{ "id": 4315981, "name": "STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION; DUKE ENERGY PROGRESS, INC., Applicant; and PUBLIC STAFF-NORTH CAROLINA UTILITIES COMMISSION, Intervenor v. ATTORNEY GENERAL ROY COOPER and THE NORTH CAROLINA WASTE AWARENESS AND REDUCTION NETWORK, Intervenors", "name_abbreviation": "State ex rel. Utilities Commission v. Cooper", "decision_date": "2014-08-20", "docket_number": "No. 424A13", "first_page": "444", "last_page": "452", "citations": [ { "type": "official", "cite": "367 N.C. 444" } ], "court": { "name_abbreviation": "N.C.", "id": 9292, "name": "Supreme Court of North Carolina" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "366 N.C. 484", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 4354335 ], "opinion_index": -1, "case_paths": [ "/nc/366/0484-01" ] }, { "cite": "374 S.E.2d 361", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1988, "pin_cites": [ { "page": "370", "parenthetical": "\"Given th[e] subjectivity ordinarily inherent in the determination of a proper rate of return on common equity, there are inevitably pertinent factors which are properly taken into account but which cannot be quantified with the kind of specificity here demanded by [the appellant].\"" } ], "opinion_index": 0 }, { "cite": "323 N.C. 481", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2564277 ], "year": 1988, "pin_cites": [ { "page": "498" } ], "opinion_index": 0, "case_paths": [ "/nc/323/0481-01" ] }, { "cite": "739 S.E.2d 541", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 4, "year": 2013, "pin_cites": [ { "page": "548" }, { "page": "547" } ], "opinion_index": 0 }, { "cite": "500 S.E.2d 693", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 5, "year": 1998, "pin_cites": [ { "page": "700" }, { "page": "699", "parenthetical": "citation omitted" }, { "page": "700", "parenthetical": "alteration in original" }, { "parenthetical": "citation omitted" } ], "opinion_index": 0 }, { "cite": "348 N.C. 452", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 1659837 ], "weight": 3, "year": 1998, "pin_cites": [ { "page": "461" }, { "page": "460" }, { "page": "460" } ], "opinion_index": 0, "case_paths": [ "/nc/348/0452-01" ] }, { "cite": "758 S.E.2d 635", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 2014, "pin_cites": [ { "page": "636", "parenthetical": "citations omitted" }, { "page": "636", "parenthetical": "citation omitted" } ], "opinion_index": 0 }, { "cite": "366 N.C. 484", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 4354335 ], "weight": 2, "pin_cites": [ { "page": "495" } ], "opinion_index": 0, "case_paths": [ "/nc/366/0484-01" ] } ], "analysis": { "cardinality": 810, "char_count": 19996, "ocr_confidence": 0.73, "pagerank": { "raw": 1.0482681451391714e-07, "percentile": 0.5530417024313 }, "sha256": "4cd203748ec7053d4c32161331c24249be90dd58426c8f163c48c4eb33cc4bfb", "simhash": "1:04e860da9de12714", "word_count": 3080 }, "last_updated": "2023-07-14T22:06:46.212757+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION; DUKE ENERGY PROGRESS, INC., Applicant; and PUBLIC STAFF\u2014NORTH CAROLINA UTILITIES COMMISSION, Intervenor v. ATTORNEY GENERAL ROY COOPER and THE NORTH CAROLINA WASTE AWARENESS AND REDUCTION NETWORK, Intervenors" ], "opinions": [ { "text": "JACKSON, Justice.\nIn this case we consider whether the order of the North Carolina Utilities Commission (\u201cthe Commission\u201d) authorizing a 10.2% return on equity (\u201cROE\u201d) for Duke Energy Progress (\u201cDEP\u201d) 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. \u00a7 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. \u00a7 62-94(b).\nOn 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\u2019n v. Cooper (\u201cCooper II\"),__ N.C._,_, 758 S.E.2d 635, 636 (2014) (citations omitted). The ROE is one of the components used in determining a company\u2019s overall rate of return. Id. at_, 758 S.E.2d at 636 (citation omitted).\nOn 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. \u00a7\u00a7 62-15, 20 (2013).\nOn 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. .\nBy 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.\nThe 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\u2019s unemployment rate was worse than the national average, the State\u2019s GDP growth and expected household income growth also were higher than the national average. Hevert noted that North Carolina\u2019s average residential electric prices were approximately 12.31% below the national average. He concluded that \u201cthe regional economic conditions in North Carolina were substantially similar to the United States, such that there is no direct effect of those conditions on the Company\u2019s cost of equity.\u201d As a result, Hevert determined that his ROE analysis did not need to be adjusted to account for the impact of changing economic conditions upon utility customers in this State.