State Ex Rel. Utilities Commission v. Edmisten

FALL TERM COMMISSION; STATE OF NORTH CAROLINA UTILITIES ex rel. CAROLINA POWER AND LIGHT COMPANY v. L. ED RUFUS MISTEN, ATTORNEY GENERAL 39No.

(Filed 1976) 21 December (cid:127) meaning 1. Utilities Commission 6—§ of “rate” only The word “rate” in used Public Act Utilities refers not monetary ultimately pay amount which each must customer published but also to the figured. method or schedule which that amount is — changes 2. Utilities Commission 6—§ in rate methods or schedules — changes paid by procedures in amount customer changes determining While methods or schedules for what ultimately pay accomplished a according customer must must be procedures Act, outlined the Public Utilities ultimate monetary pays periodically amount which each customer need not be. Electricity 3; adjustment 3. § Utilities Commission 6— fossil fuel § clause — change hearing no of rates without adjustment permit pub- use of a fossil fuel clause does not changed lished rates to be from month to month without a filing, hearing provisions new rate notice or in violation of clause, figuring Public Utilities Act since it is the formula for monetary bill, certain additions to or subtractions from a customer’s figured, part not the ultimate amount so which constitutes that utility’s published subject provisions schedule of the Public Utilities Act. Electricity 3; adjustment 4. § Utilities 6— Commission fossil fuel § clause — no isolation of one cost element adjustment only fossil clause did not isolate one element considering considering of cost without all other elements and without formula, regular

whether the schedule, pro- when used with the just duces required by total rates which are and reasonable as G.S. (a) approved, clause since the event, not an isolated but adjunct, rider, utility’s general an as all to the rate schedules which duly elements cost were considered. Electricity 3; 5. adjustment § Commission 6—§ fossil fuel — — assumption rate of return considering In whether a fossil fuel clause would ever, operate fact, to increase a return, rate of the Utilities assumption was entitled to act on the normal in rate cases

generally, being there contrary, no evidence that other costs of probably would decline but would increase or at least fairly remain constant. COURT THE SUPREME IN Edmisten, Comm.

Utilities adjustment 3; clause Electricity fuel 6— fossil § Utilities Commission § 6. concept — period historical test adjustment not violate the clause did The use a fossil (c), period concept al- G.S. 62-133 embodied in former historical test find- though and made considered evidence the Utilities Commission in ings a increase the cost there had been dramatic thereon that based period extending for some time the within test of fossil fuel both beyond it, to cover this not fix revenues the Commission did since adjustment a expense clause as but to the fuel resorted increased device crease flexibly, operating or which, the de- would increase revenues utility. of fossil fuel to the of the cost them as a function adjustment Electricity 3; clause 6— fossil fuel § Utilities Commission § 7. — powers making of rate no abdication making powers not abdicate its rate Commission did Utilities adjustment by the permitting a clause since of the Commis- use of fossil fuel monitoring operation provided the for its continued sion clause. adjustment Electricity 3; 6— fossil fuel clause Utilities Commission § 8. § — validity authority statutory within Commission its The Utilities acted utility adjustment permitting a fossil clause an electric to utilize regular rider, adjunct, rate schedule. or to its an Electricity adjustment 3; 6— Commission fossil fuel clause § Utilities § 9. — monitoring performance support finding by to a the Utilities The evidence sufficient system monitoring operation of a fossil fuel Commission its utility adjustment will clause insure that acts accordance with practices negotiations protect management rate sound will utility’s recovering operating

payers expenses. more than its from the — change suspend 6— interim rate refusal to § Utilities Commission 10. change may permit changes ap- The Utilities Commission rate schedule plied placed for a to be into effect on an interim basis refusing having suspend change power applied or, to exercise its for by determining it, hearing exercised before to rescind part. suspend suspension whole or If the Commission does automatically expiration change, goes at the it into effect days’ period provided 62-134(a). notice for in G.S. — change placing in § 11. Commission 6— rate effect after six Utilities months timely 62-136, if Under G.S. even the Utilities Commission has change utility may suspended applied utility, a rate a change place upon expiration nevertheless six months after the date such rates would the rate into effect effective, become if have by giving statutory suspended, subject not so notice to certain surety provisos subject filing bond under- taking approved by upon Commission conditioned a refund with finally interest of all rates determined to be excessive. FALL TERM 1976 allowing applied immedi- 6— become § 12. Commission Utilities ately effective may by 62-134(a) affirma- Commission Under G.S. Utilities immediately applied effec- for rate to become tive order allow unconditionally. conditionally or tive adjust- Electricity 3; 6— interim fossil fuel § § 13. — — parte authority statutory order ment clause ex authority granted it within the Utilities Commission acted parte allowing 62-134(a) a fuel G.S. when entered an ex sought by placed on an in effect hearing pending further final determination and interim when utility’s and basis effectuating it a second interim order ab initio the entered undertaking proffered for earlier refund. adjust- Electricity 3; interim fuel § Utilities Commission 6— fossil § 14. — — parte process order ment clause ex due parte allowing adjustment a ex order Utilities Commission’s sought by utility placed to be in effect on an interim basis a Constitution, provision, of the N. the Law Land C. did violate I, 19, Amend- Due Process Clause of the Fourteenth Art. ment to the U. S. Constitution since due parties undertaking, or the § rights process interested utility’s by right hearings, protected subsequent were refund party challenge and the an interested change G.S. 62-132. under dissenting. Justice Lake

Appeal Attorney General, Intervenor, pursuant by the majority 7A-30(2) (3) from General Statute and a decision opin- Appeals. Appeals’ panel of a The Court the Court May 5, by Clark, J., Parker, J., was filed 224 ion concurred 258, 1976, reported App. at 29 2d 219. N.C. S.E. Martin, J., dissented. Attorney General, by Edmisten, P. Grub- L. Robert Rufus Attorney Brake, Special Deputy General,

ber, and Jesse C. Attorney, Appellant. Intervenor Associate for Counsel, Graham, Jr., & General William E. Vice President Light Joyner Howison, Company, & Carolina Power & Light Company, Jr., Howison, Power Robert C. Carolina & Appellee. Partin, Hipp, Counsel, and Wilson B. Edward B. Jr., Attorney, the Utilities Com- Assistant Appellee. mission, IN THE SUPREME COURT

EXUM, Justice. conjunction pending application for a

In with a 1974, January 25, 1973, the approval on increase filed October use applied to of the the Commission for adjust- regular adjunct, rider, an to its rate schedules a February 5, 1974, On on the basis ment clause. of the hearing ex utility’s application an entered and before parte permitting use the fuel hearing pending determi- clause on an interim and final basis hearing, December nation. The after full entered on finally approving its order of the clause in the use principle approving further all under revenues collected through September on bills rendered 1974. This order provided monitoring utility’s application for continued September 30, the clause to all bills rendered after 1974. Attorney General, having intervened under General Statute 114-2(8) using consuming appealed public, behalf of the assigning to the Appeals North Carolina errors to Court of February 5, 1974, the Commission’s orders of and December 1974, respectively. majority panel A Appeals’ of the Court of hearing the matter affirmed the Commission. On the appeal General’s further to this Court principal questions presented two are for decision: Did the statutory authority by Utilities ting, permit- Commission exceed its hearing, utility after notice full the to utilize a fuel regular adjunct, rider, clause an as to its not, statutory schedule? If did the Commission exceed its au- thority by entering parte authorizing utility ex the incorporate pending such a device an interim basis hear- ing and final questions determination? hold that both We are properly negative answered the and affirm the decision Appeals. the Court adjustment clause, The adjunct fuel when used an regular utility’s the schedule, permits utility add regular charges

to its represents, to customers an amount which any given effect, by customer’s share amount which utility’s cost, i.e., coal, gas, the to fossil fuel cost for and oil used generate during given electricity, period exceeds current pre-established period. its cost utility for an historical base The give must also a credit to customers under the of during terms the fuel if the current cost of fuel falls below its cost FALL TERM Comm. v. relatively nothing than a more itself is period. The “clause” base utility computes by formula which simple mathematical charges or credits. additional fig- question in this case the formula in

