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State ex rel. Utilities Commission v. Cooper

Supreme Court of North Carolina

August 20, 2014


Heard in the Supreme Court May 5, 2014

Counsel Amended September 17, 2014.

N.C. Utilities Commission. No. E -2, Sub 1023.

K& L Gates LLP, by Kiran H. Mehta; Heather Shirley Smith, Deputy General Counsel, and Charles A. Castle, Associate General Counsel, Duke Energy Progress, Inc.; and Williams Mullen, by Christopher G. Browning, Jr., for applicant-appellee Duke Energy Progress, Inc.

Antoinette R. Wike, Chief Counsel, and William E. Grantmyre and Lucy E. Edmondson, Staff Attorneys, for intervenor-appellee Public Staff -- North Carolina Utilities Commission.

Kevin Anderson, Senior Deputy Attorney General; Phillip K. Woods and William V. Conley, Special Deputy Attorneys General; and Margaret A. Force, Assistant Attorney General, for intervenor-appellant Roy Cooper, Attorney General.

John D. Runkle and Matthew D. Quinn for North Carolina Waste Awareness and Reduction Network, intervenor-appellee.


Page 641

On direct appeal as of right pursuant to N.C.G.S. § § 62-90(d) and 7A-29(b) from a final order of the North Carolina Utilities Commission entered on 30 May 2013 in Docket No. E-2, Sub 1023. Heard in the Supreme Court on 5 May 2014.

JACKSON, Justice.

In this case we consider whether the order of the North Carolina Utilities Commission (" the Commission" ) authorizing a 10.2% return on equity (" ROE" ) for Duke Energy Progress (" DEP" ) contained sufficient findings of fact to demonstrate that it was supported by competent, material, and substantial evidence in view of the entire record. See N.C.G.S. § 62-94 (2013). Because we conclude that the Commission made sufficient findings of fact regarding the impact of changing economic conditions upon customers, we affirm. See id . § 62-94(b).

On 12 October 2012, DEP filed an application with the Commission requesting authority to increase its North Carolina retail electric service rates to produce an additional $359,000,000, yielding a net increase of 11% in overall base revenues. The application requested that rates be established using an ROE of 11.25%. The ROE represents the return that a utility is allowed to earn on its capital investment by charging rates to its customers. As a result, the ROE approved by the Commission affects profits for shareholders and costs to consumers. State ex rel. Utils. Comm'n v. Cooper (" Cooper II" ), __ N.C. __, __, 758 S.E.2d 635, 636 (2014) (citations omitted). The ROE is one of the components used in determining a company's overall rate of return. Id. at, 758 S.E.2d at 636 (citation omitted).

On 5 November 2012, the Commission entered an order declaring this proceeding a general rate case and suspending the proposed new rates for up to 270 days. The Commission scheduled five hearings across the State to receive public witness testimony. The Commission also scheduled an evidentiary hearing for 18 March 2013 to receive expert witness testimony. The Attorney General of North Carolina and the Public Staff of the Commission intervened as allowed by law. See N.C.G.S. § § 62-15, -20 (2013).

On 28 February 2013, DEP and the Public Staff filed an Agreement and Stipulation of Settlement with the Commission. The Stipulation provided for a net increase of $178,712,000 in annual revenues and an ROE of 10.2%. Among the parties contesting the Stipulation was the Attorney General.

By the time the evidentiary hearing began on 18 March 2013, the Commission already had heard testimony from 127 public witnesses. Many of these customers opposed the proposed rate increase, testifying about unemployment and poverty in their communities. Other customers expressed their view that DEP should be required to discontinue fossil fuel and nuclear generation in favor of energy efficiency and renewable energy, even if doing so would result in higher costs.

The Commission also heard from expert witnesses, who testified about the appropriate ROE and explained how current economic conditions affect consumers. Specifically, DEP presented the testimony of Robert B. Hevert, Managing Partner of Sussex Economic Advisers, LLC. Hevert recommended an ROE of 11.25%, which was above the midpoint of his recommended range of 10.50% to 11.50%. Hevert primarily used the Constant Growth Discounted Cash Flow model to compute his recommended ROE and considered the Capital Asset Pricing Model as a check on his results. Hevert also considered the effect of current economic conditions upon North Carolina customers. He testified that although North Carolina's unemployment rate was worse than the national average, the State's GDP growth and expected household income growth also were higher than the national average. Hevert noted that North Carolina's average residential electric prices were approximately 12.31% below the national average. He concluded that " the regional economic conditions in North ...

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