State ex rel. Utilities Commission v. Edmisten, 80
| Decision Date | 05 March 1980 |
| Docket Number | No. 80,80 |
| Citation | 263 S.E.2d 583,299 N.C. 432 |
| Court | North Carolina Supreme Court |
| Parties | STATE of North Carolina ex rel. UTILITIES COMMISSION; Nantahala Power & Light Company, Applicants-Appellants, v. Rufus L. EDMISTEN, Attorney General et al.; Intervenors-Appellees. |
Rufus L. Edmisten, Atty. Gen., by Richard L. Griffin, Asst. Atty. Gen., Maurice W. Horne, Deputy Gen. Counsel, Raleigh, for the State.
Joyner & Howison, by Robert C. Howison, Jr., James E. Tucker and G. Clark Crampton, Raleigh, for Nantahala Power and Light Co.
Crisp, Smith & Davis, by William T. Crisp, Raleigh, and Spiegel & McDiarmid, by Robert H. Bear, Washington, D. C., for Henry J. Truett.
McKeever, Edwards, Davis & Hays, by Fred H. Moody, Jr., Bryson City, for County of Swain.
Joseph Pachnowski, Bryson City, for Town of Bryson City.
On 1 November 1976, Nantahala Power and Light Company (Nantahala) applied to the North Carolina Utilities Commission for permission to raise its retail electric utility rates and to revise a purchased power cost adjustment clause applicable to such rates. Treating the matter as an application for a general rate increase under G.S. 62-133, the Commission ordered investigation, posting of notices, and held public hearings. The Attorney General on behalf of the consuming public of North Carolina, the Town of Bryson City, the County of Swain, and Henry J. Truett were allowed to intervene in the proceedings.
During the hearings, intervenors moved (a) for an order by the Commission joining as parties respondent Aluminum Company of America (Alcoa) and Tapoco, Inc. (Tapoco), and (b) for an order by the Commission compelling Nantahala to produce information sufficient to allow the Commission to consider a rate design based on the "rolling in" of Tapoco's properties, revenues, and expenses with those of Nantahala, as though the two were operating as one utility. Both motions were denied, and the Commission subsequently authorized certain increases in Nantahala's rates and purchased power adjustment clause. The Court of Appeals reversed, vacating the order authorizing the rate increase and remanding the case to the Commission for the purposes of making Tapoco a party and considering "whether the people of North Carolina would benefit by use of the roll-in method of rate making involving Nantahala and Tapoco." 40 N.C.App. at 120, 252 S.E.2d at 522. On 12 April 1979, the Court granted Nantahala's petition for a writ of supersedeas to stay the mandate of the Court of Appeals and permit the continuation of the new rates authorized by the Commission.
For the reasons set out below, we affirm the decision of the Court of Appeals only insofar as it directs the Commission to consider whether a rate schedule computed as if Nantahala and Tapoco were one utility would be in the best interests of the customers of Nantahala. We leave to the discretion of the Commission the choice of the procedure whereby it will obtain the information necessary for the roll-in computation. We reverse that part of the Court of Appeals' decision which vacates the Commission's order authorizing the increased rate schedule, and we dissolve our writ of supersedeas. Although the 1977 rates will be allowed to continue in effect, we direct the Commission to require Nantahala to insure its ability to refund any excess premiums that may be found to have been charged upon final determination of the rate schedule proper to this case.
The somewhat intricate factual background of this case is not generally in dispute. Incorporated in North Carolina in 1929, Nantahala is a wholly owned subsidiary of Alcoa. It owns and operates hydroelectric generation and transmission facilities in the western part of this state and serves the public in six western counties with retail electrical service. For many years, a large percentage of Nantahala's total kilowatt hour production was transferred to Alcoa's facilities in Tennessee. With the population growth of western North Carolina after 1960, however, an increasing proportion of Nantahala's production has been required to satisfy its public service utility load. Indeed, since 1971 Nantahala has not directly transferred any of its electrical output to Alcoa.
Tapoco was incorporated in 1900 in Tennessee as Knoxville Power Company. It was domesticated in North Carolina in 1954. In 1955 Tapoco, along with Nantahala and Carolina Aluminum Co., jointly filed with the North Carolina Utilities Commission for a certificate of public convenience and necessity to permit Tapoco to acquire and operate two electrical generation facilities at Santeetlah and Cheoah then owned by Carolina Aluminum. In the order granting the certificate, the Commission directed that Tapoco supply to Nantahala the power necessary to satisfy Nantahala's public service loads in the two villages of Santeetlah and Tapoco in Graham County. This certificate is still in effect. Tapoco is a wholly owned subsidiary of Alcoa.
