State ex rel. Utilities Com'n v. Nantahala Power and Light Co.
| Decision Date | 03 July 1985 |
| Docket Number | No. 227A83,227A83 |
| Citation | 332 S.E.2d 397,313 N.C. 614 |
| Court | North Carolina Supreme Court |
| Parties | STATE of North Carolina, ex rel. UTILITIES COMMISSION; Rufus L. Edmisten, Attorney General; Public Staff; Henry J. Truett; Town of Bryson City; Swain County Board of County Commissioners; Cherokee, Graham and Jackson Counties, the Towns of Andrews, Dillsboro, Robbinsville, and Sylva; the Tribal Council of the Eastern Band of Cherokee Indians; Muriel Maney; and Derol Crisp v. NANTAHALA POWER AND LIGHT COMPANY; Aluminum Company of America; and Tapoco, Inc. |
Hunton & Williams by Robert C. Howison, Jr., and Edward S. Finley, Jr., Raleigh, for defendant-appellant Nantahala Power and Light Co.
LeBoeuf, Lamb, Leiby & MacRae by Ronald D. Jones and David R. Poe, Raleigh, for respondent-appellants Aluminum Co. of America and Tapoco, Inc.
Rufus L. Edmisten, Atty. Gen. by Richard L. Griffin, Asst. Atty. Gen., Robert Gruber, Executive Director by James D. Little, Staff Atty., The Public Staff, Raleigh, for Using and Consuming Public.
Crisp, Davis, Schwentker & Page by William T. Crisp and Robert W. Schwentker, Raleigh, for Henry J. Truett, Counties of Cherokee, Graham, Swain and Jackson, Towns of Andrews, Dillsboro, Robbinsville, Bryson City and Sylva, and Tribal Council of the Eastern Band of Cherokee Indians.
Joseph A. Pachnowski, Bryson City, for Swain County and Town of Bryson City.
Western North Carolina Legal Services by Larry Nestler, Sylva, for Derol Crisp.
McKeever, Edwards, Davis & Hays by Fred H. Moody, Jr., Bryson City for Swain County.
Charles L. Lewis, Asst. Atty. Gen., Nashville, Tenn., for State of Tenn. and Tennessee Dept. of Economic and Community Development, amici curiae.
Mayer & Magie by Roderic G. Magie, Highlands, and Spiegel & McDiarmid by James N. Horwood, Cynthia S. Bogorad, and P. Daniel Bruner, Washington, D.C., for Town of Highlands, amicus curiae.
TABLE OF CONTENTS
Commission
Alcoa's Refund Liability
Regulation
1. Temporal Extent
2. Confiscation
3. Nantahala's Non-Constitutional
Obligation
This appeal raises substantial questions under the federal constitution and the North Carolina statutory provisions governing intrastate electric power rates charged by a public utility to its retail customers. The most important question presented is whether the North Carolina Utilities Commission is preempted from implementing a roll-in methodology for setting Nantahala's retail rates by virtue of the Supremacy Clause of the United States Constitution, art. VI, cl. 2 and the Federal Energy Regulatory Commission's ("FERC") exclusive jurisdiction over certain interstate wholesale power transactions and agreements 1 between and among, Nantahala, Tapoco, Alcoa and the Tennessee Valley Authority ("TVA"). For the reasons set forth more fully below, we find no statutory or constitutional infirmity in the order of the North Carolina Utilities Commission issued in Docket No. E-13, Sub 29 (), and therefore affirm the decision of the Court of Appeals upholding the retail rate reduction and refund obligation to Nantahala's public utility customers.
In Part I of this opinion we will undertake to review (a) the procedural history of this case, (b) the historical development of Nantahala and Tapoco as a single, unified hydroelectric generating and distribution system, (c) the factual predicate to the Commission's decision to implement a roll-in rate making methodology, and (d) the mechanics of the roll-in in the allocation of costs for the unified system. In the course of this review, we shall address such factual and legal issues raised by the companies as are relevant to the Commission action under discussion. In Part II, we will address the major constitutional and statutory challenges to the Commission's order lodged by the respondent companies. Briefly stated, these challenges concern (a) federal preemption; (b) interference with interstate commerce; (c) the measure, extent and liability for the rate reduction and refund obligation; and (d) the independence of the factual findings of the Commission.
