State v. Carolina Power & Light Co.

Decision Date18 November 2003
Docket NumberNo. COA02-1737.,COA02-1737.
Citation588 S.E.2d 77,161 NC App. 199
CourtNorth Carolina Court of Appeals
PartiesSTATE 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 North Carolina Power, North Carolina Municipal Power Agency Number 1 and North Carolina Eastern Municipal Power Agency, Inc., Appellees, v. CAROLINA POWER & LIGHT COMPANY, Duke Power Company, and North Carolina Electric Membership Corporation, Appellants.

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

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

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

Bailey & Dixon, L.L.P., by Ralph Mc-Donald, Raleigh, for Appellee Carolina Industrial Groups for Fair Utility Rates II.

Poyner & Spruill, L.L.P., by Michael S. Colo, Thomas R. West, and Pamela A. Scott, Raleigh, for Appellees North Carolina Municipal Power Agency Number 1 and North Carolina Eastern Municipal Power Agency, Inc.

Hunton & Williams, by Edward S. Finley, Jr., Raleigh, for Appellants.

Len S. Anthony, for Appellant Carolina Power & Light and Progress Energy.

William Larry Porter and Kodwo Ghartey-Tagoe, Charlotte, for Appellant Duke Power Company.

Robert B. Schwentker and Thomas K. Austin, Raleigh, for Appellant North Carolina Electric Membership Corporation.

TYSON, Judge.

Carolina Power & Light Company ("CP&L"), Duke Power ("Duke"), and North Carolina Electric Membership Corporation ("NCEMC") (collectively, "appellants") appeal from the 10 July 2002 and 20 August 2002 orders of the North Carolina Utilities Commission (the "Commission"). We vacate the 10 July 2002 orders and dismiss.

I. Background

On 17 November 1998, CP&L applied to the Commission for permission to construct two generating plants to produce electric energy that CP&L proposed to wholesale outside its North Carolina retail service area. By order dated 11 March 2002, the Commission initiated Docket No. E-100, Sub 85A, for the purpose of receiving comments on the jurisdictional and substantive issues concerning a public utility with native load priority ("NLP") signing wholesale contracts for power to be supplied from the same plant as it provided to in-state captive retail ratepayers. NLP obligates the seller to build necessary capacity to continue to be able to serve buyers with such priority. NLP prohibits the interruption of electric energy to wholesale buyers any sooner than interruptions to the seller's captive retail ratepayers.

These issues were first presented by Public Staff to the Commission in Docket No. 2, Sub 733. At this hearing, evidence indicated that absent the addition of the generating capacity CP&L was requesting to build, CP&L's capacity margin would fall to -1.4% by 2003. This accelerated need for additional capacity was caused in large part by the NLP wholesale contracts CP&L had entered into with two customers. On 2 November 1999, the Commission granted CP&L's requests to build two new generating plants. As a condition to this grant, CP&L was required to ensure that its retail native load customers would not be disadvantaged.

Subsequently, Public Staff requested the Commission to initiate an investigation. By order dated 17 November 1999, the Commission initiated a generic proceeding in Docket No. E-100, Sub 85. While this docket was pending, CP&L's newly-formed holding company filed an application to engage in a business transaction with Florida Progress Corporation. The Commission approved the proposed merger and issuance of securities. The Commission imposed a number of conditions on CP&L in approving this transaction. Condition 21 required that CP&L not enter into contracts for the wholesale of electric energy and/or capacity at NLP without first giving the Commission and Public Staff written notice twenty days prior to execution of contracts. Subsequent to the issuance of the Commission's order approving the merger with Florida Progress Corporation, Public Staff, CP&L, and NCEMC jointly filed proposed new Condition 20a. This Condition provided that if CP&L gave notice as required by Condition 21 and the Commission did not affirmatively order CP&L not to enter into such contracts, the loads of these wholesale buyers would be considered CP&L's retail native load. CP&L filed a twenty-day advance notice in Docket No. 2, Sub 798. Numerous objections to the appropriateness of this notice were raised. CP&L responded by arguing that the Commission had no authority to prohibit it from entering into wholesale electric energy contracts or to require notice to the Commission. In response, the Commission issued an order on 11 March 2002, concluding that it should initiate a new proceeding to consider this issue raised by CP&L.

