State Ex Rel. Utilities Commission v. Edmisten ( 1975 )

217 S.E.2d 201 (1975) 26 N.C. App. 662

STATE of North Carolina ex rel. UTILITIES COMMISSION, Duke Power Company, Applicant, Chemstrand Research Center, Inc., et al., Intervenors,
v.
Rufus L. EDMISTEN, Attorney General, and Great Lakes Carbon Corporation, Inc., Intervenors.

No. 7510UC109.

Court of Appeals of North Carolina.

August 6, 1975.

Atty. Gen. Rufus L. Edmisten and Deputy Atty. Gen. I. Beverly Lake, Jr. and Jerry L. Rutledge, Associate Atty., Raleigh, for intervenor-appellant Atty. Gen. of North Carolina.

Byrd, Byrd, Ervin & Blanton, P. A. by Robert B. Byrd, Morganton, for intervenor-appellant Great Lakes Carbon Corp.

Steve C. Griffith, Jr., George M. Thorpe and Kennedy, Covington, Lobdell & Hickman by Clarence W. Walker and John M. Murchison, Jr., Charlotte, for applicant-appellee Duke Power Co.

Commission Atty. Edward B. Hipp and Associate Commission Atty. John R. Molm, Raleigh, for appellee North Carolina Utilities Commission.

HEDRICK, Judge.

While the Intervenors challenge the orders of 19 December 1973, 10 September 1974 and the final order of 10 October 1974 in various respects, the primary question for resolution on this appeal is whether a fuel adjustment clause is a valid device to be used in fixing the rate Duke can charge for its service as a public utility regulated by Chapter 62 of the General Statutes of North Carolina.

The fuel adjustment clause approved by the Commission in its 10 October 1974 order permits Duke to adjust its monthly bills for service by means of the use of a formula, which takes into consideration the cost of fossil fuel used to generate electric power. The clause is designed to pass through the increased cost of fossil fuel to the retail user in the form of a surcharge for each kilowatt hour consumed and is not designed to increase Duke's rate of return. As the cost of fossil fuel during the second month preceding the current billing month fluctuates above or below an established base cost of the fuel, the current bills of Duke's retail customers are increased or decreased per kilowatt hour billed by an amount determined by application of the formula.

In their brief, Intervenors review numerous sections of Chapter 62 which they argue will be abrogated if Duke is permitted to implement a fuel adjustment clause. Specifically, Intervenors contend that it is the duty of the Commission "to fix or approve the PRECISE rates and charges, which are to be known quantitatively and . . . which will produce the precise amount of revenue which the Commission determines is necessary to cover the utility's cost of service and produce a fair return to its stockholders on its investment." A fuel adjustment formula, it is argued, cannot qualify as either a "rate" or "schedule of rates"; and by implementing the fuel clause, the Commission has permitted Duke to unilaterally change its rates from month to month without investigation or hearing and without the Commission otherwise taking into consideration those matters required by G.S. § 62-133. Thus, the main thrust of Intervenors' argument is simply that the Commission has exceeded its delegated authority by using the fuel clause formula as a means of fixing rates.

Resolution of this question requires an examination of the applicable statutes in light of the following legislative policy, as declared in G.S. § 62-2:

"Declaration of policy.—Upon investigation, it has been determined that the rates, services and operations of public utilities, as defined herein, are affected with the public interest and it is hereby declared to be the policy of the State of North Carolina to provide fair regulation of public utilities in the interest of the public, to promote the inherent advantage of regulated public utilities, to promote adequate, economical and efficient utility services to all of the citizens and residents of the State, to provide just and reasonable rates and charges for public utility services without unjust discrimination, undue preferences or advantages, or unfair or destructive competitive practices, to encourage and promote harmony between public utilities and their users, to foster a statewide planning and coordinating program to promote continued growth of economical public utility services, to cooperate with other states and with the federal government in promoting and coordinating interstate and intrastate public utility services, and to these ends, to vest authority in the Utilities Commission to regulate public utilities generally and their rates, services and operations, in the manner and in accordance with the policies set forth in this Chapter."

Under Chapter 62 of the General Statutes, the Commission is given the power and the duty to fix just and reasonable rates for all public utilities subject to its jurisdiction. See, G.S. § 62-32; G.S. § 62-130. These rates are to be fair both to the public utility and to the customer. G.S. § 62-133(a).

G.S. § 62-3(24) defines a "rate" as follows:

"`Rate' means every compensation, charge, fare, tariff, schedule, toll, rental and classification, or any of them, demanded, observed, charged or collected by any public utility, for any service product or commodity offered by it to the public, and any rules, regulations, practices or contracts affecting any such compensation, charge, fare, tariff, schedule, toll, rental or classification."

