*1 CASES ARGUED AND DETERMINED IN THE SUPREMECOURT
OF North Carolina AT
Raleigh COMMISSION; STATE OF NORTH CAROLINA ex rel. UTILITIES NORTH ASSOCIATION, INC.; CAROLINA TEXTILE MANUFACTURERS THE DURHAM; ACTION; ALLIANCE; CITY OF CAROLINA KUDZU GREAT CORPORATION; Attorney EDMISTEN, LAKES CARBON L. RUFUS General v. DUKE POWER COMPANY No. 49 (Filed 1982) January 8;§ § 1. Administrative Law 51— Utilities Commission electric rate case —stand- judicial ard of review judicial The standard of review of an order of the Utilities Commission in increasing power company’s rate case depreciation accumulated account adjustment by pro power an to a company offset depreciation ex- forma pense 62-94(b)(4), by was whether the order was “affected error of law” G.S. and the fixing standard of review of the power Commission’sdecision com- pany’s equity rate of return on common was whether the decision was “ar- 62-94(b)(6), bitrary capricious,” “unsupported or G.S. or competent, material submitted,” in view of the substantial evidence entire record as G.S. 62-94(b)(5). utility § 2. Utilities Commission 56— review of rate order showing impropriety The burden of of rates established error, party alleging Utilities Commission lies with the such and the rate order will be upon appellate affirmed if consideration of the whole record the court finds that the Commission’s decision is error not affected of law and the by competent, supported facts found the Commission are material and evidence, any taking contradictory substantial account into evidence or conflicting evidence from which inferences could be drawn. 3; Electricity § electricity —authority 3. 25— Utilities Commission rates for utility’s depreciation Utilities Commission to increase accumulated account authority The Utilities Commission had under G.S. 62-133 to reduce a power company’s increasing base its accumulated account SUPREME COURT IN THE *2 v. Duke Power Co. Utilities Commission by power company in the same the pro to a as an offset forma 62-133(b)(l), expense. G.S. actual test to annualize its amount (c) (d). 3; § fair rate of return 41— electric rates— Electricity § Utilities Commission 4. power company’s rejection uncontradicted equity— on common testimony in order of reasons —statement testimony of may reject the a uncontradicted The Utilities Commission on the com- company’s expert as to the fair rate return witnesses power practice is while for Commission pany’s equity, and the better common testimony, required rejecting it is for such in its order its reasons state Furthermore, in this rate case suffi- of law. Commission do so as a matter testimony by rejected ciently explained that it uncontradicted in its order expert equity on common company’s that a fair rate of return power witnesses because, company’s experience, the on the historical based was 15% 15.5% competing open in the in funds company to be successful would continue equity of by earning on common 14.1%. a rate of return market of “other material § 24— case—consideration 5. Utilities Commission —findings order in final facts” considered the Utilities Commis- material facts record” The “other 62-133(d) just fixing rates must be reasonable and pursuant sion G.S. may reviewing court see what that the forth in its order so found and set are. these elements 3; § on § 41— fair return common Electricity Utilities Commission 6. —sufficiency of evidence equity Utilities Commission —determination was a fair rate of determination that The 14.1% Utilities Commission’s by competent, power company supported was equity for a return common arbitrary, was thus not evidence the record and material and substantial capricious or unreasonable. CARLTON concurring part, dissenting part. Justice join dissenting opinion. in this and Justice Exum Chief Justice Branch (hereinafter Company Duke Power right APPEAL as of 7A-30(3) “Duke”) a of the Court from decision G.S. pursuant (1981), an affirming 277 S.E. 2d App. 51 N.C. Appeals, (hereinafter North Utilities Commission order of the “Commission”) Carolina proceeding rate-making in a case. general E-7, Sub. 289. as Docket No. identified before Commission by presented appeal: Two issues are (1) con- May rate-making powers under Commission utility’s increasing 62-133 reduce a rate base ferred G.S. § Utilities Commission v. Duke Power Co.
its accumulated depreciation account as an a offset to pro forma adjustment by utility in the same amount to depreciation ex- pense? We may. conclude that it
(2) May the reject Commission testimony uncontradicted utility’s expert witnesses as to the fair rate return on the so, utility’s common if whether equity, order establishing lower rate of return must state its reasons for rejecting such uncontradicted evidence? We conclude that the and, may reject testimony such while the better prac- *3 so, tice is for the Commission to state its reasons for doing it is not required to do so a of as matter law.
