State ex rel. Utilities Com'n v. Thornburg

• Citation: 385 S.E.2d 451,325 N.C. 463
• Decision Date: 09 November 1989
• Docket Number: No. 57A88,57A88
• Court: United States State Supreme Court of North Carolina
• Parties: , 83 A.L.R.4th 161, 107 P.U.R.4th 431 STATE of North Carolina ex rel. UTILITIES COMMISSION; and Carolina Power and Light Company; Carolina Industrial Group for Fair Utility Rates; Carolina Utility Customers Association, Inc.; United States Department of Defense; Conservation Council of North Carolina; and Elizabeth Anne Cullington v. Lacy H. THORNBURG, Attorney General (Appellant).

Page 451

385 S.E.2d 451

325 N.C. 463, 83 A.L.R.4th 161, 107

P.U.R.4th 431

STATE of North Carolina ex rel. UTILITIES COMMISSION; and Carolina Power and Light Company; Carolina Industrial Group for Fair Utility Rates; Carolina Utility Customers Association, Inc.; United States Department of Defense Conservation Council of North Carolina; and Elizabeth Anne Cullington v. Lacy H. THORNBURG, Attorney General (Appellant).

No. 57A88.

Supreme Court of North Carolina.

Nov. 9, 1989.

APPEAL by Lacy H. Thornburg, Attorney General, pursuant to N.C.G.S. § 62-90 and N.C.G.S. § 7A-29(b) from the Utilities Commission's (Commission) Order Granting Partial Increase in Rates and Charges entered on 27 August 1987 in Docket No. E-2, Sub 526. Heard in the Supreme Court 14 March 1989.

Lacy H. Thornburg, Atty. Gen. by Jo Anne Sanford, Sp. Deputy Atty. Gen., Karen E. Long and Lemuel W. Hinton, Asst. Attys. Gen., Raleigh, for State.

Richard E. Jones, Vice President and Gen. Counsel, Robert W. Kaylor and Robert S. Gillam, Associate Gen. Counsel, Raleigh, for Carolina Power and Light Co., appellee.

FRYE, Justice.

The questions presented on this appeal are: (1) whether the Commission erred as a matter of law by authorizing a utility to amortize cancellation costs as operating expenses for ratemaking purposes; and (2) whether the Commission's treatment of cancellation costs in prior orders is res judicata as to issue one. We answer both issues in the negative and affirm the Commission's order.

I.

This is an appeal from an order of the Commission in a general rate case involving Carolina Power and Light Company (CP & L). CP & L is a public utility organized and existing under the laws of North Carolina and is engaged in the business of developing, generating, transmitting, distributing, and selling electric power and energy to the general public within a broad area of North Carolina and South Carolina.

Procedurally this case comes to this Court as follows:

On 6 January 1987 CP & L in Docket No. E-2, Sub 526 filed an application with the Commission for authority to adjust and increase electric rates and charges for certain of its North Carolina customers. The application sought the Commission's approval of rates that would produce approximately $173.4 million in additional annual revenues from CP & L's operations for an approximate 13.07% increase in total retail rates and charges. One of the principal reasons set forth in CP & L's application as necessitating the requested increase was the need to include in rates a portion of the costs associated with the abandoned construction of the Shearon Harris Nuclear Power Plant (Harris Plant).

On 11 March 1987 the Commission entered an order pursuant to N.C.G.S. § 62-137 declaring CP & L's application to be a general rate case, establishing the test period, scheduling public hearings, requiring the company to give public notice of its application and of the scheduled hearings, and requiring intervenors or other parties having an interest in the proceeding to file interventions, motions, or protests in accordance with applicable Commission rules and regulations.

Subsequently the United States Department of Defense, the Carolina Industrial Group for Fair Utility Rates, the Attorney General of North Carolina, the Conservation Council of North Carolina, Carolina Utility Customers Association, Inc., and Elizabeth Anne Cullington all filed Petitions or Notices of Intervention which were allowed by the Commission.

The case in chief came on for hearing before the Commission on 9 June 1987. On 5 August 1987, the Commission issued a Notice of Decision and Order which ordered that CP & L be allowed an opportunity to earn a rate of return of 10.45% on its investment used and useful in providing electric utility service in North Carolina. In order to have the opportunity to earn this rate of return, CP & L was authorized to adjust its electric rates and charges to produce an increase in gross revenues of $92,467,000 on an annual basis.

