State ex rel. Utilities v. Carolina Power

• Decision Date: 01 July 2005
• Docket Number: No. 649A03.,649A03.
• Citation: 614 S.E.2d 281
• Court: North Carolina Supreme Court
• Parties: STATE of North Carolina ex rel. UTILITIES COMMISSION, Public Staff-North Carolina Utilities Commission, Attorney General, Roy Cooper, Carolina Utility Customers Association, Inc., Carolina Industrial Groups for Fair Utility Rates I and II, Virginia Electric and Power Company D/B/A Dominion North Carolina Power, North Carolina Municipal Power Agency Number 1, and North Carolina Eastern Municipal Power Agency, Inc. v. CAROLINA POWER & LIGHT COMPANY, Duke Power Company, and North Carolina Electric Membership Corporation.

614 S.E.2d 281

STATE of North Carolina ex rel. UTILITIES COMMISSION, Public Staff-North Carolina Utilities Commission, Attorney General, Roy Cooper, Carolina Utility Customers Association, Inc., Carolina Industrial Groups for Fair Utility Rates I and II, Virginia Electric and Power Company D/B/A Dominion North Carolina Power, North Carolina Municipal Power Agency Number 1, and North Carolina Eastern Municipal Power Agency, Inc. v. CAROLINA POWER & LIGHT COMPANY, Duke Power Company, and North Carolina Electric Membership Corporation.

No. 649A03.

Supreme Court of North Carolina.

July 1, 2005.

Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 161 N.C.App. 199, 588 S.E.2d 77 (2003), vacating orders entered 10 July 2002 by the Utilities Commission, Docket No. E-100, Sub 85A, in Raleigh, North Carolina, and dismissing the proceeding with prejudice. Heard in the Supreme Court 11 May 2004.

Roy Cooper, Attorney General, by Leonard G. Green, Assistant Attorney General, for appellant Attorney General.

Robert P. Gruber, Executive Director, and Antoinette R. Wike, Chief Counsel, by Gisele L. Rankin, Staff Attorney, for appellant Public Staff-North Carolina Utilities Commission.

West Law Offices, P.C., by James P. West, for appellant Carolina Utility Customers Association, Inc.

Bailey & Dixon, L.L.P., by Ralph McDonald, Raleigh, for appellant Carolina Industrial Group for Fair Utility Rates II.

Hunton & Williams, by Edward S. Finley, Jr., for appellees Carolina Power & Light Company, Duke Power Company, and intervenor North Carolina Electric Membership Corporation; Len S. Anthony for appellee Progress Energy (formerly, Carolina Power & Light Company); Kodwo Ghartey-Tagoe for appellee Duke Power Company; and Robert B. Schwentker and Thomas K. Austin, Raleigh, for intervenor-appellee North Carolina Electric Membership Corporation.

Poyner & Spruill LLP, by Michael S. Colo, Thomas R. West, and Pamela A. Scott, Raleigh, for intervenor-appellees North Carolina Municipal Power Agency Number 1 and North Carolina Eastern Municipal Power Agency, Inc. Steptoe & Johnson LLP, by Steven J. Ross, Washington, DC, on behalf of Edison Electric Institute, amicus curiae.

EDMUNDS, Justice.

In this matter, we consider the extent to which federal law has preempted the authority of the North Carolina Utilities Commission over proposed contracts involving sales of electricity by North Carolina utilities to wholesale customers in interstate commerce. Because we hold that the power to review such proposed contracts is consistent with the duties imposed upon the Utilities Commission by our General Assembly and is not preempted by federal law, we reverse the holding of the North Carolina Court of Appeals.

On 17 November 1998, Carolina Power & Light Company (CP & L) applied to the North Carolina Utilities Commission (NCUC) for permission to construct additional generating capacity in Rowan and Richmond Counties. The application, filed pursuant to N.C.G.S. § 62-110.1, was given Docket Number E-2, Sub 733. Related documents indicate that CP & L sought to construct new generating plants both because it anticipated increased demand arising from normal load growth and because it intended to enter into contracts to sell electric power to two wholesale customers, the South Carolina Public Service Authority (also known as Santee Cooper) and the North Carolina Electric Membership Corporation (NCEMC), outside the service area in which CP & L sold electricity to retail customers. As a public utility, CP & L is required to secure and maintain adequate resources to meet anticipated demands for electricity in its assigned service area. The contracts provided that CP & L would guarantee service reliability to these new wholesale customers at "native load priority." A grant of native load priority would ensure that the new wholesale customers would receive power at the same level of reliability as CP & L's existing retail customers. Under this proposed arrangement, in the event of a power shortage, CP & L would not interrupt the energy supply to the wholesale customers any sooner than it would interrupt the supply to its retail customers.