Under actually one month. burned for fossil fuel ures its total cost for for preceding month to that the second month used is figures being then is billed. The which the customer actually would have been burned its cost for fossil what during paid the fuel at preceding month had it for this second by multiplying pre-determined base cost period prices base by the total kilo- per kilowatt hour in terms of dollars stated during generated by plants second hours its fossil watt preceding figure the first from The second is substracted month. utility’s by kilowatt hour total divided and the difference is adjust- result, an preceding after month. in the second sales taxes, gross receipts is a factor stated applicable state ment for applied then per kilowatt hour. This factor is in terms dollars by by multiplying the number of kilo- bill to each customer’s is month which he used customer watt hours charge or a credit being either an added billed. The result is bill. customer’s figured may is be stated the factor The formula which mathematically in this form: - G) (.00513 E _ X

w X -1 T S sec- “F” “E” fuel cost is the factor. is burned fossil bill is preceding which the current ond month to the month on gen- figured. represents kilowatt hours “G” the total number of preceding utility’s plants in the second erated fossil fuel multiplied in terms of the base cost stated month represents total kilo- kilowatt hour. “S” dollars preceding “T” is hour second month. watt sales gross receipts applicable tax state rate. these issues are

A full of the facts which statement 1973, utility 29, applied a presented the for is: On October approxi- general approximately $48,394,744 or rate increase of in- mately for an percent overall. It also asked interim approximately percent approximately $25,052,209 crease subject utility’s the pending and overall undertaking final determination suggested larger interim rate It that a for refund. IN THE SUPREME COURT currently justified requested increase than “would be because of rising undoubtedly sharply prices, fossil fuel will . . . realizing prevent Company previously from authorized designed rate of return of produce alleged interim increase 12% 30, 1973,” period on the historic test ended June actually requested was, that the interim increase there- ” “absolutely fore, utility’s application essential . While figures ending period was based 30, 1973, derived a test from June suggested appropriate period that more end of test 31, would be December 1973. On November Com- suspended proposed mission period increases and advanced the test year ending 31, to the December 1973. including After several interventions hearings allowed, request

General were on the for the interim 20, rate increase held were on December 19 and 1973. Jan- On uary 25, 1974, by order, allowed interim an $12,675,745 percent. increase of or 5.94 In this order Com- part upon reducing mission relied in increases in fuel In cost. sought by utility, however, the interim increase from that utility year the Commission found that the had used “actual test properly year fuel costs instead of annualized end of test By utilizing year removing cost.” an end of test cost $69,945,960 year investment from the test rate base which the included, had the Commission found that an interim only percent proper. increase was to 5.94 The interim increase February become effective on bills rendered after January 25, for service rendered after 1974. The interim subject utility’s undertaking rate increase was made to the approved refund which was the Commission. January 25,1974, day

On upon the same which the Commis- permitting sion entered increase, its order the interim applied approval of the fuel de- clause as above scribed to be effective on bills rendered on and after March application undertaking 1974. Attached to this was for refund with interest of all amounts collected under the fuel clause which finally later be found to exceed rates deter- just mined to be application pend- reasonable. This recited ency application for an ultimate and interim hearings increase, latter, on the an order was “being application alleged summary: awaited.” The further Earnings during dramatically had declined the last calendar year. request In the for an interim rate increase no increase in FALL TERM 1976 Comm. during ending year the cost of fossil fuel over its cost the test 1973, cost, was taken into the mean- June Fuel account. skyrocketed ^unprecedented time, had to extremes further and during expected. increases 1974 were was far Fossil fuel cost greatest operating utility having expense the accounted the percent expense during company for 57 1973. If was this the earnings to provide adequate to have continue reasonable and service, permitted rising it must rapidly to recover its fuel receiving cost in addition to and the ultimate interim already requested. increase It asked that a cost of base utility’s during fossil fuel be used which reflected the the cost period ending twelve months The base cost June 1973. suggested by utility per hour, the was kilowatt $.00481 said plants was “the actual cost of fossil fuel burned CP&L’s period the twelve months’ which ended on June 9,899 reflects a heat rate of BTU’s.” application To utility attached affidavits which explained operation fuel clause and which attested By recent presi- dramatic in fuel rise vice costs. affidavit a dent of testified estimates that of fossil the cost actually fuel burned for percent 1974 would increase 55 over during peried; similar spot cost the test market that coal on the gone per had August, 1973, from ton in over $8.50 $25.00 per January, 1974; ton in prices up percent that oil were October, since 1973. February 5, 1974, On the Commission on the basis utility’s application and documents attached found and thereto essentially concluded fossil fuel market was unstable likely time; to remain so for some future the being rapid could not absorb the rently experienced increases in its fuel cost cur- impairment provide ability without of its adequate reasonably priced service; electric designed proposed utility only to return to the expenditures increased an Commission; for fossil fuel and would not result previously increase in the rate return approved “good and that cause” been had shown for immedi- implementation ate ever, fuel clause. The how- proper

found that base cost should be determined calculating June, cost for the month of using average generation and ing heat rate for fossil fuel dur- period. the test It calculated this as million $.5178 multiplied by average year when BTU’s which test heat THE IN SUPREME COURT per of hour resulted in a base cost 9899 BTU’s kilowatt of thereupon entered per kilowatt hour. $.00513 parte provided part: its ex order which on and after Feb- effective service rendered “That on ruary 6, 1974, respect on and with fossil burned Applicant, Power after December Carolina Light permitted put Company, authorized and adjustment type fossil fuel clause of into effect a cost 32, application B, as Exhibit Rider No. to its attached reflect base cost of instead altered $.00513/KWH requested $.00481,/KWH.” base cost utility report (1) that: to the Commis- It ordered further monthly basis amount cost sion on a computations used in its derivation and and the factors (2) application be consolidated with the fuel clause general already pending application for a rate increase disposition a fuel “further review and final cost part all rates of the consideration of of CP&L.” February application filed

On (the percent an interim rate increase 5.06 additional sought percent ini- between the 11 interim increase difference tially initially percent which the Commission the 5.94 alleging: allowed) adjust- “Even with the interim and fuel clause 5.94%

ment, earnings share, equity return on and cover- age charges through rapidly continue to decline fixed will June, relief, seriously 1974, and thereafter without jeopardizing stability Company financial threatening successfully particular, ability to market Mortgage $125,000,000 May, First Bonds after coverage April. fallen has below at end of These times figures sharply comparative below reduced are shown : Only adjust- “With interim and fossil fuel 5.94% ment clause: April May June Earnings 1. Per Share months _$2.15 ended $2.00 $1.91 2. Return End of Period _ Equity 8.70% 8.15% 8.07% FALL TERM 1976 Coverage Charges 3. 1.83X of Fixed 1.98X 1.89X adjustment clause, interim and fossil fuel

“With 5.94% and an Additional Interim Effective on Service 5.06% Beginning Rendered March 1: April May June Earnings 1. Per Share 12 months _$2.18 ended $2.06 $1.99 2. Return on End of Period _ Equity 8.40% 8.81% 8.36% Coverage Charges 3. of Fixed .... 2.00X 1.91X 1.87X” 4, Attorney 1974, On March General filed “Notice Appeal” 5, February 1974, to the Commission’s interim order together Simultaneously with exceptions certain he thereto. also moved that postpone the Commission either the effective pending judicial date of the order or review the Commission’s investigation hearing modify require own an and the order to undertaking pending for refund The final determination. noting on March after application undertaking refund, had filed with its an allowed provide undertaking the proved ap- motion to for an for refund and utility’s undertaking already Attorney filed. The appeal General’s on motion dismissed by Appeals, by unreported order, Court of an Court Appeals 7410UC539; appeal No. and an from this and application by an for further review thereof were Court denied, respectively, dismissed and unreported in an order to Lake, J., Supreme 75, dissented. Court No. Fall Term reported dismissing appeals 1974. For decisions similar from involving Co., interim fuel clause orders cases Duke Power Virginia Co., Morgan, see, respectively, and Electric and Power Attorney Co., App. 497, General v. Power 22 N.C. 206 2d S.E. (1974), appeal 759, denied, dismissed and cert. 285 N.C. (1974) (Lake, J., Morgan, dissenting), 2d 282 S.E. Co., 22 App. 300, General v. Power 2d N.C. 206 S.E. (1974), appeal denied, 758, dismissed and cert. 285 N.C. (Lake, dissenting). (1974) J., 209 S.E. 2d 282 April 1, 1974, hearing, On after notice and the Commis- good facts, permitting sion found concluded that cause for existed, additional and ordered an additional interim increase percent interim increase of 5.06 to be for service ren- “effective THE COURT IN SUPREME Comm. v. utility’s subject un- 1, 1974,” April after on and dered dertaking for refund. finally approved came should be the fuel clause Whether 9, beginning July hearing for full on before the Commission utility’s application for together with was heard regarding the testified witnesses rate increase. Seven using were offered Four Textile Manufacturers a fuel clause.

