State ex rel. Utilities Comm'n v. Va. Elec. & Power Co.

• Decision Date: 17 June 2022
• Docket Number: 477A20
• Citation: 381 N.C. 499,873 S.E.2d 608
• Parties: STATE of North Carolina EX REL. UTILITIES COMMISSION, Attorney General Joshua H. Stein, Public Staff – North Carolina Utilities Commission v. VIRGINIA ELECTRIC AND POWER COMPANY d/b/a Dominion Energy North Carolina
• Court: North Carolina Supreme Court

381 N.C. 499

873 S.E.2d 608

STATE of North Carolina EX REL. UTILITIES COMMISSION, Attorney General Joshua H. Stein, Public Staff – North Carolina Utilities Commission

v.VIRGINIA ELECTRIC AND POWER COMPANY d/b/a Dominion Energy North Carolina

No. 477A20

Supreme Court of North Carolina.

Filed June 17, 2022

Public Staff – North Carolina Utilities Commission, by Chief Counsel Diane W. Downey and Staff Attorneys Lucy E. Edmondson, Nadia L. Luhr, Robert B. Josey, and Munashe Magarira, for North Carolina Utilities Commission, and Joshua H. Stein, Attorney General, by Margaret A. Force, Special Deputy Attorney General, appellees.

McGuire Woods, LLP, by Mary Lynne Grigg, Raleigh, Mark E. Anderson, W. Dixon Snukals, Nicholas A. Dantonio, Raleigh, and Bradley R. Kutrow, Charlotte, for Virginia Electric and Power Company d/b/a Dominion Energy North Carolina, appellant.

ERVIN, Justice.

¶ 1 This appeal arises from an order entered by the Commission addressing an application for a general increase in its North Carolina retail rates filed by Virginia Electric and Power Company d/b/a Dominion Energy North Carolina. In its order, the Commission authorized Dominion to calculate its North Carolina retail electric rates by, among other things, amortizing certain costs associated with the storage, disposal, and removal of coal ash waste to rates over a ten-year period while rejecting Dominion's request to be permitted to earn a return on the unamortized balance of those costs. In seeking relief from the Commission's order before this Court, Dominion argues that the Commission acted arbitrarily and capriciously by failing to utilize the same amortization period that had been employed in two earlier decisions involving Dominion and Duke Energy Corporation addressing the ratemaking implications of coal ash-related costs and by failing to allow Dominion to earn a return on the unamortized balance of those costs as had been permitted in the earlier decisions. More specifically, Dominion argues that the Commission erred by "fail[ing] to set forth any facts to support its break with its own precedent," that "[a]ny differences that exist between [Dominion] and Duke Energy warrant more favorable ratemaking treatment for" Dominion in this case, and that the Commission's failure to follow the precedent that had been established in its earlier coal ash-related decisions violated the equal protection provisions of the United States and North Carolina Constitutions. After careful consideration of Dominion's challenges to the Commission's order in light of the record and the applicable law, we affirm the Commission's order.

I. Factual Background

A. Substantive Facts

¶ 2 The application that Dominion filed with the Commission in this case sought an increase in the company's North Carolina retail rates and charges, with the costs upon which Dominion's application was predicated having included substantial amounts that Dominion had incurred in order to remediate conditions at the company's coal ash storage facilities between 1 July 2016 and 30 June 2019,¹ which included the costs of complying with both federal and state regulatory requirements that mandated the closure of existing coal ash basins and other storage areas. Among other regulations, certain Dominion facilities are subject to the "Hazardous and Solid Waste Management System—Disposal of Coal Combustion Residuals from Electric Utilities" rule, 80 Fed. Reg. 21301, or "CCR Rule," which was promulgated by the Environmental Protection Agency on 17 April 2015. According to the CCR rule, affected utilities are required to retrofit or close all of their existing coal ash ponds and to perform groundwater monitoring, engage in various sorts of corrective action, and take other steps, as necessary, to prevent the harmful substances found in coal combustion residuals from percolating into nearby groundwater. Eight of Dominion's coal-fired generating facilities and related coal ash storage facilities are subject to the CCR rule.