\nThe Public Staff presented the testimony of Ben Johnson, Consulting Economist and President of Ben Johnson Associates, Inc. Johnson estimated an ROE range utilizing two approaches: first, a comparable earnings approach, which arrived at a range of 9.75% to 10.75%; and second, a market approach, which arrived at a range of 7.72% to 8.95%. Johnson also addressed the prolonged period of economic weakness that began in 2007. Johnson stated that improvement in the economy has been both weak and slow, with firms still reluctant to either invest or expand. Nevertheless, Johnson concluded that the proposed ROE of 10.2% agreed upon in the Stipulation was reasonable and consistent with the public interest.\nOther interested parties also presented evidence to the Commission. The Carolina Utility Customers Association, Inc. (\u201cCUCA\u201d), a coalition of industrial energy customers, presented the testimony of Kevin O\u2019Donnell, President of Nova Energy 3 Consultants, Inc., who recommended a specific ROE of 9.25%. In addition, the Commercial Group, an ad hoc group of Duke\u2019s commercial energy customers, presented the testimony of Steve Chriss, Senior Manager for Energy Regulatory Analysis for Wal-Mart Stores, Inc., and Wayne Rosa, Energy and Maintenance Manager for Food Lion, LLC. Chriss and Rosa did not recommend a specific ROE, but noted that Hevert\u2019s recommendation of 11.25% exceeded the range of recently authorized ROEs across the country.\nThe Attorney General did not present any ROE evidence.\nOn 30 May 2013, the Commission entered an order granting a $178,712,000 annual retail revenue increase and approving an ROE of 10.2% as agreed to in the Stipulation. In support of its conclusions, the Commission summarized the testimony of Hevert, Johnson, O\u2019Donnell, Chriss, and Rosa. The Commission also recognized that it must consider whether the ROE is reasonable and fair to customers stating:\n[T]he Commission is required to consider the economic effects of its ROE decision on a public utility\u2019s customers pursuant to G.S. 62-133(b)(4). In particular, G.S. 62-133(b)(4) states, in pertinent part, that in fixing rates the Commission must fix a rate of return on the utility\u2019s investment that \u201cwill enable the public utility by sound management to produce a fair return for its shareholders, considering changing economic conditions and other factors, including, but not limited to ... to compete in the market for capital funds on terms that are reasonable and that are fair to its customers and to its existing investors.\u201d One of the \u201cterms\u201d on which a public utility competes in the market for capital funds is the utility\u2019s authorized ROE. Thus, the Commission must consider whether that term is reasonable and fair to the utility\u2019s customers.\n(Second alteration in original.) The Commission concluded that the 10.2% ROE set forth in the Stipulation is \u201cjust and reasonable to all parties in light of all the evidence presented.\u201d The Attorney General appealed the Commission\u2019s order to this Court as of right pursuant to N.C.G.S. \u00a7\u00a7 7A-29(b) and 62-90. The North Carolina Waste Awareness and Reduction Network filed a separate appeal supporting the Attorney General\u2019s position.\nSubsection 62-79(a) of the North Carolina General Statutes \u201csets forth the standard for Commission orders against which they will be analyzed upon appeal.\u201d State ex rel. Utils. Comm\u2019n v. Carolina Util. Customers Ass\u2019n (\u201cCUCA I\"), 348 N.C. 452, 461, 500 S.E.2d 693, 700 (1998). Subsection 62-79(a) provides:\n(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:\n(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\n(2) The appropriate rule, order, sanction, relief or statement of denial thereof.\nN.C.G.S. \u00a7 62-79(a) (2013). When reviewing an order of the Commission, this Court may, inter alia,\nreverse or modify the decision if the substantial rights of the appellants have been prejudiced because the Commission\u2019s findings, inferences, conclusions or decisions are:\n(1) In violation of constitutional provisions, or\n(2) In excess of statutory authority or jurisdiction of the Commission, or\n(3) Made upon unlawful proceedings, or\n(4) Affected by other errors of law, or\n(5) Unsupported by competent, material and substantial evidence in view of the entire record as submitted, or\n(6) Arbitrary or capricious.\nId. \u00a7 62-94(b) (2013). Pursuant to subsection 62-94(b) this Court must determine whether the Commission\u2019s findings of fact are supported by competent, material, and substantial evidence in view of the entire record. Id.; CUCA I, 348 N.C. at 460, 500 S.E.2d at 699 (citation omitted). \u201cSubstantial 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.\u201d CUCA I, 348 N.C. at 460, 500 S.E.2d at 700 (alteration in original) (citations and quotation marks omitted). The Commission must include all necessary findings of fact, and failure to do so constitutes an error of law. Id. (citation omitted).\nThe Attorney General argues that the Commission\u2019s order is legally deficient because it is not supported by competent, material, and substantial evidence and does not include sufficient findings, reasoning, and conclusions. Specifically, the Attorney General contends that the Commission failed to make findings of fact showing in \u201cmeaningful detail\u201d that it considered the impact of changing economic conditions upon customers when determining ROE. The Attorney General asserts that the Commission must \u201cquantify\u201d the extent to which it adjusted the final ROE to account for consumer interests. We disagree.