appropriateness utility, North Carolina one stage proceeding, Association, Inc., at that an intervenor itself. and two testimony tended for the of the witnesses utility’s percent following: Approximately 73 show the plants that from

generating 1973 came capacity at the end of by price markets, marked fuel. The oil and coal burned fossil magnitude, de- frequency were unprecedented increases of utility’s purchases spot cost of the scribed as “chaotic.” The November, contract) (purchases of coal between not under price oil rose March, 1974, percent. The increased 143.7 per January, barrel per from barrel $5.73 $2.96 year’s January, 1973, total fossil In end. March, 1974, this per cost million BTU. In cost was 47.8 cents per Each one cent million BTU. had increased to 78.25 cents translates million BTU increase the cost of fossil fuel overall fuel dollar increase in cost. to a two million per kilowatt proposed in the cost clause is based differences price paid actually the rather than on hour fossil fuel burned gross. in total company in Thus the for its fuel generating plants, efficiency utility’s or the fuel fossil the required produce a utility’s (the of BTU’s heat rate number current), automatically reflected hour are kilowatt clause. engineers regarding the testified The staff Commission’s advantages disadvantages fuel of the clause.

relative clause, testimony type upshot that this of fuel of their efficiency, accompanied by appropriate operating accounts for monitoring eliminate application would of its disadvantages. they all, felt it an most, Overall if not making process under the appropriate in the rate device to use presented. facts North Textile Manu- offered Carolina

The witness appropriateness Association did not contest facturers FALL TERM 1976 rather, principle. opinion was, fuel in that clause His utility permitted pass should not be on to its customers percent urged of its fuel He increased cost. that adjusted only percent should so of the increase would conceded, however, be recovered. He if the evidence demon- utility judgment strated that had exercised sound business purchasing fuel, percent recovery in of its increased fuel appropriate. cost would be In this connection all of the testi- mony utility tended to show that the had done as well or better utility than purchasing cheapest prices other in fuel at the available. 4, 1974,

On November General filed a com- plaint procedures alleged in purchasing which he coal policies by poor judgment. were marred He asked the proceedings Commission to institute formal to in- vestigate procedures policies these which had in been effect January 1, complaint since preceded 1974. This had been conference, motion, held on the Commission’s own between the increasing Commission and its staff relative to the Commission’s purchasing practices Co., surveillance of Virginia fuel Power Duke Co., CP&L, Electric Power all of were then whom utilizing events, clauses. Because these 27, 1974, ordered, alia, Commission on November inter that the application fuel clause be severed for further consideration and monitoring application. from the rate increase

On December the Commission entered its order finally approving principle. facts, the fuel clause in It found summary, largest single expense as follows: The item of generation. in 1973 was fossil fuel used electric average price (the principal “burned” of coal fuel con- sumed) per increased from 46.79 cents million BTU Jan- uary, 1973, per June, to 92.5 cents million BTU in 1974. Oil per increased from 49.16 January, 1973, cents million BTU per March, to 176.84 cents million BTU in 1974. Total burned fossil million costs of the per increased from 47.8 cents January, 1973, BTU to 78.25 cents million BTU March, 1974. These increases cannot be recovered under utility’s regular rate schedules without further deterioration earnings general ultimately before rate cases can be filed and adjustment determined unless an per- automatic for them is utility mitted. The had been unable to earn the return on its equity by common found the Commission to be fair and reason- COURT IN THE SUPREME Attorney Edmisten, General

Utilities Comm. fuel. the cost of fossil largely sharp in of the rise because able utilities ninety-six privately electric owned hundred One operation in clauses forty-three had fuel states utility’s cost for the base The reasonable their rate schedules. figures and the same with was calculated fuel clause $.00513 reason- is a fuel clause in the interim order. The used method part its rea- utility can recover which the method able expenses. operating sonable findings fact any exception of these no to

There was intervenor. compelled to it was then concluded The Commission large utility fuel cost recoup increases fossil to allow the manner, orderly for reasonably expeditious “just ability operate utility’s] imperil to to do otherwise would [the (1) a fuel concluded that: provide service.” It further general part made rate schedules should be 62-133; pursuant Statute to General fixed Commission requires (b)(5) rates (2) General Statute inasmuch as utility earn in addition enable the to be fixed will produces expenses return which operating a rate of reasonable the rea- profit, should determine for it a fair Commission utility’s operating expenses so sonableness of the utility’s return would rate of but clause would not increase return; (3) fix a merely it would of the rate of slow attrition of the of return and determine the reasonableness rate operating expenses which had been rate case purposes of de- separated case for system from the fuel clause monitoring monitoring; (4) cision and further utility applied that the operation would insure fuel clause management purchases practices of fossil fuel. in its sound excepted conclusions. to each of these findings Upon or- these and conclusions approved (1) had earlier dered that: fuel clause which been finally (2) approved; all revenues col- on an interim basis be (3) through September 30, 1974, approved; were lected under it through undertaking refund all revenues collected hearing discharged; (4) September a further was January application would be held on procedures purchasing the fossil fuel of the clause and again policies would be reviewed. monthly re- with to file ordered continue 3B9 FALL TERM 1976 Utilities Comm. showing utility’s computations under the fuel clause

ports paid fos- prices for utility’s periodic purchases of and sil fuel. January final order 6, 1975, entered its

On general approved increase the entire rate case which already by utility including applied increases all interim the. fixing rate schedules In this final order allowed. utility, same cost of fossil used the base the Commission fuel, hour, in the fuel kilowatt as it used clause. $.00513

I assignments exceptions error to the December In his essentially Attorney order the General contends notwithstanding advisability fuel ad- of a fossil the economic justment need of clause and the demonstrated provide, would economic relief which the clause simply statutory authority as a rate use clause had no permits pub- making (1) The clause device for these reasons: changed automatically month from month to rates to be lished without hearing by schedules, investigation filing notice, of new rate required provisions of the the Commission as only (2) isolates one element Public Utilities Act. The clause considering and without con- of cost without sidering all other elements regular formula, with the whether the when used just produces schedule, are and reasonable total rates which (a). (3) required 62-131 The Clause vio- General Statute period concept embodied General lates the historical test Laws, (c) amended 1973 Session before was Statute (4) Chapter amounts to an unlawful 1041. Use of the formula making powers statutory abdication Commission’s enterprise parties private under the control business of the Commission. Gen- do not find the reasons advanced

We applicable provisions persuasive. find in eral Neither do we anything prohibits use of the Public Utilities Act which factual fossil fuel the context faced circumstances which the and the Commission provisions when Rather we discern in Act this case. authorize, by implication properly interpreted and anal- at least supported by ogy, our cases a device. Our conclusions are such jurisdictions. from other and those IN THE SUPREME COURT reasons, above, examine the out advanced first set We [1-3] rejecting the General for use of the clause. permit monetary monthly the clause does additions to the

