State ex rel. Utils. Comm'n v. Virginia Elec.

IN THE SUPREME COURT OF NORTH CAROLINA
2022-NCSC-75
No. 477A20
Filed 17 June 2022
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
Appeal as of right pursuant to N.C.G.S. § 62-90 and N.C.G.S. § 7A-29(b) from
a final order of the North Carolina Utilities Commission entered on 24 February 2020
in Docket No. E-22, Sub 562 and 566. Heard in the Supreme Court on 5 January
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, Mark E. Anderson, W. Dixon
Snukals, Nicholas A. Dantonio, and Bradley R. Kutrow, 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
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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.
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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
1Coal ash, or coal combustion residuals (CCR), is the by-product generated when coal
is burned for the purpose of generating electricity. Historically, coal combustion residuals
have been stored either in wet pond impoundments or in dry landfills.
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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.”
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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,
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
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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.
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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 (2020). Similarly, on
25 August 2017, Duke Energy Carolinas filed an application with the Commission
seeking a general rate increase that reflected certain costs relating to the closure of
coal ash basins and other coal ash-related compliance costs in the calculation of its
North Carolina retail rates and charges. Id. at 880–81. The Public Staff, the
Attorney General, the Sierra Club, and several other parties intervened in these
proceedings for the purpose of arguing that the Commission should not allow Duke
to include some or all of these coal ash-related costs in the calculation of its North
Carolina retail rates and charges, id. at 881, in light of Duke’s alleged
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mismanagement of its coal ash basins, with the Public Staff having urged the
Commission to adopt an “equitable sharing” plan that would have resulted in a 50-50
sharing of these costs between Duke’s shareholders and ratepayers. Application by
Duke Energy Progress, LLC, for Adjustment of Rates and Charges Applicable to Elec.
Util. Serv. in N.C.; Application by Duke Energy Carolinas, LLC, for Adjustment of
Rates and Charges Applicable to Elec. Util. Serv. in N.C., 2021 N.C. PUC LEXIS 723,
*1 (N.C.U.C. June 25, 2021). After conducting an evidentiary hearing, the
Commission entered orders allowing Duke Energy Progress and Duke Energy
Carolinas to amortize the coal ash-related costs that they had accumulated between
2015 and 2017 over a five-year period, and to earn a return on the unamortized
balance of these costs. Id. at *1–2. On the other hand, the Commission imposed a
$30 million mismanagement penalty on Duke Energy Progress and a $70 million
mismanagement penalty on Duke Energy Carolinas as a result of the manner in
which the companies had handled their coal combustion residuals. Id. at *2.
¶6 After the entry of these orders, the Attorney General, the Public Staff, and the
Sierra Club sought relief from the Commission’s orders before this Court. Stein, 375
N.C. 870. As is discussed in more detail below, this Court determined in Stein that
the Commission had the authority to allow Duke Energy to amortize coal ash-related
costs in its North Carolina retail rates and charges and to allow the recovery of a
return on the unamortized balance of those costs pursuant to N.C.G.S. § 62-133(d)
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given that the enactment of the CCR Rule and other state laws regulating coal ash
storage and disposal had “forced [Duke Energy] to confront an ‘extraordinary and
unprecedented’ issue involving the potential expenditure of billions of dollars in order
to address a significant environmental problem.” Id. at 926. On the other hand, this
Court also found that the Commission was “required to consider all material facts of
record” in the course of exercising its authority to consider “other facts” pursuant to
N.C.G.S. § 62-133(d), that the Commission had failed to consider certain facts
“pertaining to alleged environmental violations,” and that both cases should be
remanded to the Commission for the purpose of reconsidering the Public Staff’s
“equitable sharing” proposal in light of a correct understanding of the applicable law.
Id. at 931–33.
¶7 After this Court’s decision in Stein, Duke Energy entered into a settlement
agreement with the Public Staff, the Attorney General, and the Sierra Club, 2021
N.C. PUC LEXIS 723, *10, for the purpose of “resolv[ing] not only the 2017 rate cases
on remand from the Court but also the 2019 rate cases and future CCR costs to be
incurred through” 2030 for both Duke Energy Progress and Duke Energy Carolinas.
Id. at *27. In this settlement, Duke agreed to a significant reduction in the amount
of coal ash-related costs that were to be included in the calculation of the companies’
rates, with “the net present value of the savings to [ratepayers] from forgone CCR
cost recovery (including applicable financing costs) [having] amount[ed] to more than
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$900 million,” id. at *29, including a $261,000,000 reduction in the amount of coal
ash-related costs included in Duke Energy Progress’ North Carolina retail rates, a
$224,000,000 reduction in the amount of coal ash-related costs included in Duke
Energy Carolina’s North Carolina retail rates, “future reduced recovery of CCR costs
through . . . 2030 of $162 million [for Duke Energy Progress] and $108 million [for
Duke Energy Carolinas], and other additional customer-savings provisions.” Id. at
*30. On 25 June 2021, the Commission entered an order approving the proposed coal
ash cost-related settlement. Id. at *37.
C. Procedural History of the Current Dominion Rate Case
¶8 On 27 February 2019, Dominion filed a Notice of Intent to File a General Rate
Application with the Commission in Docket No. E-22, Sub 562. On 29 March 2019,
Dominion filed an application with the Commission for the purpose of seeking a
$26,958,000 increase in its North Carolina retail rates and charges. On 17 September
2019, Dominion and the Public Staff entered into a stipulation resolving all of the
matters at issue in this case with the exception of “issues associated with coal
combustion residuals (CCR) costs.” The Commission conducted an evidentiary
hearing for the purpose of resolving the issues that remained in dispute between the
parties.
¶9 In the course of a hearing held before the Commission for the purpose of
receiving expert witness testimony on 23 September 2019, Jason E. Williams testified
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on behalf of Dominion that the Company had “historically managed CCR consistently
with evolving industry standards and regulatory requirements”; that, by 1988, 80%
of the coal ash generated at Dominion’s coal-fired generating facilities was stored in
surface impoundments or landfills; and that the actions that the Company had taken
“to comply with the federal and state requirements have been reasonable and
prudent.” Jay Lucas, on the other hand, testified for the Public Staff for the purpose
of describing its “equitable sharing recommendation,” pursuant to which Dominion
shareholders would be required to cover 40% of the relevant coal ash costs while the
remaining 60% would be included in calculating Dominion’s North Carolina retail
rates.
¶ 10 According to Mr. Lucas, while the Public Staff’s equitable sharing plan was not
predicated upon the use of a prudence standard, pursuant to which 100% of the
company’s coal ash-related costs would have been disallowed, at least in his opinion,
the agency’s proposal made sense in light of the magnitude and nature of Dominion’s
coal ash remediation costs and the extent of Dominion’s culpability for the resulting
environmental contamination given the company’s “fail[ure] to improve its CCR
management practices despite the evolving knowledge of the risk of unlined CCR
storage at the time,” which indicated that “wet storage of CCR in unlined surface
impoundments was detrimental to the quality of surrounding groundwater and
surface water.” Mr. Lucas described multiple known exceedances of the applicable
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groundwater contaminant limits at several of Dominion’s coal ash sites, including an
exceedance at the company’s Possum Point facility in the 1980s; elevated trace metal
levels in the groundwater, surface water, and soil surrounding the Chisman Creek
facility; and 548 instances of groundwater exceedances which resulted from
Dominion’s failure to prevent the leaching of coal combustion residuals from its
surface impoundments. In addition, Mr. Lucas described six different instances in
which environmental groups, local government entities, and property owners had
initiated legal proceedings against Dominion as the result of pollution stemming from
the leaching of coal ash contaminants, including arsenic, into surface waters from wet
impoundments. When asked why the Public Staff’s proposed “equitable sharing” plan
in this case was more favorable to Dominion than the plan that the Public Staff had
proposed in the 2017 Duke Energy rate cases, Mr. Lucas responded that Dominion
had “not been found guilty of criminal negligence with respect to its management of
waste coal ash facilities” and that there was “less evidence” of harmful environmental
impacts than had been the case with respect to Duke Energy’s facilities.
¶ 11 In the same vein, Public Staff witness Michael C. Maness defended the Public
Staff’s “equitable sharing” proposal on the grounds that:
[t]he total amount of the costs is large (approximately $377
million on a system level and approximately $22 million on
a North Carolina retail level), which amounts to
approximately $179 per North Carolina retail customer, or
$60 per year per North Carolina retail customer, before
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considering the impact of including the unamortized
amount in rate base.
[Dominion] will be incurring significant additional costs in
the future related to the CCR Excavation Act (Virginia
Senate Bill 1355).
The incurrence of these costs will not provide any benefits
to customers in terms of additional electric service or
improvements to service.
The incurrence of CCR costs has not been the result of
economic analysis that pointed toward an action that
would be economically advantageous to ratepayers.
. . . [T]he Commission has implemented equitable sharing
in several past circumstances involving incurred costs that
did not provide any future benefits to retail customers.
