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State ex rel. Utils. Comm'n v. Cooper

Supreme Court of North Carolina

January 23, 2015

STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION, PUBLIC STAFF -- NORTH CAROLINA UTILITIES COMMISSION, and DUKE ENERGY CAROLINAS, LLC
v.
ATTORNEY GENERAL ROY COOPER and NORTH CAROLINA WASTE AWARENESS AND REDUCTION NETWORK

Heard in the Supreme Court September 8, 2014

Troutman Sanders LLP, by Kiran H. Mehta; Heather Shirley Smith, Deputy General Counsel, and Charles A. Castle, Associate General Counsel, Duke Energy Carolinas, LLC; and Williams Mullen, by Christopher G. Browning, Jr., for applicant-appellee Duke Energy Carolinas, LLC.

Antoinette R. Wike, Chief Counsel, and William E. Grantmyre, David T. Drooz, and Robert S. Gillam, Staff Attorneys, for intervenor-appellee Public Staff -- North Carolina Utilities Commission.

Kevin Anderson, Senior Deputy Attorney General; Phillip K. Woods, Special Deputy Attorney General; Michael T. Henry, Assistant Attorney General; and John F. Maddrey, Solicitor General, for intervenor-appellant Roy Cooper, Attorney General.

Law Offices of F. Bryan Brice, Jr., by Matthew D. Quinn; and John D. Runkle for NC WARN, intervenor-appellant.

JACKSON, Justice. Justice ERVIN did not participate in the consideration or decision of this case.

OPINION

Page 306

[367 N.C. 742] On direct appeal as of right pursuant to N.C.G.S. § § 7A-29(b) and 62-90(d) from a final order of the North Carolina Utilities Commission entered on 24 September 2013 in Docket No. E-7, Sub 1026.

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 Carolinas (" Duke" ) contained sufficient findings of fact to demonstrate that the order was supported by competent, material, and substantial evidence in view of the entire record. See N.C.G.S. § 62-94 (2013). In addition, we consider whether the Commission's use of the single coincident peak (" 1CP" ) cost-of-service methodology unreasonably discriminated against residential [367 N.C. 743] customers and whether the Commission inappropriately shifted certain expenses to ratepayers. Because we conclude that the Commission made sufficient findings of fact regarding the impact of changing economic conditions upon customers, that the use of 1CP was supported by substantial evidence, and that no improper costs were included in the Commission's order, we affirm.

On 4 February 2013, Duke filed an application with the Commission requesting authority to adjust and increase its North Carolina retail electric service rates to produce an additional $446,000,000, yielding a net increase of 9.7% 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 the equity-financed portion of 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, 367 N.C. 430, 432, 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. (citation omitted).

On 4 March 2013, 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 8 July 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). In addition, several parties filed petitions to intervene, including the North Carolina Waste Awareness and Reduction Network (" NC WARN" ).

On 17 June 2013, Duke and the Public Staff filed an Agreement and Stipulation of Settlement with the Commission. The Stipulation produced a net increase of $234,480,000 in annual revenues and an ROE of 10.2%. The Stipulation provided for the use of the 1CP cost-of-service methodology. Among the parties contesting the Stipulation were the Attorney General and NC WARN.

During the hearings, the Commission received testimony from 131 public witnesses, and the parties presented both expert testimony and documentary evidence. The evidence presented before the Commission will be discussed in greater detail as necessary throughout this opinion.

Page 307

[367 N.C. 744] On 24 September 2013, the Commission entered an order granting a $234,480,000 annual retail revenue increase, approving an ROE of 10.2%, and authorizing the use of the 1CP cost-of-service methodology as agreed to in the Stipulation. The Commission reviewed the evidence before it and stated that it must consider whether the ROE is reasonable and fair to customers. See State ex rel. Utils. Comm'n v. Cooper (" Cooper I " ), 366 N.C. 484, 493, 739 S.E.2d 541, 547 (2013). The Commission concluded that the rate increase, ROE, and cost-of-service methodology set forth in the Stipulation were " just and reasonable to the Company's customers and to all parties of record in light of all the evidence presented." The Attorney General and NC WARN appealed the Commission's order to this Court as of right pursuant to N.C.G.S. § § 7A-29(b) and 62-90.

Subsection 62-79(a) of the North Carolina General Statutes " sets forth the standard for Commission orders against which they will be analyzed upon appeal." State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n (" CUCA I " ), 348 N.C. 452, 461, 500 S.E.2d 693, 700 (1998). Subsection 62-79(a) provides:

(a) All final orders and decisions of the Commission shall be sufficient in detail to enable the court on appeal to determine the controverted questions presented in the proceedings and shall include:

(1) Findings and conclusions and the reasons or bases therefor upon all the material issues of fact, law, or discretion presented in the record, and

(2) The appropriate rule, order, sanction, relief or statement of denial thereof.

N.C.G.S. § 62-79(a) (2013). When reviewing an order of the Commission, this Court may, inter alia, reverse or modify the decision if the substantial rights of the appellants have been prejudiced because the ...


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