This appeal represents the culmination of a process begun in 1976, with Nantahala's application for permission to increase its retail rates and a revision of its purchased power adjustment clause (PPAC) applicable to those rates. The initial order entered by the Commission on 14 June 1977 in Docket No. E-13, Sub 29, approving certain annual increases in Nantahala's rates and a PPAC adjustment was ultimately reversed on appeal by this Court in Edmisten, 299 N.C. 432, 263 S.E.2d 583. The basis for reversal was the Commission's failure as a matter of law to give more than minimal consideration to material facts of record concerning the propriety of treating Nantahala and its affiliate Tapoco, both wholly owned subsidiaries of Alcoa, as a single unified electric utility and rolling together their properties and costs for purposes of determining just and reasonable retail electric rates for Nantahala's North Carolina customers. 299 N.C. at 437, 263 S.E.2d at 587-88. The case was remanded with directions to the Commission to obtain and consider information and data showing what Nantahala's cost of service to its customers would be if the roll-in method of rate making were used and whether Nantahala's customers would benefit thereby. Id. at 443, 263 S.E.2d at 591.
Upon remand, the Commission, in preliminary hearing, determined that it had jurisdiction over Nantahala's parent corporation, Alcoa and its affiliate, Tapoco and joined them as parties in Docket No. E-13, Sub 29 (). A panel of the Full Commission then held hearings and received evidence from both the intervening customers of Nantahala and from the respondent companies on the question of roll-in. In addition to the evidence received during Nantahala's initial rate increase hearings in 1977 regarding Nantahala's costs and the relevant test year (1975) data, both parties presented additional testimony and data concerning Nantahala's rolled-in costs of service to its retail customers. The companies presented one allocation methodology for apportioning the combined revenues, expenses and investment of the rolled-in system between the system's North Carolina retail operations and non-jurisdictional Tennessee industrial operations, and the intervenors presented another.
Briefly stated, the basic dispute between the intervenors and the companies as to which jurisdictional cost allocation methodology to use involves the question of whether the rolled-in power costs are to be allocated to Nantahala's retail customers on the basis of its actual contribution and use of hydroelectric generation and capacity in the unified system or upon the proportion of return power entitlements it receives under the wholesale agreements between and among the companies themselves and the Tennessee Valley Authority ("TVA"). The intervenors contend that the former allocation formula is just and appropriate for setting Nantahala's retail rates. The companies maintain that the latter is mandated under the federal and state division of, respectively, wholesale and retail rate making authority, because the contracts at issue are federally filed and approved wholesale rates which must be given effect by state public service commissions in setting retail rates.
The wholesale power coordination and exchange agreements primarily at issue are (1) the New Fontana Agreement ("NFA"), a 1962 power exchange agreement among the three companies and TVA, whereby Nantahala and Tapoco subject all of their large plant electrical generation to TVA control and turn over that generation directly to TVA, in exchange for annual return power entitlements for the two subsidiaries to divide amongst themselves; and (2) the 1971 Nantahala-Tapoco Apportionment Agreement, a contract between the two subsidiaries, whereby the demand and energy return power entitlements received under the NFA are divided between them, with Nantahala receiving no more than a fixed amount of power and energy, and Tapoco receiving the remainder. 2 2 These, and other contractual arrangements affecting Nantahala's costs of service will be discussed more fully below.
The Commission, in view of the evidence presented by all the parties upon remand found and concluded that (1) Nantahala and Tapoco are North Carolina public utilities subject to its rate making jurisdiction; (2) Alcoa, by virtue of its parental domination of Nantahala, was itself a statutory North Carolina public utility pursuant to N.C.G.S. § 62-3(23)c; (3) the Nantahala-Tapoco electric generation and distribution system constitutes a single, integrated electric system, operated as such and coordinated with the TVA system; (4) use of an appropriately performed roll-in of Nantahala and Tapoco would be beneficial to Nantahala's customers because its allocated cost of power under the combined system is less than the cost of power for Nantahala as a stand-alone system, such that a roll-in will result in a significant...
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