According to Mr. Maness, the Public Staff’s proposal that ratepayers bear 60% of the
costs and that shareholders bear 40% of the costs was appropriate in light of the
manner in which Dominion had managed its coal combustion residuals and the
nature and magnitude of the resulting costs and that the resulting “equitable
sharing” could be achieved by precluding Dominion from earning a return on the
unamortized balance of its coal ash-related costs and by amortizing the costs over an
eighteen-year period, with it being likely that “the Public Staff would . . . recommend
some level of sharing even in the absence of environmental culpability, due to the
magnitude and/or nature of the costs.”
¶ 12 In rebuttal, Mr. Williams denied that Dominion had failed to properly manage
its coal combustion residuals, asserting that “the Public Staff has acknowledged that
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it is not capable of or willing to identify a specific action the Company could have
taken in the past,” that “neither the Company nor the Public Staff could find any
example prior to 2016 where the Public Staff had raised any concerns regarding
groundwater or surface water issues,” and that the Public Staff should refrain from
acting as an environmental regulator in the course of judging the prudence of the
Company’s past actions. Based upon this logic, Mr. Williams concluded that the
Public Staff’s proposal to disallow admittedly prudent and reasonable costs on the
basis of “equitable sharing” was “shortsighted and could lead to an unpredictable and
unhealthy regulatory environment for utilities and their customers.”
¶ 13 On 24 February 2020, the Commission entered an order in which it found as
fact that:
Recovery of CCR Costs
49. Since its last rate case, on a North Carolina
retail jurisdictional basis, from the period beginning July
1, 2016 and running through June 30, 2019 (the Deferral
Period), [Dominion] has incurred $21.8 million in costs
associated with the management of CCRs (the CCR Costs).
The $21.8 million includes: (1) $19.2 million in
expenditures made during the Deferral Period 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
incurred during the Deferral Period.
50. The record includes substantial evidence that,
particularly where CCRs were being managed in lined
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landfills, the CCR Costs incurred during the Deferral
Period were prudently incurred.
51. Although the Public Staff offered evidence
challenging the manner in which [Dominion] had managed
CCRs and its various CCR waste management facilities
over several decades, insofar as the specific CCR Costs
incurred during the Deferral Period are concerned, while
the record contains evidence that identifies instances of
imprudence, the record contains insufficient evidence to
permit the Commission to quantify the effects of imprudent
actions on ratepayers.
52. [Dominion] is entitled to recover the CCR
Costs established in this general rate case, in the manner
and subject to the conditions as set forth herein.
In addition, the Commission noted that the order that it had entered in connection
with the Company’s 2016 rate case did “not have precedential value with respect to
the CCR issues in this case” because the stipulation between Dominion and the Public
Staff that had been approved in that proceeding provided that:
[t]he 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.
Moreover, the Commission noted that it had explicitly stated that its order in that
proceeding should “not be construed as determining the prudence and reasonableness
of [Dominion]’s overall CCR plan, or the prudence and reasonableness of any specific
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CCR expenditures other than the ones deferred and authorized to be recovered in this
case,” Application of Va. Elec. & Power Co., Ord. Approving Rate Increase and Cost
Deferrals and Revising PJM Regul. Conditions, Docket No. E-22, Sub 532, at *3
(N.C.U.C. Dec. 22, 2016), and that it would be “inappropriate to give the 2016
[Dominion] Rate Case Order precedential effect” in view of the fact that the evidence
that had been presented in that proceeding was “far less extensive” than the evidence
that had been presented in this proceeding given that Dominion and the Public Staff
had entered into a stipulation in the earlier proceeding, so that the “issues of
prudence and reasonableness were not fully litigated and no significant evidentiary
record was developed.”
¶ 14 According to the Commission, Dominion had made a prima facie showing that
the coal ash-related costs that it had incurred between 1 July 2016 and 30 June 2019
had been prudently incurred in light of the fact that the company had largely
discontinued wet storage of coal ash and moved towards storing dry ash in lined
landfills. On the other hand, the Commission noted that, even though the Public
Staff had not “expressed [an] opinion on the prudence and reasonableness of the [coal
ash c]osts,” one of its witnesses had “testified to a number of deficiencies in
[Dominion]’s historical management of [coal ash] and the resulting environmental
impacts,” such as late and deficient groundwater monitoring, the decision to ignore a
recommendation to construct a dry waste disposal facility at one of the coal ash sites,
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and groundwater data showing exceedances of certain elements and heavy metals
such as barium, cadmium, copper, iron, manganese, nickel, phenols, potassium,
sodium, and zinc at one of the coal ash sites. In addition, the Commission noted the
existence of evidence that “call[ed] into question” the prudence of the manner in
which Dominion had incurred certain coal ash-related costs, such as the fact that,
prior to the adoption of the CCR Rule, Dominion had planned to permanently store
some of its coal ash in unlined wet ponds and to cover the ponds with soil, a practice
that was likely to cause hydraulic pressure in the ponds and facilitate the continued
migration of coal ash-related pollutants into the surrounding groundwater.
¶ 15 In finding that Dominion’s coal ash costs had been prudently incurred, the
Commission noted that, “while the evidence demonstrates a difference of opinion or
dispute as to whether certain [of Dominion]’s actions, omissions or decisions were
prudent,” neither party had “presented evidence to attempt to quantify which, if any,
of the [coal ash c]osts might have been avoided if [Dominion] had used a different
approach to managing [coal ash recovery] at some point during the last several
decades” and stated that
it would be very difficult to go back and recreate the timing
and cost of such different approaches. For example, one
could argue that [Dominion] should have converted all of
its coal-fired plants to dry ash handling at least at some
time during the 1990s. However, to quantify the costs and
benefits of this strategy would require establishing, with
some level of certainty, the costs that [Dominion] would
have incurred for such conversions, and the savings in
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present [coal ash] remediation costs that would have
resulted from such conversions. In addition, [Dominion]
could have been entitled to recover those conversion costs,
plus a return on its increased rate base, from its ratepayers
over the past several decades. On the present record, the
Commission has no substantial evidence on which to make
such determinations. Thus, based on the foregoing, . . . the
Commission concludes that the [coal ash c]osts were
prudently incurred.
¶ 16 After reaching this conclusion, the Commission determined that it would be
“just and reasonable” to deny Dominion a return on the unamortized balance of the
coal ash costs that it had incurred between 1 July 2016 and 30 June 2019 and to
permit the amortization of those costs over a ten-year period. In support of this
result, the Commission concluded that:
Ratemaking Treatment of Recoverable CCR Costs
53. Just and reasonable rates will be achieved by
excluding from rate base the CCR Costs and amortizing
recovery of the CCR Costs over a period of ten years.
54. It is reasonable, based on the evidence in the
record in this proceeding, for [Dominion] to recover its
financing costs on the CCR Costs incurred during the
Deferral Period, up to the effective date of rates approved
pursuant to this Order, calculated at [Dominion]’s
previously authorized weighted average cost of capital.
55. It is reasonable, based on the evidence in the
record in this proceeding for annual compounding to be
used in calculating the financing costs of deferred costs,
including the CCR Costs, during the Deferral Period.
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As further support for this determination, the Commission reasoned that Dominion
should not be allowed to earn a return on the unamortized balance of coal ash costs
in light of:
(1) the Commission’s obligation to set just and reasonable
rates that are fair to both the utility and the ratepayer in
accordance with N.C.G.S. § 62-133(a); (2) the Commission’s
historical treatment of extraordinary, large costs, such as
[Manufactured Gas Plant] environmental remediation
costs and plant cancellation costs; and (3) the
Commission’s obligation to consider all other material facts
of record that will enable it to determine what are just and
reasonable rates in accordance with N.C.G.S. § 62-133(d).
More specifically, the Commission noted that, when Public Service Company of North
Carolina, Inc., had sought recovery of substantial costs incurred for the purpose of
remediating hazardous by-products that were created at manufactured natural gas
plants, it had determined that, while the utility should be authorized to amortize its
prudently incurred remediation costs to rates over a period of years, the company
should not be allowed earn a return on the unamortized balance of those costs on the
grounds that such a result struck the “proper balance between ratepayer and
shareholder interests” and gave the utility “an incentive to minimize clean-up costs
and to pursue contributions from third parties where appropriate.” In addition, the
Commission cited to a 1983 order in a proceeding in which Dominion had sought to
include costs associated with the abandonment of certain proposed nuclear
generating facilities in the calculation of its North Carolina retail rates, Application
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of Va. Elec. and Power Co. for Auth. to Adjust and Increase Its Elec. Rates and
Charges, No. E-22, Sub 273, 73 N.C.U.C. Orders & Decisions 343, 355 (Dec. 5, 1983),
and in which the Commission had concluded that, while the relevant nuclear plant
abandonment costs had been prudently incurred and should be amortized to rates,
Dominion should not be allowed to earn a return on the unamortized balance of those
costs on the theory that “[a] middle ground must be found on which the Company
bears some of the risk of abandonment and the ratepayer is protected from
unreasonably high rates.” Id.