We find the before proceedings the Commission and the Com- mission’s order of rate determination proper and affirm the Court of Appeals. Jr., Griffith,
Steve C. Clarence W. Walker and K. Stephen Rhyne Duke Defendant-Appellant Power Company. for Paul L. Lassiter Plaintiff-Appellee North Carolina for Utilities Commission Public Staff. Ervin, Whisnant,
Byrd, Byrd, Blanton & P.A. B. by Robert Byrd Great Lakes Plaintiff-Appellee Carbon Corporation. for Eller, Jr., Thomas R. Plaintiff-Appellee North Carolina for Association, Textile Inc. Manufacturers
M. Travis Payne Plaintiff-Appellee Kudzu Alliance. for Thornton, Jr., W. I. Plaintiff-Appellee City Durham. for of MEYER, Justice. February
On 29 1980 Duke filed an application with the Com- mission adjust and increase its rates charges and for electric service to its retail in North customers Carolina an average $91,572,000. approximately or In application, 9.61% Duke pro- posed adjustments to make the rate effective 30 March 1980. In 1980, determined, an order dated March the Commission inter alia, (G.S. a application constituted general rate case 62-137), suspended proposed adjustments period up § Duke Power Co.
Utilities Commission v. (G.S. 62-134), on the public hearings ordered days to 270 hearings. of notices of such The and publication rates proposed twelve month end- period as the period set the test interventions, the matter was heard After December 1979. ing 31 in various areas hearings in public July, 1980. June and through State Final issued its Order the Commission
7On October $34,122,000 of the increase Duke requested which disallowed $57,450,000 from thereby the increase reducing allowed requested. or amount 63% 9.61% 6.03% requested on and after October for service rendered was allowed increase (1) Commission, alia, inter increased In Final Order 1980. its account, thereby reducing the Duke’s accumulated $3,879,000 base, as an offset pro the amount forma Duke in test amount made that same (2) fixed the rate of return on common depreciation expense from Final commissioner dissented at One 14.1%. equity support was no that there evidence ground Order on equi- as to the fair rate return determination Commission’s ty- allowed Duke’s mo- Appeals and the Court appealed *4 by of order hearing appeal and decision dated
tion for accelerated of May Ap- filed 5 the January 1981. In an Court opinion reasonably that the final is certain concluded that peals “[i]t by Supreme of will be determined appeal this disposition therefore, attempt recapitulate will not to [w]e, Court [and] . . .” of . reasoning detailed statement or set out a evidence [our] held that the of then Commission’s Appeals The Court does not contravene depreciation account to Duke’s accumulated 62-133(b)(l) (c), determina- that and Commission’s G.S. § is supported of on common equity rate return tion a 14.1% fair adequately and that evidence by competent its determination. the reasons for stated before Appeals exceptions before Court Duke’s components Commission’s solely two relate Court erred, that the Commission Duke contends determination. first, by deducting improperly base understating Duke’s rate by $3,879,000 contrary to G.S. in accumulated therefrom second, 62-133(b)(l); explain its to state and failing § reasons evidence uncontradicted to follow Duke’s failing IN THE SUPREME COURT
Utilities Commission v. Duke Power Co. was the 15.0% minimum fair rate of return its common equity. We do not find that the Commission erred respect. either
I. Standard Of Judicial Review case, we must first determine the appropriate standard of judicial [1] Before proceeding address the substantive issues of this review of the Commission’s rate determination order. Duke’s appeal to this Court of the decision of the Court 7A-30(3).