While filing, notice, hearing, of customers without or bills a new rate change clearly permit any utility’s published it does approved part schedule rates. The clause itself when becomes of “ every published compensation, schedule. ‘Rate’ means fare, charge, charged tariff, schedule, demanded, observed, toll . . . by any public utility, prod or collected service commodity any rules, public, uct or offered it to the regulations, practices affecting any compensa or contracts such charge, tion, fare, tariff, toll, schedule, rental or classification.” 62-3(24). (Emphasis added.) G.S. the word “rate” Thus used only monetary the Public Utilities Act refers not which each customer must amount ultimately pay pub but also figured. lished method or schedule which that amount is Changes accomplished in these methods or schedules must be according procedures outlined in the Act. Public Utilities Changes monetary in the ultimate amount which each customer pays periodically is, therefore, clause, need not It be. the fuel figuring monetary a formula for certain additions or subtrac bill, figured tions to a customer’s not the ultimate amount so utility’s part published which constitutes that of the schedule subject provisions to the of the Public Utilities Act. proposed nothing

“The escalator clause less is more or charged than a fixed rule under which future rates to be public simply are determined. It is an addition of a mathematical formula to the filed schedules of the Com- pany charges under which the rates fluctuate as the gas Company Hence, wholesale cost of to the fluctuates. resulting rates firmly under the escalator clause are as they money.” City fixed as if were stated in terms Virginia Co., Electric Power 197 Va. Norfolk (1955). 90 S.E. 2d only as an ^[4] one While the clause does indeed adjunct, element of the rider, to the utility’s utility’s cost, isolate other here general special approved rate sched treatment only ules simultaneously which the Commission had under considera approved tion. The Commission the clause not as an isolated event but as a rider to rate schedules in which all ele duly regular ments of cost were finally considered. The rate schedule approved designed the Commission is recover FALL TERM 1976 only expense at the same base cost used the fuel fueL only will clause. Fuel cost excess of the base cost be recovered through fuel clause rider.

[5] It is theoretically true, course, use of the fuel during period experiencing reduced utility’s when is may “automatically” costs other areas increase approved always pos overall rate of return. event Such an sibility possibility even without a fuel exists not clause. because clause but because rate schedules are estab essentially past experience lished on the basis known Any probably estimates of what will time occur future. costs, the Commission overestimates future earn will approved remaining equal, return, more than all else long unchanged. so as the schedules remain Here Commis sion, approving clause, expressly recognized while the fuel that utility’s it would have base the rate other schedules on a level operating expenses of that not such the fuel clause “will in return, merely crease CP&L’s rate of but will slow attrition general aspect of the rate of return” in the rate increase of Apparently proceeded general this case. so in to do its rate January considering 6, order entered 1975. In whether the fuel ever, fact, operate utility’s would to increase the return, of the Commission was entitled to act on the normal assumption generally, being in rate cases there no evidence contrary, utility the but that other costs the would not decline probably fairly

would increase or at remain least constant. Morgan, Attorney General, supra, Utilities Commission v. Cf. 235, (holding 278 in Commission, N.C. 179 419 S.E. 2d that the fixing rates, may inflationary trends). consider In unlikely the utility decline, event that other the costs of should the either its own motion that of another party, plenary authority interested has to intervene and make including, corrections in the rate schedules if circum require it, abrogation stances should of the fuel clause. G.S. 62-130(d); 62-136(a). testimony, largely There was uncontra dicted, regularly that monitors the rates of monitoring return process of each and that with this danger anof increase in the rate return set the Com beyond mission “is minimized almost This consideration.” Court speaking through Lake, recognized Justice in Utilities Com Attorney Morgan, mission v. General, 235, 239, 278 N.C. 179 419, (1971), impossible S.E. 2d 421 that fix rates “[i]t give day return, which will more, each fair and no THE COURT IN SUPREME 342 v. Utilities Comm. done, day. The that can be best plant in on that

upon service company from stand- standpoint both from the point served, of a person fix on the rates basis is to hearings ad- Otherwise, period time. substantial perpetual process.” justments would be a ^[6] Attorney General argues further “[ujnder pur period concept which was in effect for historical test amendment, 1973 poses present case [before Laws, operating expenses Chapter 1041], Session occurring period basis test could be made the outside the not making requirement adjustments for rate to the revenue Virginia purposes. Power v. Electric and Utilities Commission Co., Apparently (1974).” 2d 283 285 N.C. S.E. arguing must as General is utility’s operating expenses same as sume will remain the setting they during period in rates for the test some were with period. Rate are set future an This is the law. schedules past. eye the future than to the no less toward (c) contemplate (b) (2), (b)(3) Statutes Commission “probable will revenues and ex consider future “Obviously, setting penses” conditions rates the future. Morgan, Attor do not remain static.” Utilities Commission ney General, (1971). 278 N.C. 2d S.E. regarding during period company’s experience the test operating produced expenses incurred “is the basis revenues for reasonably anticipated accurate estimate of what pro only if, if, appropriate in ad the near future but forma justments in the are made abnormalities which existed changes occurring during period test and for in conditions ” City period Durham, test Commission 282 . Utilities of (1972). making is, 308, 320, 95, N.C. 193 2d 104 “Rate of S.E. necessity, prediction a matter of estimate and since rates are 321, 104. Estimates re set for the future.” Id. at 193 S.E. 2d at garding probable expenses, however, future must revenues actually upon equipment plant in based operation (c) period. ; at the Utilities end test G.S. Morgan, Attorney General, 255, 273, Commission v. 177 277 N.C. 235, (1970), rehearing, on 2d 405 S.E. 278 N.C. affirmed (1971). 179 2d 419 S.E. February 5, 1974, in its interim Commission price did of fossil consider dramatic increases fuel which January, had from sometime in 1973 to 1974. occurred The test 343 FALL TERM 1976 General year by the 1973. As as set Commission ended December 19, 1974, a basis for final order December the Com- entered again apparently price mission of considered increases in the June, fossil fuel from sometime in to March and 1974. 1973 findings were, part, Its in on the fuel in based cost fossil June, objection evidence March and 1974. There was no to this findings. exception noted and no to these believe, furthermore, We do not test the historical period considering concept precluded the from Commission kind of in Commis evidence. This Court did hold Company, sion v. Power 206 2d N.C. S.E. (1974), Attorney General, relied on it was not salary, wage, error for the Commission to refuse to consider security period federal social tax known in the test increases forthcoming taking to be but not effect until the end of after saying, period, the test

“Adjustments post period in test increases certain categories expense give picture well distorted post period experience need for in revenue since test categories expense possibility other is not known and the offsetting adjustments precluded. practical is not aAs making matter, there must be a cutoff date for the of ad- justments.” holding precluded

We do not construe this to have the Com- period concept mission here even under historical test time, considering any effect at post period from test expenses trying or revenues in to set future rates. (d) expressly Statute 62-133 authorizes to con- sider “all other material facts of record that will enable it just to determine what are reasonable and This Court rates.” Morgan, Attorney General, held in Utilities Commission v. 235, 238-39, (1971), N.C. 179 S.E. 2d Com- mission could take into account the future effect of inflation by fixing “slightly necessary rates of that excess which is now, meet the . . . test reasonableness.” We need not event, fully explore implications of this decision in Court’s Co., supra. Legislature Utilities Commission v. Power substituting period concept by 1975 amended the historical test (c) in lieu of the second sentence of General Statute 62-133 following: period op- “The erating test shall months’ consist historical prior experience proposed the the to date rates are COURT IN THE SUPREME Comm. v. General consider such the shall to effective but Commission become may of- relevant, competent as evidence material and tending proceeding to show by any party to the fered public revenues, the costs, or the value of in actual utility’s providing the in service property useful used and upon is public based the within State rendered to occurring the up the time to and events circumstances Laws, Chapter hearing 184. closed.” Session is April 30, but was became effective This amendment litigation. pending to affect say that of the evidence offered the thrust Suffice it find- and the Commission’s and considered ings increase that there had been a dramatic based thereon was period extend- the test and in the ing of fossil fuel both within cost beyond fix it. The Commission did not rev- for some time expense. to the Rather it resorted enues to cover this increased which, flexibly, adjustment operating a device clause them as function the or decrease would increase the revenues holding utility. if our the Thus even cost of fossil Company, supra, interpreted is Power Utilities Commission v. concept period that traditional historical test to mean under the post expenses period not be considered increases test them, fixing needed Commission revenues to cover distinguishable readily principle. case nevertheless Commission ^[7] We also has abdicated its rate reject Attorney making powers by permitting General’s assertion By very permitting terms of the order use its use the Commission of the the fuel clause. continuing monitoring provided for its operation Both interim the final the clause. monthly required report order Commission adjustment “the of the fuel cost and the factors and amount computations prescribed in its on a form used derivation” appended to its order. In final Commission principle, provided approving clause in continuing investigation hearing (including another scheduled 1975) application January, at time for “into the of the purchasing procedures policies of fossil fuel they to the affect the fossil fuel CP&L extent September applied factors to bills rendered after 1974.” This part response provision was in of the order Commis November, complaint filed sion to a FALL TERM 1976 Edmisten, v. General Utilities Comm. utility’s purchasing pro- judgment

1974, alleging poor already Public policies. we have indicated cedures and As motion empowers the on its own Commission Utilities Act Attorney General, including the any party, or interested that of any to investigate time and alter the rates of at to unreasonable, “unjust, insufficient them if it finds them to discriminatory, provision of law.” or in violation of 62-136(a). G.S.