¶ 17 Furthermore, the Commission concluded that it had a “well-established history
of allocating prudently incurred costs, specifically in the context of extraordinary,
large costs such as environmental clean-up and plant cancellation costs, between
ratepayers and shareholders in order to strike a fair and reasonable balance” and
that “fairness dictate[d] this same treatment” in the present proceeding. According
to the Commission, “[a] number of material facts in evidence call[ed] into question
the prudence” of Dominion’s coal ash-related costs, including the occurrence of
groundwater violations and its refusal to build a dry waste storage facility at the
Possum Point plant contrary to the standards for coal ash storage that the
Environmental Protection Agency had adopted by that time. The Commission further
noted that the total amount of coal ash-related costs that Dominion had incurred
during the relevant period was “significant” and would affect the rates paid by end-
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user customers. Finally, the Commission concluded that allowing Dominion to earn
a return on the unamortized balance of the relevant coal ash-related costs would
“violate[ ] the matching principle and raise[ ] intergenerational equity concerns” by
requiring current customers to pay for the remediation of waste associated with past
power generation. As authorized by N.C.G.S. § 62-133(d), the Commission stated
that it had “consider[ed] these material facts of record when striking the appropriate
balance between shareholder and customer interests to set just and reasonable rates”
and concluded that “[a] fair and reasonable balance is found which requires
[Dominion]’s shareholders to bear some of the risk of clean-up costs associated with
CCR liabilities and protects the ratepayers from unreasonably high rates.”
¶ 18 In determining that Dominion’s coal ash costs should be amortized to rates
over a period of ten years, the Commission found that Dominion’s “proposed five-year
amortization period does not achieve a fair balance in light of the evidence in the
record, the magnitude and the nature of the costs involved and the rate impact to
customers.” On the other hand, the Commission declined to accept the Public Staff’s
proposed eighteen-year amortization period on the grounds that a ten-year
amortization period struck a “more appropriate and fairer balance” and was
consistent with the Commission’s “historical treatment of major plant cancellations”
as evidenced by the fact that the Commission had “consistently used a write-off period
of 10 or fewer years for all major plant cancellations.” Application of Va. Elec. and
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Power Co. for Auth. to Adjust and Increase Its Elec. Rates and Charges, No. E-22, Sub
273, 73 N.C.U.C. Orders & Decisions 343, 355. As a result, the Commission
authorized the amortization of the coal ash-related costs that Dominion had incurred
between 1 July 2016 and 30 June 2019 to rates over a ten year period while
disallowing Dominion’s request to be allowed to earn a return on the unamortized
balance of those costs.2 Dominion noted an appeal to this Court from the
Commission’s order.3
II. Analysis
A. Standard of Review
¶ 19 According to N.C.G.S. § 62-94 (2021), the applicable standard of review utilized
by this Court in reviewing Commission orders requires us to
decide all relevant questions of law, interpret
constitutional and statutory provisions, and determine the
meaning and applicability of the terms of any Commission
action. The court may affirm or reverse the decision of the
Commission, declare the same null and void, or remand the
2 Before an appeal was noted to this Court from the Commission’s order, both
Dominion and the Public Staff filed motions seeking reconsideration and clarification of the
Commission’s decision. In upholding its decision to refrain from awarding Dominion a return
on the unamortized balance of the deferred coal-ash-related costs, the Commission stated
that it had “fully considered all of the facts in evidence, applied the various provisions of the
Act to those facts in evidence and reached its decisions . . . in the interest of achieving just
and reasonable rates.” Similarly, in upholding its decision to require the use of a ten-year
amortization period, the Commission stated that it had “fully considered all of the facts in
evidence and the applicable precedents in reaching its decision to set the amortization period
for CCR Costs at ten years.”
3 Although the Attorney General initially noted a cross-appeal from the Commission’s
order, he subsequently sought and obtained the entry of an order dismissing this cross-
appeal.
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case for further proceedings; or it may reverse or modify
the decision if the substantial rights of the appellants have
been prejudiced because the Commission's findings,
inferences, conclusions or decisions are:
(1) In violation of constitutional provisions, or
(2) In excess of statutory authority or jurisdiction of the
Commission, or
(3) Made upon unlawful proceedings, or
(4) Affected by other errors of law, or
(5) Unsupported by competent, material and
substantial evidence in view of the entire record as
submitted, or
(6) Arbitrary or capricious.
N.C.G.S. § 62-94(b). A Commission decision is “arbitrary and capricious when, among
other things, [it] indicate[s] a lack of fair and careful consideration or fail[s] to display
a reasoned judgment.” State ex rel. Utils. Comm’n v. Thornburg, 314 N.C. 509, 515
(1985). In deciding whether to affirm, reverse, invalidate or remand the
Commission’s decision for further proceedings, we are required to review “the whole
record or such portions thereof as may be cited by any party” and take “due account”
of “the rule of prejudicial error.” N.C.G.S. § 62-94(c).
¶ 20 According to well-established North Carolina law, “the rates fixed or any rule,
regulation, finding, determination, or order made by the Commission” are considered
“prima facie just and reasonable.” Id. at § 62-94(e). For that reason,
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[t]he burden is on the appellant to demonstrate an error of
law in the proceedings. To be arbitrary and capricious, the
Commission’s order would have to show a lack of fair and
careful consideration of the evidence or fail to display a
reasoned judgment.
State ex rel. Utilities Comm’n v. Piedmont Nat. Gas Co., 346 N.C. 558, 573 (1997)
(citations omitted). A reviewing court examines the Commission’s findings of fact for
the purpose of determining whether they are supported by “competent, material and
substantial evidence,” State ex rel. Utils. Comm’n v. Cooper, 367 N.C. 444, 448 (2014),
with the Commission being “responsible for determining the weight and credibility to
be afforded to the testimony of any witness, including any expert opinion testimony,”
and with the Commission’s “decision being entitled to great deference given that its
members possess an expertise in utility ratemaking.” State ex rel. Utilities Comm’n
v. Stein, 375 N.C. at 900. “Assuming adequate findings of fact, supported by
competent, substantial evidence, the Commission’s determination, reached pursuant
to the mandate of N.C.G.S. § 62-133 and to the statutory procedural requirements,
may not be reversed even if [this Court] would have reached a different conclusion
upon the evidence.” Id. (cleaned up) (quoting State ex rel. Utils. Comm’n v. Morgan,
277 N.C. 255, 266–67 (1970)). The Commission’s conclusions of law are, however,
subject to de novo review for legal error on appeal. State ex rel. Utils. Comm’n v. N.C.
Waste Awareness & Reduction Network, 255 N.C. App. 613, 615 (2017), aff’d per
curiam, 371 N.C. 109 (2018).
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B. Denial of a Return on the Unamortized Balance of CCR Costs
¶ 21 In its initial challenge to the Commission’s order, Dominion argues that the
Commission erred by rejecting its request to be allowed to earn a return on the
unamortized balance of its coal ash-related costs. According to Dominion, the
Commission “failed to set forth any facts to support its break with its own precedent”
that was established in the 2016 Dominion rate case and 2017 Duke Energy rate
cases, with this failure to follow its own past precedent compelling the conclusion that
the Commission had acted arbitrarily and capriciously in violation of the Public
Utilities Act and the relevant provisions of the state and federal constitutions.
¶ 22 According to Dominion, this Court held in Stein that the Commission had
correctly determined that the Duke Energy utilities should be allowed to earn a
return on the unamortized balance of their coal ash costs, with the findings that the
Commission had made in that case having sufficed to establish that the enactment of
the CCR Rule and certain North Carolina statutory provisions “forced the utilities to
confront an ‘extraordinary and unprecedented’ issue involving the potential
expenditure of billions of dollars in order to address a significant environmental
problem” and that, in light of “the ‘magnitude, scope, duration and complexity’ of the
anticipated costs” of coal ash cleanup, a return on the unamortized balance was fair
and just. Stein, 375 N.C. at 926. Dominion claims that, since the facts at issue in
this case are similar to those that were before the Commission in Stein, the
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Commission acted arbitrarily and capriciously “by exercising its discretion differently
and to the detriment of [Dominion] in this case after exercising it to the benefit of
Duke Energy.”
¶ 23 After conceding that Commission decisions are “not automatically binding on
future Commissions,” Dominion contends that the Commission “explicitly chose to
give its ratemaking treatment of coal ash costs in the 2016 [Dominion] rate case
decision precedential value” in deciding the 2017 Duke Energy rate case and that the
Commission “provided no reasoned basis for departing from its 2016 [Dominion] Rate
Case Order” when deciding this case, even though it “involved the same coal plants
and same types of costs.” In Dominion’s view, even though the Commission heard
the “same theories” regarding the imprudence with which coal combustion residuals
had been handled in this case that it had heard in the 2016 Dominion rate case and
2017 Duke Energy rate cases, it “reached a different result — denying a return on
prudently incurred costs — without ever concluding that [Dominion] imprudently
managed its coal ash.” As a result of the fact that the Commission found that the
record did not support a finding of imprudence even though the evidence “raise[d]
questions” about the prudence with which Dominion’s coal ash-related costs had been
incurred and that, “given the passage of time and evolving regulatory standards,”
Dominion was entitled to a presumption of prudency, the Commission “arbitrarily
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and unlawfully created a separate, lower standard” by finding that Dominion’s
conduct was less than prudent but more than imprudent.