Appeals is as of right pursuant to G.S. See also G.S. § 62-96. Duke’s to the appeal Court Appeals pursuant was § 62-94(b) G.S. 7A-29. also See G.S. 62-90. specifies G.S. § § judicial standard review Court Appeals. alia,
That section provides, inter reviewing court (1) (2) (3) affirm, reverse, (4) void, may declare null and (5) modify, or remand for further proceedings, decisions of the Commission. The power Court’s to affirm or remand However, not specifically circumscribed the statute. and, power of the modify fortiori, reverse or Court void, substantially declare null and circumscribed to situa- (a) tions in which court must find that appellant’s (b) (c) rights, substantial have been prejudiced, by Commis- inferences, sion findings, or conclusions decisions which are (1) in violation of provisions; constitutional or (2) statutory in excess of or authority jurisdiction of the
Commission, or (3) made unlawful upon proceedings, or (4) law, affected other errors of or (5) unsupported competent, material and substantial submitted,
evidence view of the entire record as or (6) or arbitrary capricious. *5 Co., 14, 19-20, Utilities Comm. v. Oil 302 N.C. 273 S.E. 2d
(1981). (c) Court, Subsection of G.S. 62-94 requires reviewing § determinations, making the foregoing to “review the whole In record.” order to determine whether the of the decision Court of Appeals is proper, Court must determine which of the Co. v. Duke Power
Utilities Commission and should have addressed Appeals of criteria the listed Court of the in its review criteria court addressed those whether that to be The criteria of the Commission. and order proceedings to the presented the issues is in turn determined employed error that of the contended it is the nature of Appeals, Court the criteria. dictates presented Duke concerning depreciation,
As the issue issue: following of Appeals brief to the Court its original reducing action 1. Did the Commission’s at the end of the test in service Duke’s property cost of which did not represent depreciation an amount period use by previous cost “consumed original portion contravene G.S. by depreciation expense” recovered 62433(b)(1) (c)? §§ that issue as follows: answered Appeals The Court ap- in the presented the first question regard With brief, was correct in our opinion, pellant’s depreciation by increasing base Duke’s rate reducing $3,879,000 Duke had made to the fact that due reserve amortization adjustments depreciation to its similar ad- making corresponding without for the test expenses account. The ad- depreciation to its accumulated justments 62433(b)(1) Gen. Stat. contravene did not justments § (c). Morever, adjustments, without such we believe that artificially thereby allow- high, have been rates would Duke’s of return. a fair rate earn more than ing treated Appeals Duke and the Court of It is that both apparent Commission, in the action the issue as a contention was “af- depreciation, adjustment accumulated making the correct Appeals applied by error of law.” Court fected to accumulated that the for review as it held criteria 62433(b)(1)and Stat. not contravene N.C. Gen. “did depreciation (c).” the cor- Appeals applied that the Court of Having determined issue, must this Court review on the standard of rect affirming the ac- erred Appeals the Court whether consider tion of the Commission. fixed concerning equity the rate of return on
As to the issue Commission, in its brief to Court presented by the issue: following Appeals *6 IN THE SUPREME COURT
Utilities Commission v. Duke Power Co. 2. Is the Commission’s determination that is a 14.1% fair rate of return on equity unsupported by substantial (i) arbitrary capricious evidence and and when Commis- any sion without rejected, setting justification, out uncon- tradicted evidence that 15.0% is the minimum fair rate of (ii) return on equity and the method which the Commis- sion of return on equity established the rate cannot be deter- mined from the Commission’s order? of Appeals Court answered that issue as follows:
With regard to the second question presented ap- brief, in pellant’s opinion, our determina- Commission’s tion that fair rate return on common 14.1% equity fully supported by the record and was not arbitrary and order, capricious. In its the Commission made findings sup- ported by competent evidence and adequately stated the reasons for determination its that 14.1% should be the rate on return Duke’s common equity. We presented conclude from the issue and the conclusion reached Appeals Court issue of the rate of return on equity that both Duke and the Court Appeals treated the issue as a contention that the Commission’s decision in fixing the “arbitrary rate of return at was or capricious” 14.1% or “unsup- ported by competent, material substantial evidence in view of the entire It record as submitted.” is obvious to this Court that the Court of Appeals the correct applied criteria for review itas held that the Commission’s determination of 14.1% rate of return fully “is supported the record and was not arbitrary and capricious” that the findings Commission “made supported by competent evidence and adequately stated reasons . determination . . .” Having determined that the Court of Ap- peals applied correct standard review on the rate of return issue, this must Court consider whether the Court of Appeals er- red in holding that the Commission’s decision was not abritrary or capricious and was in fact supported by the record.
