State ex rel. Utilities Commission v. CAROLINA UTIL. CUSTOMERS, No. 170A99.

• Decision Date: 04 February 2000
• Docket Number: No. 170A99.
• Court: North Carolina Supreme Court
• Parties: STATE of North Carolina ex rel. UTILITIES COMMISSION; Public Service Company of North Carolina, Inc. (Applicant); Public Staff-North Carolina Utilities Commission (Intervenor); and Michael F. Easley, Attorney General (Intervenor) v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC. (Intervenor).

524 S.E.2d 10

STATE of North Carolina ex rel. UTILITIES COMMISSION; Public Service Company of North Carolina, Inc. (Applicant); Public Staff-North Carolina Utilities Commission (Intervenor); and Michael F. Easley, Attorney General (Intervenor) v. CAROLINA UTILITY CUSTOMERS ASSOCIATION, INC. (Intervenor).

No. 170A99.

Supreme Court of North Carolina.

February 4, 2000.

J. Paul Douglas, Corporate Counsel, Gastonia, for applicant-appellee Public Service Company of North Carolina, Inc.

Robert P. Gruber, Executive Director, by Antoinette R. Wike, Chief Counsel, and Amy Barnes Babb, Staff Counsel, Raleigh, for intervenor-appellee Public Staff.

Michael F. Easley, Attorney General, by Margaret A. Force, Assistant Attorney General, intervenor-appellee.

Sutherland, Asbill & Brennan, LLP, by Keith R. McCrea, pro hac vice, Washington, DC; and West Law Offices, P.C., by James P. West, Raleigh, for intervenor-appellant Carolina Utility Customers Association, Inc.

PARKER, Justice.

On 2 April 1998 applicant-appellee Public Service Company of North Carolina, Inc. ("PSNC") filed an application with the North Carolina Utilities Commission ("the Commission") seeking a rate increase of $21,518,027 per year.¹ The Commission allowed the formal intervention of Carolina Utility Customers Association, Inc. ("CUCA") by order dated 7 April 1998. On 28 April 1998 the Commission entered an order setting PSNC's application for investigation and hearing and declared this case a general rate case pursuant to N.C.G.S. § 62-137. The intervention and participation of the Public Staff-North Carolina Utilities Commission ("Public Staff") and the Attorney General was recognized pursuant to statute.

After the parties submitted prefiled direct and rebuttal testimony to the Commission, PSNC, in an effort to expedite this proceeding, met privately with the Public Staff to negotiate an agreement regarding revenue requirements. No other parties were included in those negotiations. Neither PSNC nor the Public Staff filed a stipulation or formal settlement with the Commission as a result of their negotiations. Rather, PSNC and the Public Staff each agreed to present their own witnesses. The Public Staff's witnesses would testify according to the negotiated terms, and PSNC agreed not to challenge the Public Staff's testimony pertaining to the private agreement.

On 8 July 1998 pursuant to legislative mandate, the Commission entered an order requiring a study of natural gas transportation rates and setting the Commission's transportation rate study for hearing beginning 31 August 1998. The Commission noted that its order would establish an expedited schedule for the study but emphasized the importance of coordinating the transportation rate study with this pending general rate case.

This matter came on for hearing before the Commission on 25 August 1998. The Commission entered an "Order Granting Partial Rate Increase" on 30 October 1998. The Commission authorized a $12,394,757 increase of PSNC's annual revenues. PSNC filed revised tariffs and rate schedules that were designed to implement the Commission's 30 October 1998 order. On 2 December 1998 the Commission entered an order approving the revised tariffs. CUCA now appeals from the Commission's order granting a partial rate increase.

CUCA contends that the Commission committed reversible error by (1) relying on the private agreement between PSNC and the Public Staff to resolve contested issues; (2) adopting a return on equity of 11.4%; (3) adopting a capital structure composed of 51.91% common equity, 4.02% short-term debt, and 44.07% long-term debt; (4) adopting the "peak and average" cost-of-service allocation methodology; (5) failing to make sufficient findings of fact regarding the cost-of-service to the various classes of customers in adopting a rate design; and (6) failing to address the impact of rider D on rate schedules 145 and 150. For the reasons stated herein, we affirm the decision of the North Carolina Utilities Commission.