¶ 24 Furthermore, Dominion argues that the Commission had acted arbitrarily and
capriciously by determining that Dominion’s coal ash-related costs did not constitute
property that was “used and useful” after reaching the opposite conclusion in the 2016
Dominion rate case, in which it had determined that “existing CCR repositories
continue to be used and useful for storing CCRs, and will continue to be used and
useful until [Dominion] moves the CCRs to a permanent repository.” Dominion
claims that the arbitrary and capricious nature of the Commission’s order is
demonstrated by the fact that it allows a return on the company’s coal ash-related
costs during the deferral period, which ran from 1 July 2016 through 30 June 2019,
while refusing to allow a return on those same costs during the subsequent recovery
period.
¶ 25 In Dominion’s view, “[t]he coal ash costs at issue in this case deserved, but did
not receive, the same treatment” that they had received in the 2016 Dominion rate
cases and the 2017 Duke Energy cases. Dominion claims that, even though “[a]ny
differences that exist between [Dominion] and Duke Energy warrant more favorable
ratemaking treatment for” Dominion given that Duke Energy had pled guilty to the
commission of environmental crimes, including criminal negligence, while there had
been no similar findings of mismanagement or unlawful activity on the part of
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Dominion, “[Dominion] finds itself in a far worse position than Duke Energy.”
According to Dominion, the Commission “failed to articulate any grounds for treating
[Dominion] differently than Duke Energy” and, in spite of the fact that the
Commission is “not bound by the doctrines of res judicata or stare decisis, the
Commission cannot ‘arbitrarily’ disregard its own precedent,” quoting N.C.G.S. § 62-
94(c) and State ex rel. Utils. Comm’n v. Nantahala Power & Light Co., 326 N.C. 190,
199 (1990) (holding that, although “the Commission is not covered by our
Administrative Procedure Act,” it is “still an administrative agency of the state
government, and general tenets of administrative law are applicable to its operation
except where modified by statute”). In spite of this fact, Dominion contends that the
Commission’s “discussion of the 2016 [Dominion] rate case is limited to explaining
that a stipulation precludes it from being considered precedent here” even though
that decision “was accepted as precedent in the Duke Energy rate cases,” with the
Commission’s failure to explain the reasons for its decision to treat the two utilities
differently constituting arbitrary and capricious decision-making.
¶ 26 Finally, Dominion asserts that the Commission’s failure to afford equal
treatment to Duke and Dominion violates the equal protection clauses of the state
and federal constitutions, with the company having directed our attention to Cheek
v. City of Charlotte, 273 N.C. 293 (1968), in which this Court held that legislation
prohibiting the provision of massages to a member of the opposite sex at massage
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parlors, but not at barber shops or health clubs, was arbitrary and constituted
impermissibly discriminatory legislation, and Connecticut Light & Power Co. v. Fed.
Energy Regul. Comm’n, 627 F.2d 467, 473 (D.C. Cir. 1980), in which the United States
Court of Appeals for the District of Columbia Circuit noted that “treating regulated
entities, whose apparent fact situation is stipulated to be the same, in a markedly
different manner might give rise to an Equal Protection problem.” According to
Dominion, the Commission’s “fail[ure] to articulate any factors or rational basis for
subjecting [Dominion] to different treatment than identically situated North Carolina
electric utilities” violated Dominion’s right to equal protection.
¶ 27 In seeking to persuade us to affirm the Commission’s order, the Public Staff
argues that the Commission properly exercised its authority pursuant to N.C.G.S.
§ 62-133(d) by determining that Dominion should not be allowed to earn a return
upon the unamortized balance of its coal ash-related costs. The Public Staff notes
that the Commission’s ratemaking decisions are not subject to stare decisis or res
judicata principles in light of the fact that such decisions are legislative, rather than
judicial, in nature given that in, “fixing rates . . . the Commission [exercises] a
function delegated to it by the legislative branch of government.” State ex rel. Utils.
Com. v. Thornburg, 325 N.C. 463, 469 (1989) (holding that, since the Commission was
exercising a legislative function, the manner in which it provided for the inclusion of
nuclear cancellation costs in rates in prior cases was not entitled to res judicata
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effect); see also State ex rel. Utils. Com. v. Carolina Util. Customers Ass’n, 348 N.C.
452, 472 (1998) (stating that “[a] final order of the [Commission] in a general rate
case is not within the doctrine of stare decisis”).
¶ 28 According to the Public Staff, the Commission made sufficient findings of fact
to “explain[ ] why a divergence from the usual ratemaking standards would be
appropriate and why the approach that the Commission ha[d] adopted would be just
and reasonable to both utilities and their customers” as required by this Court’s
decision in Stein, 375 N.C. at 926. As an initial matter, the Public Staff points to the
Commission’s discussion of three previous rate cases that involved including in rates
the “extraordinary, large costs such as environmental clean-up and plant
cancellation” costs and in which the Commission had apportioned the responsibility
for those costs “between ratepayers and shareholders” by amortizing the costs to rates
while denying the utility’s request to be allowed to earn a return on the unamortized
balance. Secondly, the Public Staff directs our attention to the Commission’s finding
that a “number of material facts in evidence call into question the prudence of
[Dominion’s] actions and inaction and the risks accepted by [Dominion] management”
at the utility’s coal ash disposal sites, arguing that this evidence provides further
support for the Commission’s decision to require sharing of those costs between
Dominion and its customers. See Stein, 375 N.C. at 931 (reversing the Commission’s
order, in part, and holding that the Commission was required “to evaluate the extent
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to which the utilities committed environmental violations” in setting the utility’s
rates pursuant to N.C.G.S. § 62-133(d) “even if any such environmental violations did
not result from imprudent management”). Thirdly, the Public Staff notes the
Commission’s reference to the “matching principle,” which “dictates that customers
who use an asset should pay for the asset at the time it is used” instead of requiring
“present and future customers [to] pay for costs incurred related to service provided
in the past.” Fourthly, the Public Staff notes that utilities are generally required to
collect asset retirement costs over the useful life of the asset, with the Commission
having found that its order was “further supported by the failure of [Dominion] to
properly account for the full decommissioning costs of its coal-fired power plants” and
Dominion’s failure to include those costs in rates during the period when those
facilities were actually being used to generate electricity.
¶ 29 The Public Staff denies that the Commission had erred by failing to make the
same findings and conclusions in this case that it made in the 2016 Dominion rate
case and the 2017 Duke Energy rate cases. In the Public Staff’s view, the Commission
did, in fact, provide a “reasoned basis for departing from” its decision in the 2016
Dominion order by pointing out that the 2016 order explicitly stated that it did “not
have precedential value with respect to the [coal ash] issues” that were before the
Commission in that case because the 2016 Dominion rate case involved a stipulation
between Dominion and the Public Staff instead of having been fully litigated.
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Similarly, the Public Staff contends that the Commission did not err by reaching a
different outcome in this case than it had in the 2017 Duke rate cases, at least, in
part, because the 2017 Duke rate cases were on appeal when this case was heard and
decided and because the Commission’s orders in those cases were ultimately reversed
by this Court in Stein, resulting in a settlement between Duke and certain
intervenors that was markedly less favorable to Duke than the Commission’s initial
orders. Finally, the Public Staff argues that the Commission’s decision does not work
any sort of equal protection violation given that such challenges to a utility
ratemaking decision must be rejected as long as the Commission’s decision is
rationally related to a legitimate government purpose, which this one clearly is.
¶ 30 The rates for utility service charged by North Carolina retail ratepayers must
be “just and reasonable.” N.C.G.S. § 62-131. For that reason, the Commission is
required to fix rates that are “fair both to the public utilities and to the consumer,”
N.C.G.S. § 62-133(a), by
(1) Ascertain[ing] the reasonable original cost or the
fair value under G.S. 62-133.1A of the public utility’s
property used and useful . . . in providing the service
rendered to the public within the State, less that portion of
the cost that has been consumed by previous use recovered
by depreciation expense.
....
(2) Estimat[ing] such public utility’s revenue under the
present and proposed rates.
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(3) Ascertain[ing] such public utility’s reasonable
operating expenses, including actual investment currently
consumed through reasonable actual depreciation.
(4) Fix[ing] such rate of return on the cost of the
property ascertained pursuant to subdivision (1) of this
subsection as will enable the public utility by sound
management to produce a fair return for its shareholders,
considering changing economic conditions and other
factors, including, but not limited to, the inclusion of
construction work in progress in the utility's property
under sub-subdivision b. of subdivision (1) of this
subsection, as they then exist, to maintain its facilities and
services in accordance with the reasonable requirements of
its customers in the territory covered by its franchise, and
to compete in the market for capital funds on terms that
are reasonable and that are fair to its customers and to its
existing investors.
N.C.G.S. § 62-133(b). In addition, the Commission is required, during the ratemaking
process, to “consider all other material facts of record that will enable it to determine
what are reasonable and just rates.” Id. § 62-133(d).
¶ 31 According to N.C.G.S. § 62-79(a), “all final orders and decisions of the
Commission shall be sufficient in detail to enable the court on appeal to determine
the controverted questions presented in the proceedings and shall include” “[f]indings
and conclusions and the reasons or bases therefor upon all the material issues of fact,
law, or discretion presented in the record.” According to well-established North
Carolina law, “[t]he Commission . . . is not required to ‘comment upon every single
fact or item of evidence presented by the parties.’ ” State ex rel. Utils. Comm’n v.