[8] Clearly there is nothing in the Public Utilities Act which adjustment clause. expressly prohibits the use of a fossil enough provisions to author We believe the Act contains broad permit the circum ize the Commission to such device under duty stances of this case. ultimate Commission “just G.S. 62-130. fix rate which are and reasonable.” schedules duty performing follow General In must Commission many expounded upon Statute 62-133 which this Court has limited, particularly sub times. the Commission is While may (b), facts, it ultimate a consideration of certain section many evidentiary which relevant thereto consider other facts may specifically (d) listed in Subsection not be this section. empowers expressly all ma the Commission to “consider other determine what are terial of record that will enable it to facts held, example, just in Utilities rates.” We reasonable Morgan, Attorney General, supra, 277 N.C. Commission 2d that one such material fact Commission 177 S.E. inadequacy provided may service is serious consider utility. “ grant right “all facts” is not a ‘The to consider other Legislature prop- large in

roam at an unfenced field. may exist, times, erly ing that, other bear- understood at facts rates, should value and Commission specifically to those detailed into in addition take account contemplated However, it was in G.S. [now 62-133]. by evidence, by the be found be established such facts to the end and be set forth record ” them the courts.’ have reviewed N.C, 233, 237, Co., Service v. Public (1962). 457, 460 2d S.E. findings upon which the Commis-

The facts and based thereon adjunct permissible the fuel that regular sion concluded fully set in this are out rate schedules to the THE IN SUPREME COURT Commission, cognizant duty primary fix record. The of its just rates, upon reasonable found uncontradicted evidence only way duty perform that the it could under the facts was permit of fuel clause. use the adjunct, rider, of the fuel Use clause as an to rate sched- long practice ules has been a of Utilities Commission. While legitimacy question statutory squarely of its has never been presented Court, we have had to consider occasion questions involving other the Commission’s use of have, least, implicitly approved and making principle at it in as a rate Inc., Development,

device. Utilities Commission v. Area 560, (1962) ; 257 126 N.C. S.E. 2d 325 Utilities Commission Light Committee, v. Co. and Utilities Commission v. Carolinas 421, (1959) ; 250 109 N.C. S.E. 2d v. 253 Utilities Commission Municipal Corporations, 193, (1955). 243 N.C. 90 2d 519 S.E. According to 42 the evidence in some states addition utility making North Carolina use such clauses in their uniformly schemes. approved The fuel clauses have been courts which have considered them. In Coun- Montana Consumer cil Commission, 770, (Montana v. Public Service 541 P. 2d 775 1975), Supreme construing the Montana Court, statutes similar ours, said: majority “A question of states in which the has been presented upheld validity has provisions of similar utility variously designated rate orders as ‘automatic ad-

justment clauses’, clauses’, ‘purchased gas adjust- ‘escalator clauses’, through’ ment ‘pass procedures. and These variety decisions have been made under a wide of state utility laws, procedures, divers kinds of clauses and and particular Examples upholding circumstances. of decisions validity: City their Virginia v. and Electric Norfolk of Company Power (1955), 505, 140; 197 Va. 90 S.E. 2d City Chicago v. (1958), Illinois Commerce Commission of 607, 13 Ill. 776; Corp. 2d 150 N.E. 2d United Gas v. Mis sissippi Public Service (1961), 405, 240 Miss. 404; City 127 So. 2d El Dorado v. Arkansas Public Serv ice Commission (1962), 680; 235 Ark. 362 2d S.W. Maestas v. New Mexico (1973), Public Service Commission N.M., 571, 85 compilation P. 2d which includes a approving of decisions the use of such clauses. TERM FALL Comm. v. justification use underlying “In view our procedures lies adjustment of ‘automatic clauses’ purchased place. the cost of realities of market As utility fall, cor-

gas royalty expense rise or charged its prices responding increase or decrease will either must Otherwise customers occur. reap profits. windfall or it will driven out business Today, items period rapid in costs these increases at utility, paramount; to the the former consideration may time, latter be reversed and the another situation clauses principal Automatic be the procedures concern. whereby rapid fluc- simply a means are can be reflected tuations in these costs to charged corresponding prices equally rapid customers.” Equality, Inc. Organization Energy Fair In Consumers Utilities, Department N.E. 2d Public authority 1975) (Mass. reason and were collected Supreme Judicial : Court said adjustment appeared in electric clauses have “Fuel many years. A country rate schedules during felt first

need for them was World War although of they since, us the wisdom have been with ever regularly subject controversy. been their use has a of Such upward provides typically a fluctuation or charged reflecting, downward of the rates to customers formula, with from defined accordance a base company generate used it to the cost to operating ‘pass-through’ provision power. a It is in terms & formula. of mathematical proceedings notoriously “Rate have been as well as slow lumbering inflation,

expensive. dependence In times of proceedings rapidly in- rate to accommodate rates creasing costs would threaten utilities with unrecoverable expenditures of reasonable returns. Therefore destructive provisions rates, the demand arose to build into the (and, which increases in certain costs to fair, utilities to be well) would accordance with formula decreases as automatically passed on to consumers as fluctuations charges them, expense to without the burden THE 348 IN SUPREME COURT ultimately upon utilities —which would fall consumers— instituting carrying separate proceedings out charges. varying justify adjustment made Automatic particular appeal only bar- where had minimal gaining power particular (e.g., about the items cost gas company purchasing gas supplier natural from a whose Commission), rates were fixed the Federal Power or regulatory agency keep where the State believed could particular (e.g., close watch on costs com- an electric pany purchasing generate power, pur- coal oil being scrutiny chase contracts under continual effective agency). Chicago the State See v. Illinois Commerce Commn., 607, 614-616, (1958); 13 Ill. 2d 150 776 N.E. 2d Co., 430, (R.I. Re Providence Gas 88 P.U.R. 3d Pub. 1971). Util. Commn.

“Lastly, authority we observe in other States supports position consistent with and the basic fluc- charges tuations of to consumers under a cost not, legislative clause are pattern, characteristic changes in invoking proceedings schedule of rates hearings. Chicago with incident See Illinois v. Com Commn., supra; Corp. Mississippi merce Pub. Serv. United Gas v.

Commn., (1961); 240 Miss. 404 So. 2d Akron Ohio, v. Util. Public Commn. 5 Ohio St. 2d (1966) ; Virginia N.E. 2d 266 Elec. Power & Norfolk Co., 197 (1955) Brooklyn Va. ; S.E. 2d 140 Re Co., Borough (N. Gas S.) 100 P. U. (1953) (N. R. Y. Commn.); Complaint Pub. Villages Serv. Trustees Saugerties Ellenville, Commn., N. Y. Pub. Serv. of Op. 75-5, 21, No. March 1975. But cf. In re Petition of Light Power Co., Allied & (1974).” 132 Vt. 321 A. 2d 7 Despite the statement in Montana Consumer Council v. Public Service Commission, supra, majority that “a of states” approved clauses, have fuel case, we have not found has a nor one been cited to in us disapproved which a court has use the the principle. of clause Finally, January 6, we note that the by general its final order on the application, ap- rate increase proved all interim rate increases theretofore collected the being as fair and reasonable and the entire TERM FALL y. Comm. noting utility, the order the effect sought by, the rate increase resulting in- “in approved, as clause, earlier the fossil of varying with fossil fuel on the basic or decreases creases i.e., cost, base using fuel the same the of fossil as cost costs” and the fuel clause. KWH, approved use in $.00513 ap- challenged appeal the Commission’s which was no There only the appeal was proval of the firiak rate increases. challenged a Agencies of the United States Executive decided change and which classification certain adversely Edmisten, Attor- appellant. Utilities Comm. to the (1976). ney General, 230 S.E. 2d 291 N.C.