On 10 July 2002, the Commission issued an order concluding that it has jurisdiction and authority under North Carolina law to supervise and control public utilities and to compel that reasonable public utility service be provided. The Commission concluded that it had jurisdiction to review, prior to execution, proposed wholesale electric energy contracts granting NLP supplied from the same plant as provided to retail ratepayers and to take appropriate action to protect reliable service to retail customers in North Carolina. The Commission further concluded that this jurisdiction and authority were not preempted by federal law. Appellants appeal.

II. Issues

The issues are whether: (1) the Commission's efforts to regulate wholesale electric energy contracts in interstate commerce are preempted by federal law; (2) state regulation of these wholesale contracts impermissibly burden interstate commerce; (3) the Commission is authorized under N.C. Gen. Stat.§ 62 to require the submission of contracts with wholesale purchasers for review prior to execution; and (4) the Commission erred in failing to provide guidance by which it would assess the reasonableness of the agreements over which it claims jurisdiction.

III. Federal Preemption

Appellants' first assignment of error asserts that the Commission's efforts to regulate wholesale electric energy contracts are preempted by federal law. Appellants argue that the Commission cannot regulate wholesale electric energy transactions because state jurisdiction does not attach at any point between the parties' initial contract discussions and the time the power flows. The Commission argues that N.C. Gen.Stat. § 62 grants the authority to review wholesale electric energy contracts at NLP in order to secure and protect reliable service to retail customers. The Commission further argues that this authority under N.C. Gen.Stat. § 62 is not preempted by federal law.

The threshold question in any preemption analysis is whether Congress intended federal regulation to supercede state law. Louisiana Public Service Comm'n v. FCC, 476 U.S. 355, 369, 106 S.Ct. 1890, 1898-99, 90 L.Ed.2d 369, 382 (1986). Within constitutional limits, Congress may preempt state authority by explicit terms. Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Comm'n, 461 U.S. 190, 203, 103 S.Ct. 1713, 1722, 75 L.Ed.2d 752, 765 (1983). Absent explicit preemption, the intent of Congress to preempt may also be found from a pervasive scheme of federal regulation "to make reasonable the inference that Congress left no room for the States to supplement it." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447, 1459 (1947). If Congress does not entirely displace state regulation in a specific area, state law is preempted to the extent that it: (1) actually conflicts with federal law; (2) makes compliance with both federal and state law impossible; or (3) where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Pacific Gas, 461 U.S. at 204, 103 S.Ct. at 1722, 75 L.Ed.2d at 765. Our first step is to determine whether Congress intended the regulations of the Federal Energy Regulatory Commission ("FERC") (formerly known as the Federal Power Commission ("FPC")) to displace North Carolina law. This analysis requires an examination of the nature and scope of the authority granted to the FERC by Congress. In Public Utilities Comm'n of Rhode Island v. Attleboro Steam & Electric Co., the United States Supreme Court held that the sale of electric energy at wholesale was a matter of interstate commerce to be regulated by Congress. 273 U.S. 83, 86, 47 S.Ct. 294, 295, 71 L.Ed. 549, 552 (1927). Congress had not regulated wholesale electric energy sales at that time. This decision created a gap in the law, known as the Attleboro gap. Congress enacted the Federal Power Act ("FPA") as Title II of the Public Utility Act in order to fill this gap. Subchapter II, section 824(a), also known as section 201(a), of the FPA provides:

It is declared that the business of transmitting and selling electric energy for ultimate distribution to the public is affected with a public interest, and that Federal regulation of matters relating to generation to the extent provided in this subchapter and subchapter III of this chapter and of that part of such business which consists of the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce is necessary in the public interest, such Federal regulation, however, to extend only to those matters which are not subject to regulation by the States.

16 U.S.C. § 824(a) (2001) (emphasis supplied).

Subchapter II, section 824(b), also known as section 201(b), further...

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  • State ex rel. Utilities v. Carolina Power
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