Public Staff-N.C. Util. Comm’n, 323 N.C. 481, 496-97 (1988) (quoting State ex rel.
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Utils. Comm’n v. Eddleman, 320 N.C. 324, 351 (1987)). Instead, “[t]he Commission’s
summary of the appellant’s argument and its rejection of the same is sufficient to
enable the reviewing court to ascertain the controverted questions presented in the
proceeding,” which is all that is required. State ex rel. Utils. Comm’n v. Conservation
Council of N.C., 312 N.C. 59, 62 (1984). As a result, this Court has held that findings
of fact that “demonstrate that the Commission considered the impact of changing
economic conditions upon customers” and that “specify how this factor influenced the
Commission’s decision to authorize a 10.2% [return on equity],” State ex rel. Utils.
Comm’n v Cooper, 367 N.C. 741, 748 (2015), were sufficient to pass muster on
appellate review.
¶ 32 The essence of the argument that Dominion has presented for our
consideration in this case is that, since the facts contained in the record developed in
this case were essentially identical to those contained in the records developed in the
company’s 2016 rate case and in the 2017 Duke Energy rate cases, the Commission
erred by failing to conclude that Dominion was entitled to earn a return on the
unamortized balance of its coal ash-related costs consistently with the decisions that
the Commission had made in those earlier proceedings. In Stein, we addressed the
issue of whether the Commission possessed the discretion, pursuant to N.C.G.S. § 62-
133(d), to allow utilities to earn a return on their coal ash cleanup and recovery costs,
even if such costs were characterized as operating expenses rather than as property
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used and useful. 375 N.C. at 914. In holding that the Commission possessed the
authority to act in this fashion, we noted that, even though the procedures for
establishing just and reasonable rates as outlined in N.C.G.S. § 62-133(b) “provide a
workable framework” for setting just and reasonable rates for utility service, the
circumstances at issue in that case were “anything but ordinary, with the coal ash-
related costs that [Duke Energy had] incurred between 1 January 2015 and 31
December 2017 not being readily susceptible to traditional ratemaking analysis for a
number of reasons.” Id. at 921.
¶ 33 After a thorough analysis of this Court’s prior decisions interpreting the nature
and extent of the Commission’s authority pursuant to N.C.G.S. § 62-133(d), we
determined that our precedent “clearly indicated that N.C.G.S. § 62-133(d) is
available to the Commission for the purpose of dealing with unusual situations and
that the authority granted to the Commission pursuant to N.C.G.S. § 62-133(d) is not
limited by the more specifically stated ratemaking principles set out elsewhere in
N.C.G.S. § 62-133(b).” Id. at 925. As a result, we held that
the Commission may employ N.C.G.S. § 62-133(d) in
situations involving (1) unusual, extraordinary, or complex
circumstances that are not adequately addressed in the
traditional ratemaking procedures set out in N.C.G.S. § 62-
133; (2) in which the Commission reasonably concludes
that these circumstances justify a departure from the
ordinary ratemaking standards set out in N.C.G.S. § 62-
133; (3) determines that a consideration of these “other
facts” is necessary to allow the Commission to fix rates that
are just and reasonable to both the utility and its
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customers; and (4) makes sufficient findings of fact and
conclusions of law supported by substantial evidence in
light of the whole record explaining why a divergence from
the usual ratemaking standards would be appropriate and
why the approach that the Commission has adopted would
be just and reasonable to both utilities and their customers.
Id. at 926.
¶ 34 In applying the four-part test enunciated in Stein to the facts at issue in that
proceeding, we determined that the Commission had not erred “by allowing the
amortization of deferred coal ash costs to rates” and by allowing Duke Energy “to
earn a return on the unamortized balance” of those costs in that case given that “the
enactment of CAMA forced [Duke Energy] to confront an ‘extraordinary and
unprecedented’ issue involving the potential expenditure of billions of dollars in order
to address a significant environmental problem” and that, “[i]n light of the
‘magnitude, scope, duration and complexity’ of the anticipated costs,” a return on the
unamortized balance of the costs would reasonable. Id. at 926. On the other hand,
we also held that, once the Commission had decided to invoke its authority pursuant
to N.C.G.S. § 62-133(d) to consider “other facts,” it “was required to consider all
material facts of record . . . including, in these cases, facts pertaining to alleged
environmental violations such as non-compliance with NPDES permit conditions,
unauthorized discharges, and groundwater contamination from the coal ash
basins[.]” Id. at 931. In view of the fact that the Commission “appear[ed] to have
determined that it lacked the authority to comment upon the nature and extent of
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any environmental violations that the utilities may or may not have committed” in
setting rates pursuant to N.C.G.S. § 62-133(d), we reversed the portion of the
Commission’s order that rejected the Public Staff’s “equitable sharing” proposal and
remanded this case to the Commission for further proceedings, including the making
of appropriate findings of fact and conclusions of law relating to the validity of the
Public Staff’s proposal. Id. at 932–33.
¶ 35 Over two decades ago, this Court upheld the Commission’s use of its
discretionary authority pursuant to N.C.G.S. § 62-133(d) to allow a utility to amortize
nuclear plant cancellation costs while rejecting the utility’s request to earn a return
on the unamortized balance of those costs in State ex rel. Utilities Comm’n v.
Thornburg, 325 N.C. 463 (1989). In Thornburg, the utility sought a general rate
increase that was predicated, in part, upon an attempt to reflect the costs associated
with the abandonment of a proposed nuclear generating facility at the Shearon
Harris nuclear plant in its retail rates. Id. at 465. In its opinion, the Court noted
that, in a previous rate case regarding two other cancelled nuclear units at the
Shearon Harris site, the Commission had allowed the utility to amortize the
cancellation costs associated with the two other units “over a ten-year period” while
determining that “no return [would be] allowed on or with respect to the unamortized
balance” of the cancellation costs. Id. at 466. In the case that was actually before
this Court, the Commission allowed the utility to amortize the relevant cancellation
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costs to rates over a period of ten years without allowing the utility to earn a return
on the unamortized balance. On appeal, the Attorney General argued that the
Commission had acted beyond the scope of its statutory authority in allowing the
utility to amortize any of the relevant nuclear plant cancellation costs to rates and
that his ability to advance this argument was not precluded by the doctrine of res
judicata arising from the Commission’s earlier decision. Id. at 467.
¶ 36 In holding that “the Commission’s treatment of cancellation costs in prior
orders is not res judicata in this proceeding,” id. at 471, we noted that,
in addressing the issue of whether a Commission order can
be deemed res judicata this Court has held that “only
specific questions actually heard and finally determined by
the Commission in its judicial character are res judicata,
and then only as to the parties to the hearing.” Utilities
Commission v. Area Development, Inc., 257 N.C. 560, 570,
126 S.E.2d 325, 333 (1962) (emphasis added). Moreover,
this Court has stated that ratemaking activities of the
Commission are a legislative function. Utilities Comm. v.
Edmisten, Attorney General, 294 N.C. 598, 603, 242 S.E.2d
862, 866 (1978); Utilities Commission v. General Telephone
Company, 281 N.C. 318, 336, 189 S.E.2d 705, 717 (1972).
It follows that[,] since the exercise of the Commission’s
ratemaking power is a legislative rather than a judicial
function, such orders are not governed by the principles of
res judicata and are reviewable by this Court in later
appeals of closely related matters.
Id. at 468. After determining that the Commission had the authority to treat costs
associated with the cancellation of the third nuclear unit at the Shearon Harris
facility differently than it had treated the first two, we further held that the
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Commission did “not err as a matter of law in authorizing [the utility] to continue to
recover a portion of the cancellation costs of the abandoned Harris Plant as operating
expenses through amortization” in light of its discretion “to consider all material facts
in the record in determining rates” pursuant to N.C.G.S. § 62-133(d). Id. at 476.
¶ 37 Similarly, we held in State ex rel. Utils. Comm’n. v. Carolina Util. Customers
Ass’n, that, while “prior decisions of this Court regarding general questions of law”
relevant to the ratemaking process were entitled to stare decisis effect, “the final
order of the Commission in a general rate case is not within the doctrine of stare
decisis[.]” 348 N.C. 452, 472 (1998) (cleaned up) (quoting State ex rel. Util. Comm’n
v. Carolina Power & Light Co., 250 N.C. 421, 430 (1959)). Thus, well-established
principles of North Carolina law establish that prior Commission decisions, as
compared to prior decisions of this Court, are not entitled to either res judicata or
stare decisis effect. In light of that fact, we have no difficulty in holding that the
Commission was not obligated to make the same decision with respect to the manner
in which Dominion was entitled to reflect the costs associated with coal ash
remediation in rates in this case that it made in the 2016 Dominion rate case or the
2107 Duke rate cases.4
4 As an aside, we note that the concept of stare decisis requires, in essence, that a
court identify certain material differences between the case that is currently before the court
and potentially-relevant precedent before declining to follow that precedent A requirement
that the Commission explicitly distinguish prior precedent as a precondition for declining to
follow it seems, aside from having no support of any nature in this Court’s precedent, to be
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¶ 38 In addition, we are unable to conclude that the Commission acted arbitrarily
and capriciously in approving different ratemaking treatments for the coal ash-
related costs at issue in this case as compared to those at issue in the 2016 Dominion
general rate case and 2017 Duke general rate cases. Instead of indicating the absence
“of fair and careful consideration or [the] fail[ure] to display a reasoned judgment,”
Thornburg, 314 N.C. at 515, the Commission’s order in this case demonstrated a
thorough consideration of the record evidence, adequately explained the reasons for
the decision that the Commission did make, and reflected a ratemaking treatment of
the relevant costs that failed to track the proposals made by either the utility or the
Public Staff.
