STATE EX REL. UTILITIES COM'N v. CUCA

• Decision Date: 17 February 2004
• Docket Number: No. COA03-457.,COA03-457.
• Citation: 592 S.E.2d 221,163 NC App. 46
• Court: North Carolina Court of Appeals
• Parties: STATE of North Carolina ex rel. UTILITIES COMMISSION; and Duke Energy Corporation, Respondents v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC., Petitioner.

592 S.E.2d 221

163 NC App. 46

STATE of North Carolina ex rel. UTILITIES COMMISSION; and Duke Energy Corporation, Respondents v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC., Petitioner.

No. COA03-457.

Court of Appeals of North Carolina.

February 17, 2004.

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

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

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; William Larry Porter, Kodwo Ghartey-Tagoe and Paul R. Newton, Charlotte, for respondent-appellee, Duke Energy Corporation.

HUNTER, Judge.

Carolina Utility Customers Association, Inc. ("CUCA") appeals an order of the North Carolina Utilities Commission ("the Commission") denying CUCA's petition to initiate a general rate proceeding and dismissing its complaint regarding unjust and unreasonable rates charged by Duke Power, a division of Duke Energy Corporation ("Duke"). For the reasons stated herein, we affirm.

CUCA is an association representing many of North Carolina's largest industrial manufacturers. On 12 June 2002, CUCA filed a verified petition and complaint against Duke alleging that Duke's base rates for electricity, particularly for CUCA's member base, were unjust and unreasonable. CUCA specifically alleged, inter alia, that (1) Duke artificially reduced its regulated earnings by amortizing asbestos expenses in a manner that was an exception to standard utility accounting practices, and (2) Duke's allowed rate of return, originally set in 1991, was too high for the current economic climate. CUCA supported its allegations by referencing an audit of Duke that was currently being conducted by Grant Thornton, L.L.P. as part of an investigation initiated by the Commission, the South Carolina Public Service Commission, and the North Carolina Public Staff "regarding Duke's alleged accounting improprieties." However, CUCA alleged that since the audit would only address "discrete accounting issues and discrepancies rather than all of the records that would be relevant to the setting of general rates[,]" the need for a comprehensive ratepayer review of Duke's records was necessary. Thus, CUCA petitioned the Commission to initiate a general rate case to remedy Duke's alleged overcharges.

While the petition and complaint were pending, clean smokestack legislation was enacted on 20 June 2002 as Section 62-133.6 of our statutes. Among other things, Section 62-133.6 declared the "base rates" of investor-owned public utilities, such as Duke, will remain unchanged from 20 June 2002 until 31 December 2007. Three days later, the Commission issued an order concluding that, pursuant to Section 62-133.6, there were no reasonable grounds by which to allow CUCA's complaint to proceed. CUCA's petition to initiate a general rate case against Duke was therefore denied by the Commission, but CUCA was afforded an opportunity to be heard as to that decision by filing comments or a motion for reconsideration.

On 9 August 2002, CUCA filed comments and a motion for reconsideration, which contended the Commission's "denial of the petition to initiate a general rate case and its tentative finding that there are no reasonable grounds to proceed upon CUCA's complaint both rest upon a misapprehension of applicable law." Specifically, CUCA argued (1) the subsequent enactment of Section 62-133.6 had no effect upon pending litigation, and (2) the "base rates" referred to in Section 62-133.6 represent "base fuel rates"; thus, as long as base fuel rates are not impacted, the initiation of either a general rate proceeding or a complaint proceeding should not be prohibited. Nevertheless, in an order dated 17 October 2002, the Commission denied reconsideration of its previous order and once again concluded there were "no reasonable grounds to proceed with a complaint proceeding." CUCA appeals.

At the outset, Chapter 62 of our statutes governs public utilities and establishes, in part, that any finding, determination, or order of the Commission is deemed "prima facie just and reasonable." N.C. Gen.Stat. § 62-94(e) (2003). Therefore, "`[j]udicial reversal of an order of the Utilities Commission is a serious matter for the reviewing court,' which may be justified only by strict adherence to the statutory guidelines governing appellate review." State ex rel. Util. Comm'n v. Carolina Indus. Group, 130 N.C.App. 636, 638, 503 S.E.2d 697, 699 (1998) (citation omitted). The applicable statute provides as follows:

(b) So far as necessary to the decision and where presented, the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any Commission action. The court may affirm or reverse the decision of the Commission, declare the same null and void, or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the appellants have been prejudiced because the Commission's findings, inferences, conclusions or decisions are:

(1) In violation of constitutional provisions, or

(2) In excess of statutory authority or jurisdiction of the Commission, or

(3) Made upon unlawful proceedings, or

(4) Affected by other errors of law, or

(5) Unsupported by competent, material and substantial evidence in view of the entire record as submitted, or (6) Arbitrary or capricious.

N.C. Gen.Stat. § 62-94(b).

Additionally, Chapter 62 delegates rate making to the Commission. As stated by our Supreme Court:

In fixing rates to be charged by a public utility, the Commission is exercising a function of the legislative branch of the government. It may not, therefore, exceed the limitations imposed upon the Legislature by the State and Federal Constitutions. The Commission, however, does not have the full power of the Legislature but only that portion conferred upon it in G.S. Chapter 62. In fixing the rates to be charged by a public utility for its service, the Commission must, therefore, comply with the requirements of that chapter....

State ex rel. Utilities Comm. v. General Telephone Co., 281 N.C. 318, 336, 189 S.E.2d 705, 717 (1972).

CUCA assigns error to the Commission's conclusion that a newly enacted section of Chapter 62, Section 62-133.6, precluded the initiation of a rate adjustment proceeding by petition and complaint against Duke. The enactment of Section 62-133.6 was an exercise by the Legislature of the power granted to it under the North Carolina Constitution to alter electricity rates for investor-owned utilities, such as Duke, for the next five years while the utilities seek to comply with new air emission standards. See N.C. Const. art. II, § 1; N.C. Gen.Stat. § 62-133.6 (2003). The pertinent subsection at issue in this appeal provides as follows:

(e) Notwithstanding G.S. 62-130(d) and G.S. 62-136(a), the base rates of the investor-owned public utilities shall remain unchanged from the date on which this section becomes effective through December 31, 2007. The Commission may, however, consistent with the public interest:

(1) Allow adjustments to base rates, or deferral of costs or revenues, due to one or more of the following conditions occurring during the rate freeze period:

....

d. The investor-owned public utility persistently earns a return substantially in excess of the rate of return established and found reasonable by the Commission in the investor-owned public utility's last general rate case.

N.C. Gen.Stat. § 62-133.6(e).

CUCA initially argues that despite the base rate freeze provision of Subsection 62-133.6(e), Subsection 62-133.6(h) still provides a statutory basis to proceed with its petition and complaint. Subsection 62.133.6(h) states "[n]othing in this section shall prohibit the Commission from taking any actions otherwise appropriate to enforce...