II. The Statute For proper understanding presented by issues this Court, appeal addressed it is necessary to set forth 62433(a) (d) provisions through G.S. in their entirety. SUPREME IN THE COURT *7 Co. v. Duke Power Utilities Commission (a) utility subject any public for fixing In the rates motor than carriers and Chapter, of this other provisions utilities, shall fix water and sewer certain utility and to the public shall be fair both such rates as consumer.
(b) rates, the shall: In such fixing
(1) original cost the reasonable Ascertain useful, or to be used and utility’s used public property the test period, time after within a reasonable and useful within public rendered in the service providing State, which been of the cost has less that portion ex- use recovered by previous consumed original of investment in cost pense reasonable plus (construction progress). work in plant under construction utility’s public property, of the ascertaining In the cost as of effective date progress work construction until such comes plant be excluded this subsection shall for prudent expenditures into but reasonable service the effective date work after progress construction to the subject provi- shall be included this subsection (b)(5)of this section. subparagraph sions of (2) utility’s revenue under the public such Estimate rates. present proposed (3) reasonable public utility’s such Ascertain current- including actual investment expenses, operating depreciation. actual through reasonable ly consumed (4) prop- on the of return cost Fix such (1) will as to subdivision pursuant erty ascertained to pro- utility by management sound the public enable shareholders, considering its for fair return duce a factors, they other conditions and economic changing exist, in ac- and services its facilities to maintain then its requirements the reasonable with cordance franchise, and by its territory covered in the customers on terms for funds capital the market compete customers are fair which reasonable and which are investors. existing to its IN THE SUPREME COURT Utilities Commission v. Duke Power Co.
(4a) Require utility each public to discontinue capitalization composite cost carrying capital (allowance funds) funds used to finance construction for on the construction work in progress included its rate base upon the effective date of the first and each subse- quent general rate order with respect issued to it after subsection; the effective date of this for allowance funds may be with capitalized respect to expenditures con- struction work in progress utility’s included *8 property upon which rates were fixed. In determining net operating income for
return, the Commission shall any not include capitalized allowance for funds used dur- ing construction on the construction in work in- progress cluded utility’s the rate base.
(5) Fix such charged rates to be by the utili- public ty as will earn in addition to reasonable ex- operating (3) penses pursuant ascertained to subdivision of this subsection the rate return pursuant fixed to subdivi- (4) (4a) sions and on the public utility’s cost proper- (1). ty pursuant ascertained to subdivision (c) utility’s The of the original public cost in- property, cluding its construction work in progress, shall be determin- ed as of test the end of the used in the period hearing and future probable revenues and shall expenses be based and plant equipment at operation that time. The test period shall consist of 12 months’ ex- historical operating perience prior to the date the rates are proposed to become effective, relevant, but the Commission shall consider such material and may by any evidence as competent be offered party tending proceeding changes show actual costs, utility’s revenues or cost of the public property useful, used and or to be used and useful within reasonable time after the period, providing test the service rendered State, to the public within including construction work is progress, which based circumstances and upon events occurring up to the time the hearing closed.