\nPursuant to subdivision 62-133(b)(4) of the North Carolina General Statutes, the Commission must fix a rate of return that\nwill enable the public utility by sound management to produce a fair return for its shareholders, considering changing economic conditions and other factors,... to maintain its facilities and services in accordance with the reasonable requirements of its customers in the territory covered by its franchise, and to compete in the market for capital funds on terms that are reasonable and that are fair to its customers and to its existing investors.\nN.C.G.S. \u00a7 62-133(b)(4). Recently, we observed that this provision, along with Chapter 62 as a whole, requires the Commission to treat consumer interests fairly, not indirectly or as \u201cmere afterthoughts.\u201d State ex rel. Utils. Comm\u2019n v. Cooper (\u201cCooper I\u201d), 366 N.C. 484, 495, 739 S.E.2d 541, 548 (2013). In Cooper I the Commission\u2019s order stated:\nDuke witness Hevert and Public Staff witness Johnson testified that it is not necessary to consider the impact of changing economic conditions on consumers in the context of an ROE economic analysis, other than in a broader macroeconomic sense, when analyzing changing market conditions for the purpose of making ROE recommendations. However, the Commission is required to consider the economic effects of its ROE decision on a public utility\u2019s customers pursuant to G.S. 62-133(b)(4). In particular, G.S. 62-133(b)(4) states, in pertinent part, that in fixing rates the Commission must fix a rate of return on the utility\u2019s investment that \u201cwill enable the public utility by sound management to produce a fair return for its shareholders, considering changing economic conditions and other factors, including, but not limited to ... to compete in the market for capital funds on terms that are reasonable and that are fair to its customers and to its existing investors.\u201d One of the \u201cterms\u201d on which a public utility competes in the market for capital funds is the utility\u2019s authorized ROE. Thus, the Commission must consider whether that term is reasonable and fair to the utility\u2019s customers. Public Staff witness Johnson testified in depth concerning the economic downturn, including the unemployment rate. In addition, the Commission received extensive testimony from public witnesses concerning the impact of current economic conditions on Duke\u2019s customers. Therefore, the Commission has ample evidence to consider in determining whether the proposed ROE of 10.5% is fair to Duke\u2019s customers.\n(Ellipsis in original.) We explained that \u201cthe Commission must consider all evidence presented by interested parties, which necessarily includes customers .... [I]n retail electric service rate cases the Commission must make findings of fact regarding the impact of changing economic conditions on customers when determining the proper ROE for a public utility.\u201d Id. We concluded that the order did not contain sufficient findings addressing the impact of changing economic conditions upon customers. 366 N.C.at 494, 739 S.E.2d at 547. But contrary to the Attorney General\u2019s suggestion, we did not state in Cooper I that the Commission must \u201cquantify\u201d the influence of this factor upon the final ROE determination. See id., State ex rel. Utils. Comm\u2019n v. Pub. Staff, 323 N.C. 481, 498, 374 S.E.2d 361, 370 (1988) (\u201cGiven th[e] subjectivity ordinarily inherent in the determination of a proper rate of return on common equity, there are inevitably pertinent factors which are properly taken into account but which cannot be quantified with the kind of specificity here demanded by [the appellant].\u201d).\nHere the Commission\u2019s order contains several findings of fact that address this factor:\n16. Changing economic conditions in North Carolina during the last several years have caused high levels of unemployment, home foreclosures and other economic stress on DEP\u2019s customers.\n17. The rate increase approved in this case, which includes the approved ROE and capital structure, will be difficult for some of DEP\u2019s customers to pay, in particular DEP\u2019s low-income customers.\n18. Continuous safe, adequate and reliable electric service by DEP is essential to the support of businesses, jobs, hospitals, government services, and the maintenance of a healthy environment.\n19. The ROE and capital structure approved by the Commission appropriately balances the benefits received by DEP\u2019s customers from DEP\u2019s provision of safe, adequate and reliable electric service in support of businesses, jobs, hospitals, government services, and the maintenance of a healthy environment with the difficulties that some of DEP\u2019s customers will experience in paying DEP\u2019s increased rates.\n20. The 10.2% ROE and the 53% equity financing approved by the Commission in this case are as low as reasonably possible. They appropriately balance DEP\u2019s need to obtain equity financing and maintain a strong credit rating with its customers\u2019 need to pay the lowest possible rates.