¶ 39 As evidence of its even-handed consideration of the matters at issue in this
case, we note that the Commission’s order contains a detailed summary of the
circumstances surrounding Dominion’s incurrence of the coal ash-related costs and
inconsistent with the basic principle of North Carolina ratemaking law that prior
Commission decisions do not have stare decisis effect. The decisions upon which Dominion
relies in arguing for the imposition of such a requirement in this case, such as Nat’l Weather
Serv. Employees Org. v. FLRA, 966 F.3d 875 (D.C. Circ. 2020) (dispute over a termination
provision in a collective bargaining agreement); New Eng. Power Generators Ass’n v. FERC,
881 F.3d 202 (D.C. Circ. 2018) (appellate review of a complaint alleging that an independent
transmission system operator’s tariff was unreasonably discriminatory); West Deptford
Energy, LLC v. FERC, 766 F.3d 10 (D.C. Cir. 2014) (determination of which rate applied
when more than one had been filed); Trump Plaza Assocs. v. NLRB, 679 F.3d 822 (D.C. Cir.
2012) (employer challenge to the certification of a union election); BB&L, Inc. v. NLRB, 52
F.3d 366 (D.C. Cir. 1995) (employer refusal to bargain with a union), all appear to have been
made in the context of adjudication proceedings conducted pursuant to the federal
Administrative Procedure Act, 5 U.S.C. § 554 (2022), rather than any sort of proceeding that
is functionally equivalent to a general rate case conducted pursuant to N.C.G.S. § 62-133.
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an explanation of the reasons that it had questions concerning the extent to which
Dominion had acted prudently, which included the nature and extent of the
exceedances associated with groundwater contaminants related to Dominion’s coal
ash storage facilities, instances of late and deficient groundwater monitoring, and
Dominion’s decision to ignore a recommendation for the construction of a dry waste
disposal facility at a particular site. In addition, the Commission highlighted the
risks inherent in certain of the decisions that Dominion had made with respect to the
relevant coal ash-related costs, including the fact that, prior to enactment of the CCR
Rule, Dominion had deemed unlined ponds to be a permanent storage solution for
coal ash and had planned to close its existing wet storage facilities in place, an
approach that would have allowed the continued leaching of coal combustion
residuals into the groundwater.
¶ 40 Acknowledging that the record did not provide “substantial evidence” to
support the making of a full and informed decision concerning the prudence of the
manner in which the relevant coal ash-related costs had been incurred, the
Commission concluded that “none of the CCR Costs incurred by the Company
between July 1, 2016 through June 30, 2019 [would] be disallowed on the basis of
having been imprudently incurred” and authorized Dominion to amortize all of those
costs to rates. On the other hand, the Commission rejected Dominion’s request to be
allowed to earn a return on the unamortized balance of the relevant coal ash-related
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costs after considering multiple factors, such as the Commission’s “history of
allocating prudently incurred costs, specifically in the context of extraordinary, large
costs such as environmental clean-up and plant cancellation, between ratepayers and
shareholders”; the evidence that called the prudence with which the relevant coal
ash-related costs had been incurred into question; the “significant” costs that were at
issue in this case, which would have resulted in material additions to the amount
that each of Dominion’s North Carolina retail ratepayers would have had to pay had
the company’s proposal been adopted; and a concern that approval of Dominion’s
proposed treatment of the relevant costs would violate the “matching” principle and
raise significant concerns for intergenerational equity.
¶ 41 As a result of the fact that the Commission’s findings of fact are “supported by
competent, substantial evidence” and the fact that the basis for the Commission’s
decision is adequately explained in its order and reflects an accurate understanding
of North Carolina ratemaking law as set out in prior decisions from this Court, Stein,
375 N.C. at 900, we have no legal basis for disturbing the Commission’s order in this
case. Although Dominion’s dissatisfaction with the Commission’s order is
understandable, it has failed to show that the Commission’s decision lacks adequate
record support, misapplies the applicable ratemaking statutes, or fails to embody a
reasoned decision. Instead, at the end of the day, Dominion’s challenge to the
Commission’s order amounts to little more than a belief that the Commission should
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have weighed the evidence differently and reached a different result and that we
should intervene to require that a different outcome be reached in spite of the fact
that “[t]he Commission is responsible for determining the weight and credibility to
be afforded to the testimony of any witness, including any expert opinion testimony”
and the fact that the Commission’s decision is “entitled to great deference.” Stein,
375 N.C. at 900.
¶ 42 In addition, we note that, even if Dominion’s argument that the Commission
was required to follow its earlier decisions in the 2016 Dominion rate case and the
2017 Duke rates cases or to explain its reasons for failing to do so had merit, which
it does not, the record contains ample support for any decision that the Commission
might have made to refrain from doing so. As we have already noted, the
Commission’s order in the 2016 Dominion rate case rested upon a settlement between
the parties, with both the stipulation itself and the resulting Commission order
having made it abundantly clear that any decision that the Commission might make
in that proceeding would not be deemed to have precedential effect, 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, 2016 N.C.
PUC LEXIS 1183, at *137–39 (N.C.U.C. Dec. 22, 2016), in light of the Commission’s
statement that Dominion and the Public Staff had “agree[d] that the appropriate
amortization period for future CCR expenditures shall be determined on a case-by-
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case basis”; that there would be no “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”; that Dominion and the Public Staff “reserve[d] their rights
in the Company’s next general rate case to argue . . . (a) how the unamortized balance
of deferred CCR expenditures . . . should be addressed; and (b) how reasonable and
prudent CCR expenditures incurred by the Company . . . should be recovered”; and
that the Public Staff’s agreement to the stipulation should “not be construed as a
recommendation that the Commission reach any conclusions regarding the prudence
and reasonableness of the Company’s overall CCR plan.” Id. As a result, one of the
decisions upon which Dominion relies in support of its “precedent-based” argument
expressly disclaims any idea that precedent had actually been created.
¶ 43 Dominion’s reliance on the Commission’s orders in the 2017 Duke rate cases is
equally misplaced. Although the Commission did, to be sure, allow the Duke
companies to amortize their coal ash-related costs to rates over a five-year period and
to earn a return on the unamortized balance in their initial orders in these cases, the
Commission also imposed substantial mismanagement penalties upon the Duke
utilities that were not imposed upon Dominion in this case. In addition, the facts
surrounding the manner in which Dominion and the Duke companies incurred their
coal ash-related costs were, as is reflected in the relevant Commission orders,
markedly different. Finally, the 2017 Duke rate orders were partially overturned on
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appeal and remanded for further consideration by the Commission, eventually
resulting in a settlement that reduced the amount of coal ash-related costs included
in the rates charged by the Duke companies to their North Carolina retail ratepayers
by “more than $900 million.” Under this set of circumstances, it is hard for us to see
how the Commission’s refusal to explain why it failed to follow decisions that were,
at the time, pending on appeal could possibly constitute prejudicial error. N.C.G.S. §
62-94(c) (requiring reviewing courts to take due account of “the rule of prejudicial
error”).5 As a result, the 2017 Duke rate orders that the Commission unlawfully, at
least in Dominion’s eyes, failed to follow did not involve the same ratemaking
treatment for which Dominion contends, rested upon differing sets of facts, and did
not actually control the manner in which Duke’s coal ash-related costs were reflected
in the companies’ rates.
¶ 44 As a result, given that the Commission’s ratemaking decisions involve the
exercise of legislative authority and the fact that “only specific questions actually
heard and finally determined by the Commission in its judicial character are res
5 In our view, moreover, the Commission adequately discussed its reasons for failing
to follow the prior Duke Energy orders by noting that they were on appeal at that time and
by mentioning those orders no less than eight times in discussing the manner in which coal
ash-related costs should be reflected in Dominion’s rates. In view of the fact that the
Commission explained the reasons that it rejected Dominion’s position and referenced the
Duke Energy orders multiple times, we have difficulty seeing what additional clarity would
have been provided to the Commission’s order by the inclusion of language explicitly stating
why it had not followed the result reached in the Duke Energy orders that were later
overturned on appeal.