(d) The shall all other Commission consider material facts record that will enable it what to determine are reasonable just rates. SUPREME IN THE COURT
10
Co.
v. Duke Power
Utilities Commission
are
and must
applicable
legal principles
fundamental
Certain
in the resolution
to in
the statute
applying
be adhered
that the
with the
Commis-
begin
proposition
before us. We
issues
charged
the rates
regulate
with the power
sion is vested
Assembly
to the
delegated
has
62-2. The General
utilities. G.S. §
courts,
Commission,
duty
and power
to the
and not
v.
Utilities Commission
public
utilities.
establish rates
(1966),
450,
Co.,
S.E. 2d 487
Utilities
citing
146
266 N.C.
Telephone
449,
Inc.,
130 S.E. 2d
259 N.C.
Papers,
v. Champion
Commission
(1963).
just
must be
The
890
rates fixed
Commission
v. Clayton,
131.
Co.
Telephone
reasonable. G.S.
62-130 and
See
§§
(1966).
687,
Revenue,
fix-
Duke’s accumulated $3,879,000 adjustment to a account as an offset pro forma Duke to its ex period depreciation the same amount made test only adjustments We are here with test concerned penses. for for adjustments We are not concerned this case with period. the test but before the changes occurring period hearing. after Power Utilities Commission Duke Co. $3,879,000
The figure adjustments by total two Duke:
Adjustment to annualize $2,076,000
depreciation expense. Adjustment to annualize nuclear 1,803,000
fuel disposal cost. $3,879,000 While, (CWIP) present, at construction work progress may be included in the facility rate base construction a pro- (and it gresses, is not depreciated therefore not added to ac- cumulated until the depreciation) facility comes completed into service, or in the statute’s until terminology, it is used or useful in providing service rendered to the Duke public. made the pro adjustment test period depreciation expenses to an- forma is, nualize expenses year those —that to adjust the test deprecia- tion expenses year’s reflect full depreciation which will year entitled to in the when future the rates being considered effective, would be than the partial year rather reflected year’s actual test expenses for depreciation facilities which came into service at various times the test during and were only year. depreciated part effect, Commission, concluded that Duke added
$3,879,000 aas pro to its operating expenses forma for the test compensate for future period depreciation expense flowing without a corresponding amount' to its accumulated depreciation reserve. contends that this is authorized (G.S. 62433(c)) because one section of statute allows an ad- § justment favorable to them for future expense while (G.S. 62433(b)(1)) allow, another statute section does not and indeed prohibits, a corresponding offsetting adjustment to its rate base. We not agree. do
Duke’s with to position regard the Commission’s offsetting adjustment in the depreciation fully accumulated account is accurately Stimart, testimony reflected in the of its witness William R. accounting
Duke’s financial and expert, who testified that such a in deduction the rate base was inappropriate because it not did represent depreciation that had been collected from ratepayers:
12 v. Duke Power
Utilities Commission Co. to an- adjustment I not deducted from rate base have 62-133(b)(l) consistent with G.S. expense depreciation nualize of utility’s cost original public proper- that the which states of by ‘that the cost which has ty portion is be reduced by use recovered ex- previous depreciation been consumed depreciation ex- this pense.’ amount previous not been consumed use recovered pense has will not proposed Since the rates expense. depreciation period, ratepayers until after the test become effective we are depreciation expense will not have the level of paid 114) (R.p. seeking in this case. $3,879,000 it acknowledged that additional The Commission reserve and subtracted depreciation added the accumulated from had not been collected Duke’s customers. from the rate base 5) 2 & (R.pp. action in contends that Commission’s vigorously Duke contrary to Duke considers its what reducing rate base 62-133(b)(l) that the rate base mandate G.S. legislature’s § the end of the test period. service at plant consist princi- controlled the well-established that this issue is argues dealing that a section of a statute statutory construction ple situation, controls, with to that respect situation specific with a general are in their and that application, other which sections with a is clear and dealing specific matter when the section face, it no See on its construction. requires understandable 761, (1979); 590, 596, 296 252 S.E. 2d 765 N.C. Phillips Phillips, 250, Membership Corp., v. Electric Utilities (1969); 663, 260-61, Coach Commission v. 166 S.E. 2d Utilities (1952). 583, 588-89, Co., 2d Duke contends 73 S.E. 236 N.C. 62433(b)(1) with the issue specifically deals since G.S. from in service deter- may plant be deducted what base, statutory controlling. section is mining specific this construction validity principle recognize we While Duke, it here. controlling urged with several sections and subsections dealing we are Though 62-133, By with one but statute. dealing we are here of G.S. § statute, to establish an intended legislature of this adoption rates, interpreted and must be fixing overall scheme In in- intent. legislative with the entirety comply order *11 IN THE SUPREME COURT Utilities Duke Power Co.
