State ex rel. Utilities Com'n v. Carolina Utility Customers Ass'n, Inc.

• Decision Date: 29 July 1994
• Docket Number: No. 410PA93,410PA93
• Citation: 336 N.C. 657,446 S.E.2d 332
• Court: North Carolina Supreme Court
• Parties: , Util. L. Rep. P 26,412 STATE of North Carolina ex rel. UTILITIES COMMISSION; Public Service Company of North Carolina, Inc.; McDowell County; Michael F. Easley, Attorney General; and Public Staff-North Carolina Utilities Commission v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC.

Page 332

446 S.E.2d 332

336 N.C. 657, Util. L. Rep. P 26,412

STATE of North Carolina ex rel. UTILITIES COMMISSION Public Service Company of North Carolina, Inc.; McDowell County; Michael F. Easley, Attorney General; and Public Staff-North Carolina Utilities Commission v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC.

No. 410PA93.

Supreme Court of North Carolina.

July 29, 1994.

Robert P. Gruber, Executive Director, Public Staff by Gisele L. Rankin, Staff Atty., for intervenor-appellee Public Staff, and Hunter and Evans, P.A. by Robert C. Hunter, for intervenor-appellee McDowell County.

Byrd, Byrd, Ervin, Whisnant, McMahon & Ervin, P.A., by Sam J. Ervin, IV, Morganton, for intervenor-appellant Carolina Utility Customers Ass'n, Inc. (CUCA).

MEYER, Justice.

In this case we decide, inter alia, the constitutionality of that portion of N.C.G.S. § 62-158 which authorizes the Utilities Commission to order a North Carolina natural gas local distribution company to create a natural gas expansion fund and which authorizes the Commission to use supplier refunds to such local distribution companies to fund the expansion fund. We also determine whether the North Carolina Utilities Commission ("the Commission") properly ordered the creation and funding of a natural gas expansion fund by Public Service Company of North Carolina pursuant to that statute. We hold that the statute is constitutional and that the Commission properly ordered the creation of the expansion fund and the funding thereof by supplier refunds.

In 1991, the General Assembly enacted two statutory sections for the purpose of facilitating the expansion of natural gas service to areas of the state where it would otherwise be economically infeasible to provide such service. The first of these is N.C.G.S. § 62-2(9), which states that it is the policy of the state

[t]o facilitate the construction of facilities in and the extension of natural gas service to unserved areas in order to promote the public welfare throughout the State and to that end to authorize the creation of an expansion fund for each natural gas local distribution company to be administered under the supervision of the North Carolina Utilities Commission.

N.C.G.S. § 62-2(9) (Supp.1991). The second is N.C.G.S. § 62-158, which provides:

(a) In order to facilitate the construction of facilities in and the extension of natural gas service to unserved areas, the Commission may, after a hearing, order a natural gas local distribution company to create a special natural gas expansion fund to be used by that company to construct natural gas facilities in areas within the company's franchised territory that otherwise would not be feasible for the company to construct....

(b) Sources of funding for a natural gas local distribution company's expansion fund may, pursuant to the order of the Commission, after hearing, include:

(1) Refunds to a local distribution company from the company's suppliers of natural gas and transportation services pursuant to refund orders or requirements of the Federal Energy Regulatory Commission;

(2) Expansion surcharges by the local distribution company charged to customers purchasing natural gas ...; and

(3) Other sources of funding approved by the Commission.

N.C.G.S. § 62-158 (Supp.1991).

The refunds referred to in N.C.G.S. § 62-158(b)(1) are due to excessive rates charged on an interim basis to local distribution companies by their interstate pipeline suppliers subject to a later refund. When the Federal Energy Regulatory Commission ("FERC") establishes wholesale rates for natural gas, any excess amounts already paid by the local distribution companies to their interstate suppliers are subject to refund to the local companies pursuant to FERC order.

Public Service Company is a local distribution company ("LDC") within the meaning of N.C.G.S. § 62-158. On 22 May 1992, Public Service Company filed a petition to authorize establishment of an expansion fund with the North Carolina Utilities Commission. With this petition, Public Service Company requested that the Commission order the establishment of a natural gas expansion fund and approve the deposit of supplier refunds into the fund. ¹ On 3 June 1993, the Commission entered an order establishing an expansion fund for Public Service Company and directed Public Service Company to transfer certain supplier refunds to the Commission for deposit into the fund. ²

Carolina Utility Customers Association ("CUCA") is an organization of utilities customers that frequently intervenes and participates in proceedings before the Commission. CUCA opposed the order in part because it wanted the supplier refunds that were used to fund the expansion fund to be returned to the customers of Public Service Company. As the Commission stated in its order This Commission's practice has been to return such supplier refunds to customers consistent with the authority granted the Commission by G.S. 62-136(c). The Commission would have done so here but for the provisions of G.S. 62-158.