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judicata, and then only as to the parties to the hearing,” Thornburg, 325 N.C. at 468,
we hold that the Commission did not err by focusing its analysis upon the nature and
extent of the coal ash-related costs that Dominion sought to have included in the
calculation of its North Carolina retail rates and that the Commission was not
obligated to adopt the same ratemaking treatment for the costs at issue in this case
that it adopted in the 2016 Dominion rate order and the 2017 Duke rate orders. For
the same reason, the Commission did not violate the equal protection clauses of the
state and federal constitutions by reaching a different result in this case than it did
in the decisions upon which Dominion relies. Finally, we hold that the Commission
adequately explained the basis for the decision that it actually made with respect to
the issue of whether Dominion should have been allowed to earn a return upon the
unamortized balance of the relevant coal ash-related costs. As a result, we hold that
Dominion’s challenge to the Commission’s failure to allow it to earn a return on the
unamortized balance of its coal ash-related costs did not involve any error of law.
C. Ten-Year Amortization Period
¶ 45 Secondly, Dominion argues that the Commission’s determination that the coal
ash-related costs at issue in this case should be amortized over ten years was
arbitrary and capricious given that the Commission had determined in the 2016
Dominion rate case that a five-year period would be beneficial for both Dominion and
ratepayers and that the Commission had failed to give an adequate explanation for
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its decision to use a ten-year, rather than a five-year, amortization period in this case.
More specifically, Dominion argues that, “[w]hile it is true that the ten-year
amortization period adopted by the Commission meets the outer bounds of the
standard it adopted for cancelled nuclear plants,” “only a five-year amortization
period would be consistent with the Commission’s treatment of coal ash costs and
nuclear abandonment costs,” with the Commission having erred by failing to rely on
more recent and applicable decisions “involving ‘identical’ coal ash costs” rather than
earlier nuclear plant abandonment costs.
¶ 46 As we understand its brief, the logic upon which Dominion relies in asserting
that the Commission erred by requiring the use of a ten-year, rather than a five-year,
amortization period in this case is essentially identical to the logic upon which
Dominion relied in arguing that the Commission erred by failing to permit it to earn
a return on the unamortized balance of the relevant coal ash-related costs. In
essence, Dominion argues that, since the Commission found a five-year amortization
period to be reasonable in both the 2016 Dominion rate case and the 2017 Duke
Energy rate cases and since, “[i]n contrast to this line of precedent, the Commission
now prescribes a ten-year amortization period” without “explain[ing] why [it]
previously adopted [a] five-year amortization period, for the same costs,” the
Commission’s decision with respect to the length of the applicable amortization period
is arbitrary and capricious.
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¶ 47 The same logic that persuades us that the Commission did not err by declining
to allow Dominion to earn a return on the unamortized balance of the company’s coal
ash-related costs persuades us that the Commission did not err by approving the use
of a ten-year, rather than a five-year, period for the amortization of those costs. In
addition to the fact that the record developed in this case differs from those developed
in the other cases, the fact that the 2016 Dominion order expressly stated that it was
not entitled to precedential effect, and the fact that the ratemaking treatment
approved in the 2017 Duke rate cases was changed upon remand from our decision
in Stein, we note that the Commission found that the use of a ten-year period struck
a “more appropriate and fairer balance” than the use of either a longer or a shorter
amortization period and the use of a ten-year amortization period was consistent with
its “historical treatment of major plant cancellations.” Application of Va. Elec. and
Power Co. for Auth. to Adjust and Increase Its Elec. Rates and Charges, No. E-22, Sub
273, 73 N.C.U.C. Orders & Decisions 343, 355. Although the record would have also
supported a decision to reach the result which Dominion believes to be appropriate,
the Commission’s choice of a ten-year, rather than a five-year, amortization period
appears to have a reasonable basis in both the record and the Commission’s findings.
As a result, we hold that the Commission did not commit any error of law in approving
the use of a ten-year, rather than a five-year, period for amortizing Dominion’s coal
ash-related costs.
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III. Conclusion
¶ 48 After a careful review of the entire record, we conclude that the Commission’s
order is supported by competent, substantial evidence and that the Commission
adequately explained the basis for the portions of its decision that Dominion has
challenged on appeal. As a result, the Commission’s decision is affirmed.
AFFIRMED.
Justice BARRINGER dissenting.
¶ 49 The issue I address today is whether the Utilities Commission needed to
explain why it departed from its reasoning in two cases that were decided less than
two years prior, had materially similar facts, and were brought to the Commission’s
attention. While I agree with much of the majority’s discussion of this case, I cannot
accept its holding that the Commission did not even need to acknowledge the two
Duke Energy (Duke) cases relied upon by Dominion Energy (Dominion) when
Dominion requested a rate increase. Under general tenets of administrative law, an
agency’s failure to explain a departure from recent, applicable past decisions when
they were brought to its attention is arbitrary and capricious. North Carolina
administrative law should be no different. Otherwise, an agency can treat two
similarly situated entities differently without having to directly explain why. Such
arbitrary and capricious decision-making will only serve to undermine trust in our
government. The matter should be remanded to address the issue discussed herein.
Accordingly, I respectfully dissent.
I. Relevant Facts
¶ 50 On 29 March 2019, Dominion Energy applied to the Commission for a general
rate increase. Application of Va. Elec. & Power Co., d/b/a Dominion Energy N.C. for
Adjustment of Rates and Charges Applicable to Elec. Serv. in N.C., Docket No. E-22,
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Sub 562 & Sub 566, slip op. at 3 (N.C.U.C. Feb. 24, 2020).1 As part of the rate increase,
Dominion sought to recover CCR compliance expenses incurred from 1 July 2016 to
30 June 2019 through a five-year amortization period as well as a return on the
unamortized balance. Id. at 86. Dominion requested this recovery method as the
Commission had allowed it in three prior decisions, one involving Dominion in 2016
and two involving Duke in 2018. The Commission, however, denied Dominion’s
request, instead allowing it a ten-year amortization period and no return on the
unamortized balance. Id. at 15. As the Public Staff concedes, at no point in the order
did the Commission explain what distinguished Dominion’s case from the two Duke
cases, even though both had materially similar facts.
II. Analysis
¶ 51 Dominion Energy contends that the Commission’s failure to provide any
explanation directly addressing why it did not allow Dominion the same recovery as
Duke was arbitrary and capricious. In response, the Public Staff argues that while
“the Commission did not expressly distinguish those orders . . . the Commission’s
extensive explanation” for why it did not allow Dominion Energy a five-year
amortization period and a return on coal costs “provided an adequate explanation for
why it broke with the different policy that it had adopted in the 2018 Duke orders.”
1 Currently available at: https://starw1.ncuc.gov/NCUC/ViewFile.aspx?Id=7c1dc9e1-
1bdb-4840-8692-6b329c980225.
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Additionally, the Public Staff contends that even if the Commission erred by failing
to expressly distinguish the Duke cases, remand would serve no purpose since this
Court reversed the Duke orders in State ex rel. Utilities Commission v. Stein, 375 N.C.
870 (2020).
¶ 52 The Commission does not have “unbridled discretion in exercising its
judgment.” State ex rel. Utils. Comm’n v. Thornburg, 314 N.C. 509, 516 (1985).
Instead, this Court may reverse a decision of the Commission if it is arbitrary or
capricious. N.C.G.S. § 62-94(b)(6) (2021). “To be arbitrary and capricious, the
Commission’s order would have to show a lack of fair and careful consideration of the
evidence or fail to display a reasoned judgment.” State ex rel. Utils. Comm’n v.
Piedmont Nat. Gas Co., 346 N.C. 558, 573 (1997).
¶ 53 After careful review, I cannot find a case where this Court has addressed
whether or not the Commission must explicitly explain why it departed from a
recently decided case with materially similar facts that was brought to its attention.
However, this Court has previously recognized that “[w]hile the Commission is not
covered by our Administrative Procedure Act[,] . . . the Commission is still an
administrative agency of the state government, and general tenets of administrative
law are applicable to its operation except where modified by statute.” State ex rel.
Utils. Comm’n v. Nantahala Power & Light Co., 326 N.C. 190, 199–200 (1990).
Looking to the general tenets of administrative law, “[i]t is textbook administrative
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law that an agency must provide[ ] a reasoned explanation for departing from
precedent or treating similar situations differently.” New England Power Generators
Ass’n, Inc. v. Fed. Energy Regul. Comm’n, 881 F.3d 202, 210 (D.C. Cir. 2018) (second
alteration in original) (quoting W. Deptford Energy LLC v. FERC, 766 F.3d 10, 20
(D.C. Cir. 2014)); Trump Plaza Assocs. v. NLRB, 679 F.3d 822, 827 (D.C. Cir. 2012)
(noting that an agency “cannot ‘ignore its own relevant precedent but must explain
why it is not controlling[,]’ B B & L, Inc. v. NLRB, 52 F.3d 366, 369 (D.C. Cir. 1995)”);
see also 2 Am. Jur. 2d Admin. Law § 360 (2022).2 Accordingly, though an
administrative agency “need not address every precedent brought to its attention, it
must provide an explanation where its decisions appear to be ‘on point.’ ” Nat’l
Weather Serv. Emps. Org. v. Fed. Lab. Rels. Auth., 966 F.3d 875, 883–84 (D.C. Cir.
2020) (quoting Brusco Tug & Barge Co. v. NLRB, 247 F.3d 273, 277 (D.C. Cir. 2001)).