¶ 3 Another coal ash-related regulatory requirement that affects Dominion's operations is Virginia Senate Bill 1355, which was adopted in 2019 and requires Dominion to remove coal combustion residuals from the storage ponds used at four of Dominion's coal-fired electric generating facilities and to place them into lined, permitted landfills, with the excavated coal ash waste to be permanently housed either in fully-lined onsite landfills that have been constructed consistently with modern standards or in offsite landfills and with Dominion being required to recycle approximately 25% of excavated coal ash waste in the event that it is economically feasible to do so. In order to satisfy the requirements of the CCR Rule and other applicable state and federal laws, Dominion developed closure plans for each of the ponds and landfills to which these regulations applied. As a result, Dominion incurred a North Carolina retail amount of $21.8 million for the purpose of managing its coal ash waste during the three year period from 1 July 2016 until 30 June 2019, including "(1) $19.2 million in expenditures made ... to comply with federal and state environmental regulations associated with managing CCRs and converting or closing waste ash management facilities at seven of [Dominion]’s generation stations; and (2) $2.7 million in financing costs."

B. Prior Commission Decisions Relating to Coal Ash Remediation

¶ 4 On 31 March 2016, Dominion applied to the Commission for a general rate increase for the purpose, in part, of reflecting coal ash-related costs that it had incurred through 30 June 2016 in its North Carolina retail rates and charges. Application of Va. Elec. & Power Co., d/b/a Dominion N.C. Power, for Adjustment of Rates and Charges Applicable to Elec. Util. Serv. in N.C. , Docket No. E-22, Sub 532, 2012 WL 4764200, at *–––– – ––––, 2016 N.C. PUC LEXIS 1183, at *4-5 (N.C.U.C. Dec. 22, 2016). Subsequent to the filing of Dominion's application, the Public Staff and Dominion entered into a stipulation that provided, with respect to Dominion's coal ash-related costs, that:

(1) Amortization periods — CCR expenditures incurred through June 30, 2016, should be amortized over a five-year period. Notwithstanding this agreement, the Stipulating Parties further agree that the appropriate amortization period for future CCR expenditures shall be determined on a case-by-case basis.

(2) Deferral of future CCR expenditures — By virtue of the Commission's approval in this proceeding of a mechanism to provide for recovery of CCR expenditures incurred through June 30, 2016, the Company has authority pursuant to the August 6, 2004, Order in Docket No. E-22, Sub 420, to defer additional CCR expenditures, without prejudice to the right of any party to take issue with the amount or the treatment of any deferral of ARO costs in a rate case or other appropriate proceeding.

(3) Continuing amortization and deferral of CCR expenditures — The Company and the Public Staff reserve their rights in the Company's next general rate case to argue to the Commission (a) how the unamortized balance of deferred CCR expenditures incurred by the Company prior to June 30, 2016, and the related amortization expense should be addressed; and (b) how reasonable and prudent CCR expenditures incurred by the Company after June 30, 2016, should be recovered in rates.

(4) Overall prudence of CCR Plan — The Public Staff's agreement in this proceeding to the deferral and amortization of CCR expenditures incurred through June 30, 2016, shall not be construed as a recommendation that the Commission reach any conclusions regarding the prudence and reasonableness of the Company's overall CCR plan, or regarding any specific expenditures other than the ones to be recovered in this case.

Id. at *137-39. After the conclusion of an evidentiary hearing, the Commission approved the portion of the parties’ stipulation relating to coal ash-related costs, determining that Dominion was

allowed to defer the costs of its remediation of coal combustion residuals through June 30, 2016, and shall be allowed to amortize those deferred costs over a period of five years. The Company submitted substantial evidence that its costs incurred to comply with federal and state law regarding disposal of CCRs were prudently and reasonably incurred.... However, the Commission's approval of [Dominion]’s CCR cost deferral is based on the particular facts and circumstances presented in this docket and, therefore, is not precedent for the treatment of CCR costs in any future proceedings.

In addition, the Commission finds and concludes that the treatment of CCR costs incurred by [Dominion] after June 30, 2016, shall be reviewed in a future rate case, subject to the provisions of the Stipulation regarding future amortization periods, deferral of future CCR expenditures, continuing amortization and deferral of CCR expenditures, and any other arguments or positions presented by the Company, the Public Staff, or another party at that time. Further, the Commission's determination in this case shall not be construed as determining the prudence and reasonableness of the Company's overall CCR plan, or the prudence and reasonableness of any specific CCR expenditures other than the ones deferred and authorized to be recovered in this case.

Id. at *152-53. Based upon these findings, the Commission approved the stipulation between Dominion and the Public Staff "in its entirety," so that Dominion was allowed to amortize the coal ash-related costs that it had incurred prior to 30 June 2016 over a period of five years and to earn a return on the unamortized balance. Id. at *374.

¶ 5 On 1 June 2017, Duke Energy Progress filed an application for a general rate increase that included, among other things, a request to account for certain coal ash-related remediation costs in the calculation of its North Carolina retail rates and charges. State ex rel. Utils. Comm'n v. Stein , 375 N.C. 870, 880, 851...