Member Article

On April 12, 2013, the N.C. Supreme Court stepped into the ongoing dispute regarding the 7.2 percent rate increase sought by Duke Energy and approved by the North Carolina Utilities Commission (NCUC) in January 2012. Duke initially sought a 12 percent rate increase, but eventually entered into a settlement with the North Carolina Public Staff, setting the rate at 7.2 percent. Duke contended that it needed the higher rates to cover $4.8 billion in costs for new power plants and pollution controls.

North Carolina Attorney General Roy Cooper appealed the settlement before the N.C. Supreme Court, arguing that the NCUC failed to balance the interests of both consumers and investors. As we reported previously, the AG’s challenge centered on the return on equity, or ROE, which is the profit margin utilities are allowed to earn on capital investments. The NCUC allowed Duke a 10.5 percent ROE, an amount the AG said is too high considering the effects of the rate increase on consumers. The increase, which took effect a month after the NCUC’s January 2012 decision, added an average of $7 to the average monthly residential electric bill. The AG argued that the NCUC’s order was legally deficient because it was not supported by competent, material, and substantial evidence, did not undertake an independent analysis, and did not include sufficient conclusions and reasoning.

The Court agreed and remanded the case to the NCUC, ruling that the NCUC failed to “make an independent determination regarding the proper ROE based on appropriate findings of fact that balance all the available evidence.” The Court provided the NCUC with “guidance on remand,” reminding the NCUC that in making its ROE determination, under N.C. Gen. Stat. § 62-33, the NCUC “must make findings of fact regarding the impact of changing economic conditions on customers when determining the proper return for a public utility.”

Duke had argued that state law requires the NCUC to consider the changing economy only as it relates to shareholders and not consumers. The Court disagreed, stating, “it is apparent that customer interests cannot be measured only indirectly or treated as mere afterthoughts and that Chapter 62’s ROE provisions cannot be read in isolation as only protecting public utilities and their shareholders.” Justice Barbara Jackson continued, “[i]nstead, it is clear that the commission must take customer interests into account when making an ROE determination.”

Following the Supreme Court’s ruling, the AG filed a Motion to Stay Rate Increase before the NCUC that would effectively cancel the rate increase until regulators make a new ruling in the case. Duke responded in its own filing submitted May 3, 2013, arguing that the AG exaggerated the requirements of the Supreme Court’s decision and that a stay of the increase comes too late and cannot be reasonably imposed. The AG replied to Duke’s response on May 8, 2013 and contends that the NCUC cannot “simply add a few sentences to its prior order in order to comply with” the Supreme Court’s order. The rate increase is now back in the hands of the NCUC, and for now, it stays in effect. The docket number is E-7 Sub 989.