On 10 August 1987, CP & L filed proposed rates and charges to reflect the authorized increase. Upon examining CP & L's proposal, its application, the testimony and exhibits received into evidence at the hearings, the briefs submitted by the parties, and the entire record involved in this proceeding, the Commission on 27 August 1987 entered an Order Granting Partial Increase In Rates And Charges. ¹ The Commission's order reviewed the history of the ratemaking treatment of the Harris Plant abandonment losses, noting:

The ratemaking treatment of the Harris abandonment losses has been considered by the Commission in previous general rate cases of CP & L. In Docket No. E-2, Sub 444, the Commission allowed a recovery of the cost associated with cancelled Harris Units 3 and 4 over a ten-year period with inclusion of the interest arising from the debt financing portion of the unamortized balance. In Docket No. E-2, Sub 461, the Commission reexamined the ratemaking treatment of abandonment losses in order to develop a more consistent and equitable approach. The Commission determined that CP & L should be allowed to continue amortization of the Harris abandonment losses, but that no ratemaking treatment should be allowed which would have the effect of allowing CP & L to earn a return on the unamortized balance. The Commission concluded that this treatment provided the most equitable allocation of the loss between the utility and its ratepayers. In CP & L's last general rate case, Docket No. E-2, Sub 481, the Commission dealt with CP & L's decision to cancel the construction of Harris Unit 2. Consistent with its treatment of the earlier Harris cancellations, the Commission ruled that the abandonment losses of Harris Unit 2 should be amortized over ten years with no return allowed on or with respect to the unamortized balance.

Consistent with these previous orders, CP & L proposes in this case to include in operating expenses the amortization of the three abandoned Harris units.

In this order the Commission reaffirmed its previous treatment of the Harris Plant abandonment losses allowing CP & L to continue to recover as operating expenses an amount reflecting an amortization of the cost of these abandoned units. The Attorney General now appeals from this order.

II.

On appeal the Attorney General presses two basic contentions. First, he argues the Commission erred by permitting CP & L to continue to include as an allowable expense for ratemaking purposes costs associated with the abandonment of the company's Harris Plant. Second, he argues the determination of the first contention is not barred by the doctrine of res judicata. We will address these arguments in reverse order. ²

A.

The Attorney General contends on this appeal that the Commission's prior treatments of the cancellation costs of the Harris Plant, allowing the amortization of these costs as operating expenses in the ratemaking formula, are not res judicata on this issue. The Attorney General argues that since the ratemaking activities of the Commission are a legislative function, rather than a judicial function, Commission actions cannot be res judicata. CP & L counters, claiming the issue of amortization of Harris Plant cancellation costs has already been determined, and, therefore, the Attorney General's position is barred by the doctrine of res judicata. CP & L explains:

[T]he issue of how the costs of Harris Unit Nos. 2-4 should be treated for ratemaking purposes is not new. The Commission held in Sub 444, and reaffirmed in Sub 461, that CP & L is entitled to amortize the costs of Unit Nos. 3 and 4. It held in Sub 481 that the Company is entitled to amortize the costs of Unit No. 2. These rulings resolved the issue once and for all; the Attorney General did not appeal from any of them, and they are binding on him under the doctrine of res judicata.

CP & L relies essentially on this Court's decision in State ex rel Utilities Commission v. Public Staff, 322 N.C. 689, 370 S.E.2d 567 (1988) (hereinafter Duke 1988) as support for its position. We agree with the Attorney General's position on this issue.

As we recently noted in Duke 1988:

The doctrine of res judicata treats a final judgment as the full measure of relief to be accorded between the same parties on the same "claim" or "cause of action." C. Wright [A. Miller & E. Cooper], Federal Practice and Procedure, § 4402 (1969). "The essential elements of res judicata are: (1) a final judgment on the merits in an earlier suit, (2) an identity of the cause of action in both the earlier and the later suit, and (3) an identity of parties or their privies in the two suits." Hogan v. Cone Mills Corporation, 315 N.C. 127, 135, 337 S.E.2d 477, 482 (1985).

Duke 1988, 322 N.C. at 692, 370 S.E.2d at 569; see e.g., In re Trucking Co., 285 N.C. 552, 560, 206 S.E.2d 172, 177-78 (1974). More specifically, in addressing the issue of whether a Commission order can be deemed res judicata this Court has held that "only specific questions actually heard and finally determined by the Commission in its judicial character are res judicata, and then only as to the parties to the hearing." Utilities Commission v. Area Development, Inc., 257 N.C. 560, 570, 126 S.E.2d 325, 333 (1962) (emphasis added). Moreover, this Court has stated that ratemaking activities of the Commission are a legislative function. Utilities Comm. v. Edmisten, Attorney General, 294 N.C. 598, 603, 242 S.E.2d 862, 866 (1978); Utilities Commission v. General Telephone Company, 281 N.C. 318, 336, 189 S.E.2d 705, 717 (1972). It follows that since the exercise of the Commission's ratemaking power is a legislative rather than a judicial function, such orders are not governed by the principles of res judicata and are reviewable by this Court in later appeals of closely related matters. See Utilities Comm. v. Edmisten, Attorney General, 294 N.C. at 603, 242 S.E.2d at 866 (Commission's exercise of rule-making...