) H-<—I ^[9] Through other assignments of error carried forward m con Attorney the General contends Commission’s his the brief monitoring operation “system fossil clusion that its with sound acts in accordance fuel clause will management that CP&L insure protect negotiations, well as practices as in its recovering than utility’s] more . . . payers the fate [from supported operating expenses” is its reasonable supported evidence. findings which, turn, are fact finding really is This statement in the Commission’s question raised of law. fact itself rather than a conclusion finding by competent supported evidence is whether this witness, Andrew believe it The Commission’s record. is. We section, testi Williams, Commission’s electrical chief of the W. fied monitoring “monthly . . . fuel fuel costs and currently monitoring program adjustment factors, similar to the clause, being during operation of interim conducted prices and their keeps aware of current A adjustment. subject to fuel clause effects on retail rates objections that such type helps eliminate” program of this regulation abrogate may prerogative of Commission earn result in operation of the clause and that ing on cross- fair rate of return. While than its determined more monitoring admitted this witness examination personnel were improved if additional procedures could be testimony taken a whole was sufficient available, when his finding by support the Commission.

HH mission’s ^[13] By interim order of his exceptions February 5, 1974, assignments error to the Com Gen- THE

350 IN SUPREME COURT General authority eral contends that the Commission was without to place parte upon utility’s appli- clause in effect ex the hearing pending- cation on an interim basis final further determination. There is no merit in this contention. Statutes clearly

62-134 permit and 62-135 authorize the Commission to changes applied placed schedule to be into hearing effect on an interim basis before and final determina- ways by may tion. There are three which this occur.

[10] One is that the Commission may refuse to exercise its power change suspend applied or, having it, to exercised hearing suspension before the determine to rescind the agree part. whole or Appeals with We the decision of the Court General, Morgan, Attorney in Utilities v. Commission App. 445, reasoning (1972) 16 N.C. 2d 842 S.E. and this supported it, Id. at 192 S.E. 2d at 846: gives (b)] au- “While [G.S. thority suspend subject to in rates the time limi- imposed, clearly require tation it does not it do so. language mandatory. permissive, Further, The ing noth- legislative in the statute indicates a intent that once discretionary power sus- exercises its pends rates, thereby necessarily authority it exhausts its regard precluded so as thereafter to be from with- drawing modifying suspension. authority suspend days clearly rates for not more than 270 includes power suspend period. Implicit them for some lesser authority granting within the discretion whether and long suspend, for how is the discretion to cancel or modify suspension made, nothing once it been has language suggests Legislature of the statute intended that the Commission could exercise discretion- ary authority granted only all-or-nothing, if it did so on an once-and-for-all basis.” change suspend If the applied Commission does not the rate automatically goes expiration

for it into effect at the of the 30 days’ provided period 62-134(a). notice for in G.S. Morgan, Attorney General, supra; Commission v. also see Milling Ill., Antioch 200, Co. v. Public Service Co. North 2d Ill. ; Department Transpor (1954) 123 N.E. 2d 302 State ; Washington, (1949) tation 2d 206 P. 2d Wash. 351 TERM 1976 FALL Edmisten, General Comm. v. Commission, Utility 14 Pa. Ct. Commw. v. Public Baker Pa. 205(d) Construing (1974). Section 322 2d 735 A. 824d(d) (1970), is almost Act, Federal Power 16 U.S.C. § Appeals Court of 62-134(a), United States the identical to G.S. Pipe relying Line Columbia, United Gas for the District of 103 Division, 358 U.S. Memphis Light, & Water Gas Co. (1958), said: language interpreted to Supreme “The Court has period only notice for a minimum create waiting Commission, also a maximum and the but customers Thirty days the maxi period filing is .... for compelled the time it wait from can be to mum a changes changes take effect

files rate until the date the its suspension properly its exercises unless the Commission power.” Michigan Power Federal Indiana Electric Co. v. & 1974), (D.C. cert. 2d 341 Cir. F. (1975). denied, 420 U.S. 946

out a ^[11] hearing by Another way and order of the for rate changes Commission to become is effective with provided for section, has even if in G.S. 62-135. Under this timely the Commission utility may change, suspended the nevertheless rate change place “upon expiration of six the rate into effect would have months when such rate or rates after date statutory effective, suspended” by giving if become not so subject subject statutory provisos to certain to notice utility’s filing undertaking surety approved or bond upon of all conditioned a refund with interest rates Commission finally excessive. This section was enacted determined to be minimizing purpose unavoidable utility “for the the effect of the lag filing application time between an com entry pany for increase in its rates for service and the an finding proper.” such an increase order of Commission Co., 2d v. Power N.C. 206 S.E. Utilities Comm. (1974). rogatives ^[12] under G.S. third way 62-134(a). for This section clearly exercise authorizes pre applied an affirmative order to “allow” changes go expiration rate into effect even before may thirty days’ period pre “under notice conditions as it such conditions, prescribe power to power like the scribe.” The power pre- suspend changes, from includes the refrain IN THE SUPREME COURT scribing them. Thus the Commission its affirmative order applied allow immediately to become ef- conditionally unconditionally. fective ^[13] In the case before us the Commission, finding “good so, properly granted cause” to prerogatives do exercised the by (a) it G.S. 62-134 when it entered its first interim order on February 5, 1974, effectuating and its second interim order ab initio proffered undertaking earlier for refund. ,It important changes is to note that whenever rate are go by allowed any into effect the Commission under not, three methods described generally, it is nor should making the end of the proceeding. rate Article 7 of the Public Act, gives Utilities authority 62-130, seq., G.S. et plenary the Commission upon

to act rate simply which it allows to become effective: “The Commission shall from time to time as often may require, change circumstances and or revise changed cause sion, any to be by or revised rates fixed the Commis- charged by any or allowed public to be utility.” G.S. (d). required “just All rates are to be and reasonable.” (a). G.S. 62-131

There is statutory moreover dichotomy Article 7 a clear between made, rates which by are or established the Com- fixed mission on the one hand simply permitted and those which are go or allowed to into effect at the instance of the on the other. by Rates which are Commission, established hearing, findings, after full conclusions, and a formal order (see required G.S. 62-81 procedure for the rate proceedings cases or rates”) for “an increase in “shall be just deemed reasonable, charged by any public utility different from those so established shall be deemed unjust and unreasonable.” G.S. 62-132. Rates which the Com- simply mission go by any allows to into effect of the three subject methods being challenged described are by interested parties or “hearing itself and thereon, after a if the charges Commission shall find the rates or collected to be other be by than the rates established and to unjust, unreasonable, discriminatory preferential, may” pursuant order refund provisions to the (Emphasis G.S. supplied.) 62-132. FALL TERM 1976

IV ^[14] nowWe consider the General’s final contention February en interim order of the Commission’s mandates, statutory complied parte, if it with ex even tered provision, Con the Land North Carolina our Law of violates I, stitution, Due Process Article and the Clause § His Amendment to the United States Constitution. Fourteenth argument provisions require due these constitutional is that parties heard opportunity to be to and for interested notice an any general change effective. can become before noting argument easily is most answered This complained the Commis- of was not an order which change, made, fixed, but or established a rate schedule sion rather one permitted” it “authorized and or in statu- change sought tory language, “allowed” a rate hearings go pending and final determination effect, into further utility’s undertaking subject In addition for a refund. to the hearings by subsequent protection to the afforded seeking party to utility’s challenge undertaking, interested refund change to the also been entitled rate would have just which referred. 62-132 to we have benefits of G.S. by this under the fuel clause permitted collected amounts to be instituted, order, proceeding been had a G.S. interim charges by utility “dif- rate have considered would been unjust and deemed established . . . [and] ferent from those hearing under this section Commis- If after unreasonable.” discriminatory “unjust, unreasonable, found them to be sion had even absent the ordered a refund it could have preferential,” or utility’s agreement rights procedural provide one. Whatever fully pro- parties were thus process interested afforded due (D.S.C. 1973), Supp. Yonce, 370 F. tected. Holt affirmed Light ; v. Iowa Power & (1974) Sellers curiam, 415 U.S. 1974) ; Public Baker v. Pa. (S.D. Iowa Supp. 1169 Co., 372 F. Assoc. Activist supra; Consumer Utility Commission, Hartford 1974). (D. Supp. Conn. 381 F. v. Hausman. Appeals the Court The decision of . Affirmed. dissenting.