stance the more appropriate principle statutory construction is stated as follows: The different parts of a statute light reflect upon each other, statutory provisions are regarded as pari Hence, they
materia where parts are of the same act. a statute should construed in its entirety, and aas whole. considered, All parts of the act should be and construed together. It is not permissible to rest any a construction upon alone, words, clauses, one part upon or phrases, isolated or sentences, or to give undue effect thereto. The in- legislative tention, as collected from an examination of the whole well as statute, separate parts a is not to be defeated the use of particular terms. (1974). 73 Am. Jur. 2d Statutes herein,
As we subsequently demonstrate Duke itself was dependent principle statutory on this latter construction in in- creasing year its actual test pro depreciation expense by forma $3,879,000.
The increased depreciation accumulated reflect that Duke’s were ratepayers being charged year’s a full depreciation, for ratemaking purposes, such plant despite fact that not plant year. such was in service for the It ax- full is iomatic that an increase in decrease in the pertinent depreciation accumulated in a results utility’s
rate base. The rate base is determined part ascertaining original plant cost of in service and subtracting therefrom the reserve for deprecia- accumulated any tion. Therefore in the increase reserve for accumulated depreciation causes reduction in the rate It corresponding base. follows, course, that when the return approved is reduced, to the applied rate base thus result ultimate prospect of lower level of for Duke. It this adjust- revenues ment accumulated depreciation that contends is error. We will now whether consider the statute authorizes the resulting reduction in rate base ment from adjust- the Commission’s accumulated offset Duke’s ad- pro forma justment increasing test depreciation expense actually in depreciation expense year. booked for the test theory basic underlying using company’s operating experience in a recently ended test period fixing *12 Co. Commission v. Duke Power
Utilities is in future that it its the near by to for service charged rates service, will in the period, the test in effect throughout rates for the company’s on the same rate return produce future near the on in test by property them such produced as was property Comm. in conditions. Utilities changes known period, adjusted for (1971). 235, General, S.E. 2d 419 278 N.C. 179 Morgan, Attorney v. future probable to reflect argues properly correctly revenues, test year must increase its the Commission costs and $3,879,000 i.e., thereby reduc expense, depreciation expenses, adjustment is consis this This its income same amount. ing net is statutory appropriate. mandate and with the tent Commission’s this though pro that even believe Duke would have Court for- probable operations, future to reflect adjustment proper ma ac depreciation to increase accumulated is somehow improper base) in order (thereby same amount reducing rate count rate base should be. Duke would what the fairly proper reflect interpretation narrow G.S. have us an unrealistic and apply 62-133(b)(l) negate meaning and purpose would in effect § of whole. 62-133 when read as a
G.S. § 62433(c) to for expenses increase Duke relied G.S. § 62433(b)(3) $3,879,000. does not authorize G.S. depreciation § in changes after test adjustments anticipated expenses for for coming year. The period depreciation such as increased only authorizing adjustment such an contained G.S. language 62433(b)(3) 62433(c). without If is read reference G.S. G.S. § § 62433(c), authority Duke would lack to increase its ac- then § tual $3,879,000 adjustment depreciation expense pro forma courts, expense.” as such is for future adjustment “probable however, statutory provisions, these taken interpreted have adjustments to make pro to allow the Commission together, forma what their effect would have expenses to reflect revenue or at the prevailed throughout, those future conditions been had of, and changes or for abnormalities period adjust end the test General, 278 Attorney in conditions. Comm. Morgan, Utilities v. (1971); 235, 419 Utilities Comm. v. Power 179 S.E. 2d see also N.C. 377, (1974); Co., 285 206 S.E. 2d Utilities v. Power Comm. N.C. (1974). Co., 285 206 S.E. thus 2d Our cases hold 62433(b)(3) conjunction shall with that G.S. be read G.S. § 62433(c). §