It is our opinion that this definition is worded in such a broad manner as to encompass the use of a formula. Furthermore, the fact that the formula must be computed each month does not render it so imprecise as to be statutorily impermissible. In City of Norfolk v. Virginia Electric and Power Co., 197 Va. 505, 516, 90 S.E.2d 140, 148 (1955), wherein the Supreme Court of Appeals of Virginia upheld the authority of the State Corporation Commission to approve a "purchased gas adjustment provision" (an escalator clause), we find the following:

"The proposed escalator clause is nothing more or less than a fixed rule under which future rates to be charged the public are determined. It is simply an addition of a mathematical formula to the filed schedules of the Company under which the rates and charges fluctuate as the wholesale cost of gas to the Company fluctuates. Hence, the resulting rates under the escalator clause are as firmly fixed as if they were stated in terms of money."

Likewise, from a reading of the decisions of our Supreme Court in Utilities Commission v. Area Development, Inc., 257 N.C. 560, 126 S.E.2d 325 (1962); Utilities Comm. v. Light Co., 250 N.C. 421, 109 S.E.2d 253 (1959), and Utilities Commission v. Municipal Corporations, 243 N.C. 193, 90 S.E.2d 519 (1955), it appears that fuel clauses have been implemented by the Commission as a valid part of a utility's basic rate structure on several occasions in the past. We therefore conclude that the fuel adjustment clause formula qualifies as a valid part of a rate or rate schedule within the meaning of Chapter 62 of the General Statutes.

We must next consider, however, whether the Commission followed the proper procedure in implementing the fuel clause.

G.S. § 62-134(b) provides:

"Whenever there is filed with the Commission by any public utility any schedule stating a new or revised rate or rates, the Commission may, either upon complaint or upon its own initiative, upon reasonable notice, enter upon a hearing concerning the lawfulness of such rate or rates. Pending such hearing and the decision thereon, the Commission, upon filing with such schedule and delivering to the public utility affected thereby a statement in writing of its reasons therefor, may, at any time before they become effective, suspend the operation of such rate or rates, but not for a longer period than 270 days beyond the time when such rate or rates would otherwise go into effect. If the proceeding has not been concluded and an order made within the period of suspension, the proposed change of rate shall go into effect at the end of such period. After hearing, whether completed before or after the rate goes into effect, the Commission may make such order with respect thereto as would be proper in a proceeding instituted after it had become effective."

The record discloses that on 30 November 1973 Duke filed with the Commission its request for a coal adjustment clause and attached thereto schedules of the electric rates then on file with the Commission and a schedule showing the coal clause formula which it proposed to put into effect. Pursuant to G.S. § 62-134(b), Duke further requested that the Commission allow the coal clause to become effective, pending hearing and final determination, on bills rendered on and after 1 January 1974. On 19 December 1973 the Commission entered an order permitting the coal clause to go into effect on an interim basis on bills rendered on and after 19 January 1974 and consolidated the case for hearing with Docket No. E-7, Sub. 159, Duke's pending general rate increase application. In so doing, the Commission, in our opinion, correctly followed the statutory procedure outlined in G.S. § 62-134. See Utilities Comm. v. Morgan, Attorney General, 16 N.C.App. 445, 192 S.E.2d 842 (1972).

Intervenors excepted to the interlocutory orders of 19 December 1973 and 10 September 1974. They also excepted to various findings and conclusions made by the Commission in its final order of 10 October 1974. We have carefully considered all of these exceptions and the arguments advanced by the Intervenors in support thereof. However, since all of these exceptions and contentions relate to the single issue of whether the Commission has the statutory authority to fix rates by means of a fossil fuel clause, no useful purpose will be served by any elaboration by us on these individual exceptions. Suffice it to say, we have carefully considered the entire record as presented and find it is sufficient to support the findings and conclusions made by the Commission, and these findings and conclusions support the order of 10 October 1974 which is

Affirmed.

BRITT, J., concurs.

MARTIN, J., dissents.

MARTIN, Judge (dissenting).

The action of the Commission, in undertaking to determine the issues in this case and to render its decision, without any notice or hearing, is directly in conflict with its statutory authority in Chapter 62 of the General Statutes. Consequently, the requirements of procedural due process have not been fulfilled in this case. The fact that the utility itself has no control over certain of its costs does not, under our law, justify its exemption from regular rate procedures. The exigency of the situation, however meritorious, is not enough to sustain a deviation from statutory requirements. For this reason I vote to reverse.