The transmission facilities of Nantahala and Tapoco are integrated and interconnected into a single system. Alcoa controls the ultimate operation and accounting policies of both utilities. The chief executive officers of both Nantahala and Tapoco report directly to an Alcoa vice president. Members of the board of directors of both utilities are employees of Alcoa.
In 1941 Alcoa entered into a twenty-year agreement with the Tennessee Valley Authority (TVA), pursuant to which Alcoa caused Nantahala (not a party to the agreement) to transfer to TVA a large part of Nantahala's real property holdings. The property so transferred was valued at approximately 3.5 million dollars and was eventually used in the construction of TVA's Fontana Dam. In return for the transfer, TVA agreed to supply Alcoa a continuous stream of 11,000 kw for the term of the contract. During the period of this contract, Nantahala produced electricity in excess of its public service load. This excess was sold to Alcoa at "dump" prices.
Effective 1 January 1963, the 1941 agreement was modified and largely replaced by the "New Fontana Agreement," to which Nantahala, Alcoa, Tapoco, and TVA are parties. This agreement allows TVA to coordinate Tapoco's operations and most of Nantahala's in such a way as to integrate into a single system the two utilities' electrical production and distribution. Instead of supplying Alcoa with electricity, TVA receives all of the electrical output of the Tapoco and Nantahala plants (except that of three small facilities belonging to Nantahala) and grants to Nantahala and Tapoco in return average annual entitlements to some 1,798,000,000 kwh (average power of 205.1 mw.). The agreement specifies that Alcoa, Nantahala, and Tapoco are to decide among themselves how these entitlements will be allocated and distributed.
A subsequent apportionment agreement in 1963 provided that Nantahala was to receive as its monthly share of the New Fontana Agreement entitlements the larger of either its total actual generation output or one-twelfth of its annual primary energy capability of 360 million kwh. 1 This apportionment agreement further provided that Alcoa was to pay Nantahala an annual sum of $89,200 in compensation for allowing TVA to control Nantahala's facilities.
In 1971, however, the 1963 apportionment formula was superseded by new agreements between Tapoco, TVA, and Nantahala. Under these 1971 agreements, which are now in effect, Nantahala's share of the TVA entitlements is limited to 360 million kwh annually, an amount of energy equal to Nantahala's primary capability. Any additional energy needed by Nantahala to satisfy its public service load is to be purchased from TVA. Additionally, Nantahala is to pay TVA a charge if the demand of its system exceeds 54,300 kw at any instant. These agreements eliminate the annual $89,200 payment by Alcoa to Nantahala. The remainder of the energy returned by TVA under the New Fontana Agreement entitlements goes to Tapoco, which then transfers it to Alcoa.
The intervenors in this case contend that the facts and circumstances attendant to Nantahala's relationship with Tapoco and Alcoa are such as to compel the Commission at least to consider the propriety of a rate schedule computed upon a rate base which takes into account the property values and operating expenses of both Tapoco and Nantahala. They assert that such a roll-in method of rate making will serve to cancel, or at least to "true up," concealed benefits which allegedly flow to Alcoa from Nantahala and Tapoco by virtue of the 1971 agreements. The Commission on the other hand concluded in its order that the evidence is not sufficient to warrant the treatment of Nantahala and Tapoco as a single entity, or to disregard the separate corporate identities of Nantahala, Tapoco, and Alcoa. The Court of Appeals disagreed. We agree with the Court of Appeals.
Chapter 62 of the General Statutes confers upon the Commission both the power and the duty to compel a public utility to render adequate service to its public customers in return for reasonable rates. Utilities Commission v. Morgan, 277 N.C. 255, 177 S.E.2d 405 (1970). These rates are to be fixed by the Commission as low as may be reasonably consistent with due process requirements of the state and federal constitutions. Utilities Commission v. Duke Power Co., 285 N.C. 377, 206 S.E.2d 269 (1974). In the setting of such rates, the Commission is required to consider not only those specific indicia of a utility's economic status set out in G.S. 62-133(b), 2 but also "all other material facts of record" which may have a significant bearing on the determination of reasonable and just rates. G.S. 62-133(d); Utilities Commission v. Edmisten, 291 N.C. 327, 230 S.E.2d 651 (1976). Although it is not for an appellate court to dictate to the Commission what weight it should give to material facts before it, a summary disposition which indicates that the Commission accorded only minimal...
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