Justice Lake Light Company Power and January Carolina On gen- Commission (CP&L) pending before the had COURT IN THE SUPREME sought increase its which a substantial eral rate case date, CP&L electric service. On basic schedules rates for seeking arises, appeal application, filed a new out of this approval its rate addition to basic Commission of its each (the clause). fossil fuel of a clause schedules permitted this hearing, without notice or basis, proceedings the two an interim consolidated be done on later, hearing purpose and, conducted several months for the hearing. such consolidated hearing, re-separated the

After two such separate proceedings purpose for the of decision and entered (dealing In basic matter with rate orders therein. schedules), the first allowing issued an order re- Commission fixing quested increases, schedules rate thus CP&L’s basic rate adequate at levels which Commission deemed enable return on the fair value to earn fair rate of CP&L (the rendering properties electric service used useful appeal. base). That not before on this Con- rate order is us it must be assumed that purposes appeal, sequently, for schedules, approved, rate there would enable CP&L those basic to earn a prevailing under at the of return conditions fair order. 62-132. time of that G.S.

Substantially simultaneously earlier), (a days few entered, proceeding, fuel clause appeal permitting us on this add each before CP&L to basic rate schedule a clause. permitting

The final order so fuel clause to inserted interim fuel in the basic schedules affirmed the already increases made but did further increase the basic instantaneously. Thus, rates of the then immediate CP&L present, approved it left the basic in the order first above rates effect, by these, hypothesis, permitting in mentioned CP&L to prevailing a return on earn fair its rate base under then con- ditions. give permission, fuel did was to clause CP&L

What hearing, in increase advance without those further rates, infinitum, month month ad in each sub- basic after sequent per in which cost of Kwh month CP&L’s fuel exceeded per Kwh, which it a determined base cost fuel every issued, month since the order the amount has done FALL TERM Utilities Comm. excess, resulting varying incrase,

of such and so of the rate by month month. using fallacy economic in

The basic the automatic fuel technique increase, month, per clause month after the rate charged power Kwh the consumers in un- of electric lies (asserted assumption accepted warranted CP&L and Commission) that, increase, Kwh, per since each rate month’s equals utility’s utility’s per Kwh, additional cost of fuel by hy- and, rate of return on its rate base remains constant legal pothesis, fallacy granting fair. The in this method rate statutory increases that is it is not within the au- Commission’s thority, only authority the Commission has.

By hypothesis, CP&L, the basic rate fixed schedules of mentioned, the Commission’s order first above as of the date fixed, yield were sufficient a fair rate of return utility’s base, rate and no more. G.S. This 62-132. condition indefinitely, long expenses will continue per so as the total Kwh, capital (a its total Kwh sales and its cost rate fair return) all remain This constant. condition will also con- indefinitely long except tinue so as all of these remain constant expense (e.g., fuel) one item of and variations therein are precisely charged per balanced in rate variations Kwh power. theory the consumers of electric The reality. of the fuel clause is that this latter situation is a That is economic fallacy making. clause method of rate support whole thrust of CP&L’s evidence in of its application for substantial increases its basic rate schedules (now appeal question before us another on an unrelated 1976) Case No. Fall Term it has sustained and for long anticipates steady growth time to come and substantial upon power and, therefore, demands it for electric must build erating plant, expecially gen- extensive additions to its Thus, put facilities. as of the time the fuel clause was schedules, into its expected not, its Kwh sales were and were not remain, constant, relatively or even so. Ob- viously, increase, as Kwh expenditure sales so does the total fuel, but per increases Kwh sold only in increases, amount fuel cost Kwh an so generation power not, per se, increase does cause a fuel However, testimony clause rate shows, by increase. the record president, only of CP&L’s “operating fuel cost is of % IN THE SUPREME COURT Comm. equal expense. is, portion maintenance” That and almost an expense composed “operating and maintenance” of other is including supplies items, wages, salaries and and and materials experience, other as of the date than fuel. While common known approved, expectation the fuel clause was wage would lead to the expected would rise and the then addition to the levels also huge generating utility plant of new nuclear facilities would nothing operating personnel, some additions necessitate suggests company’s us or ex- record before shows following penditures, approval clause, months wages, salaries, supplies and than fuel and materials other per sold, expenses would not decline actually Kwh or that have not these per declined Kwh sold.

Depreciation separate expense apart is from the and “operating expense and maintenance” of which fuel cost is expense. Thus, expense So is tax CP&L’s for fuel is far 57%. less gross expenses, per than half of its both total and Kwh. CP&L, The record shows at time these orders were issued, contemplated (and it has since made and still contem- huge plates) capital for investments the construction of addi- generating plants. nuclear tional The fuel clause reflects the generation upon per Kwh, of nuclear effect of fuel cost ignores switching it progressive but all other effects of CP&L’s generation generation upon from fossil to nuclear CP&L’s per gen- expenses Obviously, total Kwh. this nuclear switch to depreciated property eration means much more to be and taxed many charge monthly more or dollars in the annual to de- preciation expense. But, plants these new will increase tre- mendously Otherwise, the kilowatt sold. would hours there be building point they no them for are intended to im- replacements existing plants. depreciation mediate theWill expense per Kwh be constant in future it months? Has been during highly improbable. the life of That the fuel clause? be, greater been, depreciation or has it or Will less than expense per Kwh taken into account its setting the basic rate schedules? No one can tell from plants depreciate record before us. nuclear at the Will same year per per plants? month steam The record before question. does not answer us managed steadily utility, CP&L,

A well electric such as generates efficiency improves more and more sells employee employee wage per Thus, Kwh rates hour. FALL TERM 1976 Edmisten, Attorney General

Utilities Comm. wage wages may go up expense for costs while total dollar and greatly per Kwh Even increased executive salaries declines. charges may may Depreciation spec- per rise be less Kwh sold. charges tacularly depreciation per in total while Kwh dollars property expense, with tax sold decline. So it is maintenance expense, expense supplies materials other and and than fuel. by permits approved

The fuel clause CP&L looking solely rates, month, to raise its after the ris- month at ing ignoring per utterly hap- cost of fuel Kwh and what has substantially larger pened (in aggregate) expenses to the per depreciation, taxes, wages, salaries, Kwh for and materials supplies fuel. other than present

In the context total dollar variations and variations percent are computation not data. useful is is a What depreciation needed wage expense, salary expense, expense tax per expense sold, and miscellaneous Kwh so as to reduce these expense expense items fuel and the item to common denomina- Then, only then, reviewing tor. can the or the court, determine per whether an increase in fuel cost Kwh has offset, been part, by in in per whole or in decreases other costs If occurred, Kwh. such part, offset has in whole in the fuel produces clause increase an increase in the rate of return, which, hypothesis, adequate is made the basic rate schedules. picture This total has not present been in shown record

and, obviously, require the fuel clause developed does not it to be and taken into account before month month rate increases are made on per account an increase in fuel cost Kwh. No can record, one present determine from the and no one can de- required trigger termine from data future rate increases un- clause, any given der the fuel a decline in whether month there has been wage expense per sold, depreciation Kwh or in expense per sold, offset, Kwh part, whole or in- expense. crease in entirely aught possible, It is that appears aught the record before us or that fuel clause requires any to be taken month, into account in wage, sal- ary, depreciation, tax, maintenance, supplies materials and ex- penses may, aggregate, Kwh sold have declined even expense per more than fuel Kwh sold has risen. My ground dissent CP&L, is not month after

month, during pursuant the life the fuel clause to the Com- IN THE SUPREME COURT order, not needed a in the amount mission’s has rate increase that, computed pursuant be were the fuel clause. It missing greater data, mentioned, shown, rate an even above My appropriate. dissent increase would or would have been show, ground is on the that the evidence in this record' does trigger required data increase under the show, will not such need for a increase clause month for the reason utterly impossible for the Com- Court, record, mission, to from this or this determine from clause, required whether such as under the fuel data is per by expense fuel Kwh month in month increase CP&L’s by offset, 'part, in in in a other whole or decrease sold has been expenses per Kwh sold. any given

