" State ex rel. Utilities Comm'n v. Cooper, 366 N.C. 484, 490, 739 S.E.2d 541, 545 (2013) (quoting State ex rel. Utilities Com'n v. Carolina Utility Customers Ass'n ( CUCA I ), 348 N.C. 452, 459, 500 S.E.2d 693, 699 (1998)). N.C. Gen. Stat. § 62-94(b) provides:

So far as necessary to the decision and where presented, the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any Commission action. The court may affirm or reverse the decision of the Commission, declare the same null and void, or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the appellants have been prejudiced because the Commission's findings, inferences, conclusions or decisions are:

(1) In violation of constitutional provisions, or

(2) In excess of statutory authority or jurisdiction of the Commission, or

(3) Made upon unlawful proceedings, or

(4) Affected by other errors of law, or

(5) Unsupported by competent, material and substantial evidence in view of the entire record as submitted, or

(6) Arbitrary or capricious.

N.C. Gen. Stat. § 62-94(b) (2013). As explained by our Supreme Court,

" [t]his Court's role under section 62-94(b) is not to determine whether there is evidence to support a position the Commission did not adopt. Instead, the test upon appeal is whether the Commission's findings of fact are supported by competent, material and substantial evidence in view of the entire record. Substantial evidence [is] defined as more than a scintilla or a permissible inference. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. The Commission's knowledge, however expert, cannot be considered by this Court unless the facts ...

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