¶ 54 Here, the Commission never explained why, in this case, it allowed a different
recovery for Dominion’s CCR costs than the recovery it allowed for Duke’s CCR costs
2 While these decisions are not from this Court, they interpret the words “arbitrary”
and “capricious” in the context of administrative law, specifically the federal Administrative
Procedure Act (APA). Like N.C.G.S. § 62-94(b)(6), the APA instructs federal courts to reverse
agency actions that are arbitrary and capricious. Compare 5 U.S.C. § 706(2)(A), with N.C.G.S.
§ 62-94(b)(6) (2021). While the cases are not binding, given the similar statutory language
and context, their interpretation is persuasive. See, e.g., Reynolds Am. Inc. v. Third Motion
Equities Master Fund Ltd, 379 N.C. 524, 2021-NCSC-162, ¶ 7 (“[G]iven the well-developed
body of law arising from the numerous appraisal cases decided in Delaware, we borrow freely
from these cases to the extent we find their reasoning to be persuasive and applicable to the
facts here.”).
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two years prior.3 In the Duke cases, the Commission allowed Duke to recover its CCR
costs through a five-year amortization period and receive a return on the unamortized
costs. In contrast, in this case, the Commission only allowed Dominion to recover its
CCR costs through a ten-year amortization period and not receive a return on the
unamortized costs. The Commission’s order in this case contained several reasons
explaining why it allowed a ten-year amortization period with no return on the
unamortized costs. However, none of those reasons relate to the Duke cases or explain
why the Commission departed from the Duke cases.4
3 In contrast, the Commission explicitly explained why it allowed a different recovery
in this case than in the 2016 Dominion case. Application of Va. Elec. & Power Co., d/b/a
Dominion Energy N.C. for Adjustment of Rates and Charges Applicable to Elec. Serv. in N.C.,
Docket No. E-22, Sub 562 & Sub 566, slip op. at 122–23 (N.C.U.C. Feb. 24, 2020). Specifically,
the Commission noted that the 2016 case did “not have precedential value” and that the
evidence presented in the 2016 case was “far less extensive” than the evidence in this case.
Id.4 The order only mentions the Duke cases in two sections. First, in its findings of fact,
the Commission found that “Duke Energy Carolinas, LLC (DEC), and Duke Energy Progress,
LLC (DEP)” have an “authorized rate of return on common equity” of “9.90%.” Id. at 8–9. The
Commission then included a citation for the two 2018 Duke cases. Id. at 9 n.3. As part of the
citation, the Commission included the subsequent history of the Duke cases in accordance
with Bluebook rule 10.7.1(a). See The Bluebook: A Uniform System of Citation R. 10.7.1(a),
at 110 (Columbia L. Rev. Ass’n et al. eds., 21st ed. 2020). In other words, within the citation
to the DEC case, the Commission properly included the clause “appeal docketed, No. 401A18
(N.C. Nov. 7, 2018),” and within the citation to the DEP case the Commission properly
included the clause “appeal docketed, No. 401A18 (N.C. Nov. 7, 2018)” which were required
by Bluebook Rule 10.7.1(a) because the cases were on appeal at that time. Application of Va.
Elec. & Power Co., slip op. at 9. These citation clauses are the only mention of the Duke cases
being on appeal in the entire order. Therefore, it cannot seriously be maintained that these
two clauses, in a citation, in a footnote, constitute adequate discussion of the Commission’s
reasons for failing to follow the prior Duke Energy orders. The cases were cited for the
authorized rate of return on common equity allowed Duke Energy, not to explain why the
Commission did not follow their treatment of CCR costs. At best, the mention of the appeals
in the citations represents admirable attention to the Bluebook by the Commission.
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¶ 55 Since ratemaking is a legislative function and traditional principles of stare
decisis do not apply, it was permissible for the Commission to allow a different
recovery method in this case than in the Duke cases. However, when departing from
the Duke cases, under general tenets of administrative law, the Commission needed
to provide some explanation directly addressing why it departed when the Duke cases
were similar, recently decided, and brought to the Commission’s attention.5 The
Commission’s failure to provide that explanation rendered its order arbitrary and
capricious.
¶ 56 Further, contrary to the Public Staff’s contention, reversing this case for the
Commission to correct its erroneous reasoning would not be “futile.” According to the
Second, the Commission provided “a summary of the evidence that is in the record,”
which included the opposing arguments of the Public Staff and Dominion’s witnesses
concerning how the Commission should apply the Duke cases. Id. at 85–86, 99, 105–06, 114–
15, 117. In its analysis, the Commission also referenced some exhibits that appeared in the
Duke cases, id. at 124 & n.22, 127–29, and recognized that Dominion claimed it was entitled
to a return on CCR costs because of the Duke cases, id. at 133. However, the order never
actually addressed which of the arguments concerning the Duke cases the Commission found
persuasive or explained why the Commission chose not to follow the Duke cases. Id. at 121–
44. Thus, on appeal, this Court can only speculate as to why the Commission declined to
follow the Duke cases.
5 Notably, in each of the 2018 Duke cases, the Commission explicitly discussed the
2016 Dominion case when explaining why it allowed the Duke utilities to recover their CCR
costs through a five-year amortization period with a return on the unamortized costs. See In
re Joint Application by Duke Energy Progress, LLC, and Duke Energy Carolinas, LLC, for
Accounting Order to Defer Environmental Compliance Costs, Docket No. E-2, Sub 1103, 2018
N.C. PUC LEXIS 105, at *499–501 (N.C.U.C. Feb. 23, 2018); In the Matter of Joint
Application by Duke Energy Progress, LLC, and Duke Energy Carolinas, LLC, for Accounting
Order to Defer Environmental Compliance Costs, Docket No. E-7, SUB 1110, 2018 WL
3209374, at *264 (N.C.U.C. June 22, 2018).
STATE EX REL. UTILS. COMM’N V. VIRGINIA ELEC.
2022-NCSC-75
Barringer, J., dissenting
Public Staff, since Stein reversed the two Duke cases, “there is now no need for the
Commission to distinguish the ratemaking treatment that it afforded Duke that was
later reversed and superseded.” However, this argument only highlights the problem
with the Commission’s decision in this case. Without an explanation from the
Commission, this Court has no basis for knowing why the Commission chose not to
follow the Duke cases. Thus, this Court can only speculate as to what effect Stein
would have on the Commission’s reasoning in this case.
¶ 57 More importantly, at the time the Commission decided this case, Stein had not
yet been decided by this Court. Thus, the Commission must have chosen to depart
from the Duke cases for some reason other than Stein. Accordingly, the partial
reversal of the Duke cases in Stein and their ultimate settlement does not provide
this Court with any further insight as to why the Commission chose not to follow
them or permit us to conclude that its decision to depart from the Duke cases was not
arbitrary and capricious.
¶ 58 Ultimately, the lack of an explanation by the Commission is the fatal flaw in
this case. While nonarbitrary explanations for why the Commission treated one
utility differently than another utility certainly could exist,6 so could arbitrary ones.
6 For instance, the majority notes that the Duke utilities were assessed substantial
mismanagement penalties in the 2018 cases while Dominion incurred no such penalty in this
case. Again, however, this Court has no way to determine whether the mismanagement
penalty was a factor in the Commission’s decision to depart from the Duke cases. After all,
the substantial mismanagement penalty referenced by the majority escaped the attention of
STATE EX REL. UTILS. COMM’N V. VIRGINIA ELEC.
2022-NCSC-75
Barringer, J., dissenting
For instance, the Commission might arbitrarily treat out-of-state-based utilities
differently than locally based ones due to a bias towards local businesses. Unless the
Commission had to directly explain why it treated two similarly situated utilities
differently, it could hide biased, arbitrary decision-making through the release of
reasonable but unrelated explanations in each case. The risk that some businesses
will be treated differently than others, without a guarantee that they will receive an
explanation as to why they are treated differently, will only undermine trust in our
government and prevent us from reviewing the Commission’s decisions to ensure they
are not arbitrary and capricious. See, e.g., State ex rel. Utilities Comm’n v. Stein, 375
N.C. 870 (2020) (Newby, J., concurring in part and dissenting in part); In re Harris
Teeter, LLC, 378 N.C. 108, 2021-NCSC-80 (Berger, J., dissenting); id. (Barringer, J.,
dissenting). General tenets of administrative law would not permit such a situation,
but apparently, the majority is willing to adopt a different standard, a standard that
will now govern all utilities who wish to conduct business in North Carolina.
III. Conclusion
¶ 59 An agency’s decision is arbitrary and capricious if it does not explain why it
decided to depart from two cases decided less than two years prior that featured
materially similar facts and were brought to its attention. The majority’s decision to
the Public Staff who, on appeal, did not suggest it as a possible reason for distinguishing the
Duke cases from the present case.
STATE EX REL. UTILS. COMM’N V. VIRGINIA ELEC.
2022-NCSC-75
Barringer, J., dissenting
the contrary now permits the Commission to treat two similarly situated entities
differently without ever having to directly address the reason for the disparate
treatment. The majority’s decision on this point contradicts general tenets of
administrative law. Because this case should be remanded to the Commission to
address the issue discussed herein, I respectfully dissent.
Chief Justice NEWBY and Justice BERGER join in this dissenting opinion.