In fixing rates to be charged by a public utility, the Commission "must comply with the overall requirements of regulation established and specified in considerable detail by the Legislature in chapter 62 of the General Statutes." State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n, 348 N.C. 452, 457, 500 S.E.2d 693, 698 (1998). The Commission must follow the steps set forth in N.C.G.S. § 62-133 in fixing rates in a general rate case. See State ex rel. Utils. Comm'n v. General Tel. Co. of Southeast, 281 N.C. 318, 336, 189 S.E.2d 705, 717 (1972). This statute provides in part:

§ 62-133. How rates fixed.

(a) In fixing the rates for any public utility ..., the Commission shall fix such rates as shall be fair both to the public utilities and to the consumer.

(b) In fixing such rates, the Commission shall:

(1) Ascertain the reasonable original cost of the public utility's property used ... in providing the service rendered to the public....

....

(2) Estimate such public utility's revenue under the present and proposed rates.

(3) Ascertain such public utility's reasonable operating expenses....

(4) Fix such rate of return on the cost of the property ascertained ... as will enable the public utility by sound management to produce a fair return for its shareholders, ... to maintain its facilities and services ..., and to compete in the market for capital funds on terms which are reasonable and which are fair to its customers and to its existing investors.

....

(5) Fix such rates to be charged by the public utility as will earn in addition to reasonable operating expenses ascertained... the rate of return fixed... on the cost of the public utility's property....

....

(d) The Commission shall consider all other material facts of record that will enable it to determine what are reasonable and just rates.

N.C.G.S. § 62-133(a), (b), (d) (1999). The Commission must determine, in accordance with the direction of this section, what constitutes a reasonable charge for proposed services. See Carolina Util. Customers Ass'n, 348 N.C. at 459, 500 S.E.2d at 699; see also State ex rel. Utils. Comm'n v. Morgan, 277 N.C. 255, 267, 177 S.E.2d 405, 413 (1970).

The rates fixed by the Commission are deemed prima facie just and reasonable pursuant to N.C.G.S. § 62-94(e). This Court will uphold the Commission's decision unless it may be attacked on one of the statutory grounds enumerated in N.C.G.S. § 62-94(b). See Carolina Util. Customers Ass'n, 348 N.C. at 459, 500 S.E.2d at 699. Section 62-94 provides in pertinent part:

(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.

(c) In making the foregoing determinations, the court shall review the whole record or such portions thereof as may be cited by any party and due account shall be taken of the rule of prejudicial error. The appellant shall not be permitted to rely upon any grounds for relief on appeal which were not set forth specifically in his notice of appeal filed with the Commission.

N.C.G.S. § 62-94(b), (c) (1999).

Under section 62-94(b) this Court must review the Commission's order on appeal to determine whether the findings of fact are supported by competent, material, and substantial evidence in view of the entire record. See Carolina Util. Customers Ass'n, 348 N.C. at 460, 500 S.E.2d at 699. Substantial evidence means "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consolidated Edison Co. of N.Y. v. N.L.R.B., 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126, 140 (1938). This Court cannot affirm the Commission's order unless the facts and findings included therein are contained in the record. See Carolina Util. Customers Ass'n,348 N.C. at 460,500 S.E.2d at 700. Section 62-79(a) establishes the standard against which Commission orders will be analyzed on appeal:

(a) All final orders and decisions of the Commission shall be sufficient in detail to enable the court on appeal to determine the controverted questions presented in the proceedings and shall include:

(1) Findings and conclusions and the reasons or bases therefor upon all the material issues of fact, law, or discretion presented in the record, and

(2) The appropriate rule, order, sanction, relief or statement of denial thereof.

N.C.G.S. § 62-79(a) (1999). "Failure to include all necessary findings of fact is an error of law and a basis for remand under section 62-94(b)(4) because it frustrates appellate review." Carolina Util. Customers Ass'n, 348 N.C. at 460, 500 S.E.2d at 700.

I. Private Agreement

CUCA argues that the Commission's reliance upon the private agreement between PSNC and the Public Staff constitutes prejudicial error. Further, CUCA contends that a heightened standard of review should be applied on appeal where the Commission adopts the recommendations of parties who testified according to negotiated terms between fewer than all of the parties to the dispute. We disagree.

This Court addressed the issue of nonunanimous agreements in Carolina Util. Customers Ass'n, 348 N.C. at 466, 500 S.E.2d at 701. In that case, the utility and the Public Staff...