\n21. The difficulties that DEP\u2019s low-income customers will .experience in paying DEP\u2019s increased rates will be mitigated to some extent by the $20 million that DEP will contribute to assistance for low-income customers and job training.\nThe Commission also stated that it gave \u201cgreat weight\u201d to Hevert\u2019s testimony that, although North Carolina\u2019s unemployment rate was higher than the national average, the State enjoyed lower average electric rates, higher expected household income growth, and superior GDP growth as compared to the nation as a whole. The Commission noted that Johnson testified that improvement in the economy has been slow and that the state of the economy affects both investors and consumers. The Commission explained that in addition to submitting recommended ROE ranges, Johnson concluded that a 10.2% ROE was reasonable and consistent with the public interest in combination with other provisions in the Stipulation. Furthermore, the Commission found that 58 of the 127 public witnesses who testified at the hearings stated that \u201cthe rate increase was not affordable to many customers,\u201d including the elderly, the unemployed or underemployed, the poor, and persons with disabilities. Nevertheless, the Commission explained that \u201c[ajnother significant group of customers\u201d wanted DEP to invest more in renewable energy, even if doing so would increase consumer costs.\nIn addition, the Commission found that specific provisions in the Stipulation serve customer interests. The Commission noted that the Stipulation required DEP to exclude from its rate base for one year the construction work in progress invested in the company\u2019s new Sutton power plant, thereby \u201cmaking it easier for ratepayers to pay their electric bills in the current economic environment.\u201d The capital structure contained in the Stipulation allowed for less equity than DEP\u2019s actual capital structure during the test year, and the Commission observed that this adjustment lowered the rate paid by ratepayers, but increased the risk to debt holders and lowered the return for investors. Finally, the Commission noted that the distribution of $20,000,000 for assistance to low-income consumers and for job training benefited those ratepayers with the least ability to pay. These findings of fact not only demonstrate that the Commission considered the impact of changing economic conditions upon customers, but also specify how this factor affected the Commission\u2019s final order. Therefore, we hold that the Commission made sufficient findings-regarding the impact of changing economic conditions upon customers and that these findings are supported by competent, material, and substantial evidence in view of the entire record.\nAccordingly, the order of the Commission is affirmed.\nAFFIRMED.", "type": "majority", "author": "JACKSON, Justice." } ], "attorneys": [ "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 intervenorappellee Public Staff \u2014 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 for North Carolina Waste Awareness and Reduction Network, intervenor-appellant." ], "corrections": "", "head_matter": "STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION; DUKE ENERGY PROGRESS, INC., Applicant; and PUBLIC STAFF\u2014NORTH CAROLINA UTILITIES COMMISSION, Intervenor v. ATTORNEY GENERAL ROY COOPER and THE NORTH CAROLINA WASTE AWARENESS AND REDUCTION NETWORK, Intervenors\nNo. 424A13\n(Filed 20 August 2014)\nUtilities \u2014 rate making \u2014 effect of changing economic conditions on customers \u2014 findings\u2014sufficient\nThe North Carolina Utilities Commission (Commission) made sufficient findings in a general rate case regarding the impact of changing economic conditions upon customers, and those findings were supported by the evidence in view of the entire record. Although the Attorney General contended that the Commission failed to make findings of fact showing in \u201cmeaningful detail\u201d that it considered the impact of changing economic conditions upon customers, the Commission\u2019s order contained several findings of fact that addressed this factor and those findings of fact not only demonstrated that the Commission considered the impact of changing economic conditions upon customers, but also specified how this factor affected the Commission\u2019s final order. Contrary to the Attorney General\u2019s suggestion, the North Carolina Supreme Court did not state in State ex rel. Utils. Comm\u2019n v. Cooper, 366 N.C. 484, that the Commission must \u201cquantify\u201d the influence of this factor upon the final return on equity determination.\nOn direct appeal as of right pursuant to N.C.G.S. \u00a7\u00a7 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.\nK&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.\nAntoinette R. Wike, Chief Counsel, and William E. Grantmyre and Lucy E. Edmondson, Staff Attorneys, for intervenorappellee Public Staff \u2014 North Carolina Utilities Commission.\nKevin 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.\nJohn D. Runkle for North Carolina Waste Awareness and Reduction Network, intervenor-appellant." }, "file_name": "0444-01", "first_page_order": 484, "last_page_order": 492 }