CUCA appeals the order of the Commission establishing the expansion fund, approving the level of initial funding for the fund, and ordering the transfer of the supplier refunds for deposit into the fund.

In this appeal of the Commission's order, CUCA challenges the procedures used by the Commission in the implementation of N.C.G.S. § 62-158 and challenges the validity of N.C.G.S. § 62-158 on numerous constitutional grounds. We shall first address CUCA's contentions that the Commission erred in its interpretation and implementation of the legislation at issue.

In its first assignment of error, CUCA contends that the Commission misapprehended the scope of its discretion under N.C.G.S. § 62-158 in making the decision to grant or deny Public Service Company's petition. As the Commission stated in its order, "[o]nce we have found unserved areas that are otherwise infeasible to serve, ... the General Assembly intends for the Commission to exercise limited discretion as to whether a fund should be created for that particular natural gas utility." CUCA argues that the Commission in fact had wide discretion to determine whether to authorize the establishment of an expansion fund for any particular LDC and that the Commission's refusal to exercise its full discretion caused its failure to address CUCA's legal and factual position. Furthermore, CUCA contends that the order should be reversed because it constitutes a Commission decision based upon a misinterpretation of applicable law. See State ex rel. Utilities Commission v. Haywood Electric Membership Corporation, 260 N.C. 59, 69, 131 S.E.2d 865, 871-72 (1963).

CUCA bases its argument on that portion of N.C.G.S. § 62-158(a) that reads as follows:

(a) In order to facilitate the construction of facilities in and the extension of natural gas service to unserved areas, the Commission may, after a hearing, order a natural gas local distribution company to create a special natural gas expansion fund to be used by that company to construct natural gas facilities....

N.C.G.S. § 62-158(a) (emphasis added). CUCA contends that the word "may" as contained in the statute is to be viewed in the permissive sense and indicates that the legislature intended that the Commission exercise more than "limited discretion" in determining, in light of all the surrounding facts and circumstances, whether authorizing the establishment of an expansion fund is appropriate.

Even if we adopt CUCA's interpretation of the Commission's authority, the record does not indicate that the Commission viewed itself as without discretion to grant or deny the petition. The Commission in fact stated that it was to exercise "limited discretion," as opposed to no discretion whatsoever.

The Commission held a hearing on the matter and received testimony from numerous witnesses who were either in favor of or opposed to the creation of the expansion fund. After doing so, the Commission issued an order that included extensive findings of fact. The Commission concluded that "the creation of an expansion fund for the Company is in the public interest."

In addition, the terms of the statute itself clearly indicate that there are certain limitations on the Commission's authority to order the creation of an expansion fund. N.C.G.S. § 62-158 limits the creation of expansion funds for the construction of natural gas facilities to unserved areas in which it would otherwise be economically infeasible for the LDC to extend natural gas lines. In order to implement this statute, the Commission adopted Commission Rule R6-82, which requires that an LDC show "that there are unserved areas in the LDC's franchised territory and that expansion of natural gas facilities to such areas is economically infeasible." N.C. Utilities Commission, North Carolina Public Laws and Regulations, Rule R6-82(b) (1993 ed.) (Michie 1994) [hereinafter "Commission Rule"]. Such limitations are in keeping with the language of the enabling statute N.C.G.S. § 62-158. In addition, Rule R6-82(d) states:

In determining the establishment of a Fund and the sources and magnitude of the initial funding, the Commission will consider the LDC's showing that expanding to serve unserved areas is economically infeasible and such other factors as the Commission deems reasonable and consistent with the intent of G.S. 62-158 and G.S. 62-2(9). Before ordering the establishment of a Fund, the Commission must find that it is in the public interest to do so.

Commission Rule R6-82(d). The plain language of this rule indicates that the Commission had a proper view of its discretion in making a determination of whether to authorize the creation of an expansion fund: It was to evaluate pertinent factors in a manner consistent with the legislative intent; if, after doing so, the Commission concluded that the creation of an expansion fund would not be in the public interest, it would presumably decline to order...