If, in month the life the fuel clause there of of offsetting part, decrease, or in in has in whole other been such expense, then in electric service rates of the increase items clause, necessarily month, pursuant fuel raised by proper of that found Commis- CP&L’s rate return above schedules, it from which determi- sion when fixed basic would, appeal increase nation no in authority. was taken CP&L. Such rate statutory my view, clearly be excess Commission’s authority has no other Commission authority. give can, course, no Utili of Court Commission 715, Merchandising 722, 220 Co., ties v. 288 Commission N.C. Mount, City Rocky (1975); v. 2d 304 Electric Service S.E. of ; (1974) v. Commission 285 203 S.E. 2d 838 Utilities N.C. ; (1972) Telephone Co., 318, 336, 189 S.E. 2d 705 281 N.C. R., 242, 245, 2d v. 268 150 S.E. Utilities Commission R. N.C. ; Lines, 240 (1966) v. Motor N.C. 386 166, Utilities Commission (1954). 2d 81 404 S.E. (1) done It fixed basic has is this: What which, yield date, were sufficient

rate schedules utility managed fair a fair rate of return on the value to well of its services; properties supplying used and useful electric CP&L, (2) now into fu- it said “From the indefinite has hearing, you may ture, raise these rates in further without greater your per than expense Kwh sold in which is month your expenses now, irrespective happens to all other what (actually sep- part two Kwh sold.” This second my view, orders) is, a clear violation of statutes arate may prescribing author- the manner which rate increases ized. FALL TERM 359

Utilities Comm. general Clearly, proceeding case, the fuel clause every company applies the fuel clause rate schedule 62-137; Development, G.S. Utilities Commission v. Area has. Inc., (1962) ; 2d 325 N.C. S.E. Com Light Co., mission v. and Utilities Commission v. Carolinas Committee, (1959). 250 N.C. 2d 253 S.E. authorizes, prospectively, an indefinite series finding month, hearing, rate increases month after with no no anything single of need and no evidence whatever as to but one expense. item making

It preferable, well be that rate formula is more public, efficient fairer both to and to long, laborious, expensive, dilatory pro- than is the inexact and prescribed by so, Chapter cedure 62 of the General Statutes. If efficiency surely require both fairness and would formula include determination of other items salary, expense depreciation, maintenance, wages and Kwh — supplies, along materials and taxes and with fuel miscellaneous — entirely expense. It would seem feasible to determine these all expenses per Kwh, month, by relatively simple, speedy, month inexpensive reasonably accounting and techniques, accurate leav- ing the rate base the fair rate of return thereon for much frequent by less determination the Commission in the now cus- tomary way prescribed Obviously, in G.S. 62-133. no there is change type constitutional barrier to this of short-term rate utility being object when the rates are whose fixed does not Accuracy computation thereto. application expense data to the month in which service is rendered could be had deferring billing days of the customer a few until after the end of the month in service is rendered. Such a rate making may formula protection well furnish more to the rate- paying public friendly, drowsy dog than does watch bound tape red of an obscure statute. This, Legislature. however, is for the Defects exist- ing causing long, tedious, expensive statute proceed- and inexact ings reviewing do not the Commission, authorize court, aor ignore statutory requirements making general rewrite or Barnhill, rates. The words of Justice later Justice, speaking concerning predeces- Chief for this Court present sor to the 62-133 in G.S. Utilities Commission v. State COURT THE IN SUPREME Attorney Edmisten, v.

Utilities Comm. Telegraph Co., 239 N.C. Utilities Commission appropriate. He said: presently (1954), are 2d 133 80 S.E. ‘old, ram- as an characterized “This has been statute to be misty statutory the matters bling declaration L. .’ 12 N.C. . . account the commission taken into may, State law in this (Review) that as it is the 298. Be it revised, amended, until to be the law and will continue repealed Legislature. intention to shut have no We import eyes provisions the clear or to circumvent our language.” of its my clearly mak- statutes, view, forbid all

ing by (even into account expense one which takes formula oversteps its au- expense). elements When reviewing duty aside its thority court to set is though reason- to reach a result order, the order seem even (b) (2). able se. G.S. serving major has North Carolina Each electric years many past within the three

collected from its customers clause, pursuant all such clauses to its fuel millions of dollars being my opinion, applied by In structured as is that CP&L. require unlawfully To them made. these collections have been very jolt likely financial to be refunded would severe now to the They have, however, companies. the use respective had nearly years, huge sums, without periods up to three of these interest, high unprecedentedly and it interest rates in a time of Attorney General rate-payers or of the fault of the huge snowballed into such unlawful collections have that these amounts.

Immediately, upon the issuance of each of the orders of initiating clauses, then Gen- the fuel Commission eral, sought judicial power, de- of the consumers of on behalf danger lawfulness, pointing out the termination of their upon judicial Appeals, delayed review. Court involved, respective refused to con- motions of the utilities saying prema- orders, appeals were sider the merits of the Virginia Morgan, v. Electric and General ture. See: Morgan, ; App. 300, (1974) Co., 22 2d 338 N.C. S.E. Power Attorney Co., App. Power Duke N.C. General v. (1974). denied certiorari In those cases this Court 2d 507 S.E. (1974). The dismissal appeals to it. 285 N.C. 758 and dismissed appear to present matter does not appeal in the of the then FALL TERM 1976

Utilities Comm. Appeals. This reported reports of the in the Court have been cases, having Court, Vepco Duke denied certiorari in the present in the matter. certiorari was denied having case, (e) application 62-134 has to this G.S. no subsequent been enacted to the order of the Commission appeal (b) prescribes which relates. in detail this G.S. fixing procedure which the Commission must follow general quite in a rates rate case such as this. The Commission obviously purport did not even to follow statute matter approving the month month fuel clause increases. Its order is, clearly therefore, the fuel clause in excess of its authority nullity conferring and, consequently, upon is a CP&L right pre- no whatever to collect rate in those excess of approved by scribed its basic rate schedules the Commission. finally approved It is true that the fuel clause was the Com- following hearing mission in which the fuel clause matter was previously pending application consolidated with in- for an Assuming hearing crease in basic rate find- schedules. ings upon adequate made the evidence received thereat were support the Commission’s order as to rate sched- those basic ules, Kwh, expense per reflected the then level of fuel authorizing general further, by month, month in- creases, pursuant clause, to the fuel the fu- in what was then ture, (b) was not in accord with G.S. 62-133 those further since effect, effect, rate increases were to take and did take hearing (b) requires. with no further such as G.S. 62-133 COMMISSION; STATE OF NORTH CAROLINA ex rel. UTILITIES COMPANY, EDMISTEN, DUKE APPLICANT v. RUFUS L. POWER GENERAL, ATTORNEY AND GREAT LAKES CARBON CORPORA INC., TION, INTERVENORS No. 131 (Filed 1976) 21 December 3; adjustment Electricity clause 6— Utilities Commission fossil § § — validity statutory authority in The Utilities Commission acted within its permitting an electric to utilize a fossil regular adjunct, rider, schedule. as an

Case Details

Case Name: State Ex Rel. Utilities Commission v. Edmisten

Court Name: Supreme Court of North Carolina

Date Published: Dec 21, 1976

Citation: 230 S.E.2d 651

Docket Number: 39

Court Abbreviation: N.C.