STATE EX REL. UTILITIES COM'N v. CUCA, COA03-440.

• Decision Date: 17 February 2004
• Docket Number: No. COA03-440.,COA03-440.
• Citation: 592 S.E.2d 277,163 NC App. 1
• Court: North Carolina Court of Appeals
• Parties: STATE of North Carolina ex rel. UTILITIES COMMISSION; Duke Energy Corporation; Public Staff-North Carolina Utilities Commission; and Wells Eddleman, pro se, Petitioners v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC. (Intervenor), Respondent v. Duke Energy Corporation, Cross-Appellant.

592 S.E.2d 277

163 NC App. 1

STATE of North Carolina ex rel. UTILITIES COMMISSION; Duke Energy Corporation; Public Staff-North Carolina Utilities Commission; and Wells Eddleman, pro se, Petitioners v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC. (Intervenor), Respondent v. Duke Energy Corporation, Cross-Appellant.

No. COA03-440.

Court of Appeals of North Carolina.

February 17, 2004.

Attorney General Roy A. Cooper, III, by Special Deputy Attorney General Karen E. Long, for petitioner-appellee State of North Carolina ex rel. Utilities Commission.

Executive Director Robert P. Gruber, by Chief Counsel Antoinette R. Wike, for petitioner-appellee Public Staff-North Carolina Utilities Commission.

No brief for petitioner-appellee F. Barron Stone.

Wells Eddleman, petitioner-appellant, pro se.

West Law Offices, P.C., by James P. West, Raleigh, for respondent-intervenor-appellant.

Kennedy Covington Lobdell & Hickman, L.L.P., by Clarence W. Walker and Kiran H. Mehta, Charlotte; Law Office of Robert W. Kaylor, P.A., by Robert W. Kaylor, Raleigh; Paul R. Newton and William Larry Porter, Charlotte, for petitioner-cross-appellant.

HUNTER, Judge.

Carolina Utility Customers Association, Inc. ("CUCA") appeals an order of the North Carolina Utilities Commission ("the Commission") approving a settlement agreement regarding accounting irregularities at Duke Power, a division of Duke Energy Corporation ("Duke"). Wells Eddleman ("Eddleman") cross-appeals this order by writ of certiorari for the same reason. In turn, Duke cross-appeals the Commission's decision to allow CUCA and Eddleman to intervene in this matter. For the reasons stated herein, we affirm the Commission's order on the basis that CUCA and Eddleman are not "parties affected" by the settlement agreement as contemplated by applicable statutory authority and thus, have no standing to appeal.

In July of 2001, the Commission initiated a joint investigation with the South Carolina Public Service Commission ("SCPSC") and the North Carolina Public Staff ("the Public Staff") regarding accounting irregularities at Duke alleged by a then anonymous whistleblower. A 5 September 2001 news release announced the investigation, and the State Commissions subsequently selected Grant Thornton, L.L.P. ("GT") to audit Duke as a part of that investigation. Prior to the news release, Duke conducted its own internal investigation and provided a written report of its findings to both State Commissions on 28 August 2001.

On 5 October 2001, CUCA wrote a letter to the Commission requesting permission to participate in the investigation of Duke. As an association representing many of North Carolina's largest industrial manufacturers, CUCA wanted to insure that the interests of its rate-paying manufacturers who may have suffered disproportionately from any excessive charges for electrical power were protected. CUCA also requested that the Commission "initiate a general rate proceeding to allow interested parties to fully investigate Duke's revenues, costs, and rate design and to work with the Commission in setting rates of return that are appropriate for the current economic climate." In response to CUCA's requests, the Commission (1) stated that it was conducting the investigation pursuant to its authority under Sections 62-34 and 62-37 of the North Carolina General Statutes, which gives the Commission the discretion to proceed with or without a public hearing; (2) declined to allow CUCA to participate in the investigation; and (3) denied CUCA's request to initiate a general rate proceeding at that time.

On 8 October 2002, the Commission received GT's report regarding its audit of Duke. The report provided an "Overview of Findings" as follows:

On Tuesday, December 8, 1998, [SCPSC] reduced the rates which South Carolina Electric and Gas (SCANA) was allowed to charge its customers after SCANA reported earnings over its allowed rate of return for the twelve month period ending September 30, 1998. [GT's] investigation has found that, in reaction to the December 1998 SCANA decision, a number of Duke mid to senior level managers met and developed a plan to identify expense and revenue items which could serve as a basis for accounting adjustments which could be made to "avoid reporting over-earnings to regulators".... A focus of the plan was the identification and formulation of year end 1998 entries which would minimize Duke's earned return as reported to the State Commissions, but would not impact or lower Duke Energy's consolidated earnings as reported to its investors or the Securities and Exchange Commission.