Evidence obtained during the Docket No. E-2, Sub 733 proceeding revealed that in 1998, CP & L initially had indicated that it planned to add 1,500 megawatt (MW) capacity to its facilities in the 2002-2007 period. However, CP & L now planned to accelerate the construction and also increase its capacity to 1,600 MW in the 2001-2002 period. Additional evidence indicated that CP & L's demand and energy forecasts showed that, unless the requested 1,600 MW capacity was added to its system, CP & L's capacity margin would fall to a level of negative 1.4 percent by the summer of 2003, thus preventing it from being able to provide reliable service to meet the needs of its customers, including the proposed new wholesale customers. CP & L's reliability analysis showed a target capacity margin of thirteen percent would be appropriate to allow it to have sufficient capacity to meet the needs of all its customers.

On 2 November 1999, NCUC issued an order granting the requested certificates for construction of two new power facilities. The order contained additional provisions that "CP & L shall fully consider the wholesale market for future generation resource additions that will be used in whole or in part to serve retail customers whether by formal RFP [requests for proposals] or other measures that ensure a complete evaluation of the market" and that "CP & L shall ensure that its retail electric customers will not be disadvantaged in any manner, either from a quality of service or rate perspective, as a result of its participation in the wholesale power market."

In response to the issues raised by CP & L's request in Docket No. E-2, Sub 733, and because no Commission rules or guidelines existed to address situations in which "(1) a utility desires to enter into a contract to serve off-system load at native load priority and/or (2) a utility ... seeks a certificate to construct generation capacity to serve such off-system load [,]" the Public Staff requested that NCUC initiate a generic proceeding to address similar future situations that were likely to arise in the developing wholesale market. Accordingly, NCUC initiated Docket No. E-100, Sub 85 by order dated 17 November 1999. After twelve parties submitted comments, on 26 April 2000 NCUC concluded that the Docket No. E-100, Sub 85 proceeding "should be held in abeyance pending resolution of electric industry restructuring issues by the legislature or until some future event warrant[ed] further consideration of the issues."

On 22 August 2000, NCUC issued an order in Docket No. E-2, Sub 760, a proceeding that concerned a proposed merger of CP & L and Florida Progress Corporation. This order approved the merger and a concomitant issuance of securities but included several conditions. Of these, Regulatory Condition 21 provided

CP & L shall not enter into contracts for the sale of energy and/or capacity at native load priority and/or under such terms and conditions as to cause the purchasing entity to fall within the definition of "native load" in the Integration Agreement without first giving the NCUC and the Public Staff written notice 20 days in advance of such a contract being executed.

NCUC's justification for imposing this notice obligation was to provide a mechanism through which NCUC meaningfully could enforce the requirement "that CP & L's retail native load customers receive priority with respect to, and the benefits from, CP&L's existing generation and that CP & L's wholesale activities not disadvantage its retail ratepayers from either a quality of service or rate perspective." Because this proceeding was not generic, the notice provision applied only to CP&L.

CP & L did not resist the imposition of this provision. However, after the order approving the merger of CP & L and Florida Progress Corporation was issued, the Public Staff, CP & L, and NCEMC filed a motion requesting that NCUC amend the order to include Regulatory Condition 20a. This proposed modification provided that if CP&L complied with the twenty-day notice requirement in Regulatory Condition 21 and NCUC did not affirmatively order CP&L not to enter into such wholesale contracts, then "the retail native loads of these wholesale buyers that are served pursuant to said future contracts between those wholesale buyers and CP&L also shall be considered CP&L's retail native load for purposes of Conditions 19 and 20" of the order. NCUC accepted new Condition 20a by order dated 8 November 2000, amending its 22 August 2000 order.

Thereafter, pursuant to Regulatory Condition 21, on 31 January 2002, CP&L filed in Docket No. E-2, Sub 798 a twenty-day notice of intent to enter into two wholesale contracts for the sale of electricity at native load priority. When objections were raised, CP & L argued that while NCUC "retains authority to address retail rates and cost allocation issues, the Federal Power Act authorizes the Federal Energy Regulatory Commission (FERC) to regulate interstate wholesale electric power transactions" and that "FERC's authority over such transactions is exclusive `and is not shared with state regulatory agencies.'" NCUC authorized CP&L to go ahead with the proposed contracts by order dated 26 February 2002.

The substantive and jurisdictional issues raised in Docket No. E-2, Sub 798 prompted NCUC to initiate on 11 March 2002 a new proceeding, Docket No. E-100, Sub 85A, for the purpose of investigating, inter alia, NCUC's jurisdiction with respect to wholesale contracts at native load priority and the extent to which that jurisdiction either complements or conflicts with FERC's jurisdiction in that field; the extent to which NCUC's jurisdiction is preempted once a wholesale contract at native load priority is signed; and what action NCUC...