[GT] has identified a number of entries made by Duke in the course of Duke's dealing[s] with its "allowed return problem", as it was characterized by some Duke managers. The entries identified included some of the fourteen entries pointed out by the whistleblower and addressed in the Duke Report, as well as other 1998 year-end entries, and some that affected the utility operating results for 1999 and 2000.

[GT] has identified entries, pre-income taxes (except for the RAR Tax Entry), totaling more than $64 million that inappropriately reduced Duke's 1998 pre-tax utility operating income as reported to the State Commissions. In addition, [GT] noted entries, pre-income taxes, that inappropriately reduced Duke's reported pre-tax earned return by $23,958,348 for fiscal 1999 and $35,198,605 for fiscal 2000.

Before the report was made public, Duke responded and contested several of the conclusions and opinions reached by GT. Duke also requested settlement negotiations in an effort to resolve the contested conclusions and opinions. Thus, the staffs of the State Commissions and Duke negotiated a proposed settlement agreement dated 22 October 2002, in which Duke agreed to the following:

1. To file for informational purposes, no later that December 1, 2002, certain regulatory reports and a reconciliation, for the years 1998, 1999, 2000 and 2001, to reflect the impact of the recommended entries set forth in the [GT] Report;

2. To restore in fiscal year 2002 the nuclear insurance reserve account to a level it would have reached had Duke not changed its accounting for nuclear insurance distributions in 1998, an adjustment of $50 million;

3. To correct in 2002 an erroneous 1998 accounting entry in the amount of $1.75 million related to its Price Anderson Act nuclear liability reserve;

4. To make a one-time $25 million credit in 2002 to its deferred fuel amounts in North Carolina and South Carolina (North Carolina in the amount of $18.75 million and South Carolina in the amount of $6.25 million) to be incorporated into the next fuel cost proceedings in the respective states;

5. To implement all of the remedial actions set forth in the Duke report of August 28, 2001;

6. To "acknowledge and regret" that communications with the two State Commissions failed to adequately detail significant changes to prior accounting practices; and

7. To charge the cost of the [GT] review to non-utility operations.

If approved by the State Commissions, the settlement agreement would "formally and positively resolve all matters within the scope of the accounting review without further controversy." A news release was issued later that same day (22 October 2002) stating that GT's report, Duke's response, and the proposed settlement agreement were available for public review and that the settlement agreement would be considered by the Commission at a Commission Staff Conference ("the Conference") on 28 October 2002.

The Conference was an informal forum at which no testimony was pre-filed and no formal hearing or pre-hearing procedures were used. The Commission staff simply presented and explained the proposed settlement agreement and recommended its approval by the Commission. The Public Staff also recommended approval. Duke customer Eddleman and counsel for CUCA spoke in opposition to the settlement agreement, as did the whistleblower. Also, CUCA presented the Commission with a motion requesting further investigation and hearing. Nevertheless, the Commission denied CUCA's motion and voted unanimously to approve the settlement agreement. However, the vote did not immediately constitute a final order because the Commission had to await approval by the SCPSC.

In November of 2002, after the Commission's initial vote on the settlement agreement, CUCA and Eddleman filed petitions to intervene, additional motions for further investigation and hearing (arguing they were not afforded sufficient notice and hearing and that the proposed settlement agreement was inadequate), as well as exceptions and notices of appeal. In turn, Duke wrote the Commission requesting that both petitions either be ignored or denied because the Conference was not a formal evidentiary hearing allowing for intervention, and the petitions were not timely filed since the Commission had already voted to approve the settlement agreement.

The Commission subsequently issued a final order on 11 December 2002. In that order, the Commission majority granted the petitions to intervene of CUCA and Eddleman after concluding that "as ratepayers, CUCA [and] Eddleman ... are affected by the level of Duke's rates and have an interest in this matter." The Commission majority further denied the motions for further investigation and hearing after concluding (1) the parties affected had received a proper hearing, i.e. the Conference, and adequate notice of that hearing; and (2) the results detailed in the GT report were based on a "thorough, complete and competent" investigation conducted in a manner the Commission found appropriate. Finally, the Commission majority also formally approved the settlement agreement. Two Commissioners, Lorinzo L. Joyner and James Y. Kerr, II ("Commissioners Joyner and Kerr"), agreed with the majority's decision to approve the settlement agreement, but concurred with the decision to deny the motions for further investigation and...