Utilities Co. Commission Duke Power 62433(b)(1) consistent, To be G.S. must be read in also con- § 62433(c). 62433(b)(3) with junction G.S. Just as G.S. does § § adjustments authorize for probable changes future in expenses 62433(b)(1) past period, test G.S. does not authorize adjust- § for ment probable changes future original cost rate base above, utility period. after the test As authority discussed for the for changes actual future original cost 62433(c). base is contained G.S. These two sections must also be read with If conjunction each other. depreciation ex- pense is compensate increased to increased in the *13 coming year through then pro adjustment, offsetting ad- forma justments should to be made the depreciation accumulated ac- To count. isolate provisions the Duke argues would defeat the overall of scheme 62433. G.S. This Court has said that: “If an § construction, act is to susceptible more one than the consequences potent each are a factor in its interpretation, and undesirable will consequences Stevens, be if possible.” avoided Little v. 267 (1966). 328, 336, 201, 148 N.C. S.E. 2d 207 62-133 G.S. is not § but, were, reasonably susceptible two interpretations; even if it we would reject Duke’s in that it argument would defeat the pur- pose G.S. 62-133 when read as a whole: §
In the interpretation of
legislative
statutes the
will is the
‘Indeed,
controlling factor.
it is
frequently stated
effect
that the intention of
legislature
the
constitutes the
73
law.’
(1974).
2d,
Am. Jur.
Statutes
145
A construction which
§
to
operates
or
object
defeat
the
the
impair
statute
must be
avoided if
reasonably
that can
be done
without violence
Charlotte,
484,
the legislative language. Ballard v.
235 N.C.
(1952).
Utilities Commission v. Duke Power Co. adjustment to accumulated depreciation, regard With W. testified as follows: Staff Witness William Winters Public 2-2(a) I an increase of my Schedule calculated On $2,076,000 in North retail balance of ac- Carolina Mr. Stimart made depreciation and amortization. cumulated but this amount depreciation expense an corollary to accumulated deprecia- to make the increase failed By expense to depreciation increasing tion and amortization. level, will have to ratepayers pay end-of-period an as if depreciation expense plant rates to cover additional in service for of the test had been in service at the end If, fact, end-of-period plant level year. test the entire year, the throughout deprecia- in service the test had been $2,076,000 than greater would have been tion reserve year. of the test If the at the end amount recorded depreciation in rates to cover required pay are ratepayers of the test had not been incurred at the end which expense they given only equitable it is fair and period, determining of that additional benefit depreciation. of accumulated level end-of-period 2-l(b) I calculated an increase of my On Schedule *14 $1,803,000 of ac- North Carolina retail balance in the Mr. Stimart made depreciation and amortization. cumulated fail- disposal annualize nuclear fuel cost but to adjustment an corollary deprecia- increase to accumulated to make the ed increasing The the rationale tion and amortization. for this and amortization depreciation of accumulated balance preceding in the explanation to the analagous item is 152-53). (R. p. paragraph. Finding for its to the evidence and conclusions regard With (the the property) of Duke’s Commis- original cost of Fact No. testimony then said: of Mr. Winter’s a portion sion quoted issue, witness Stimart Company to this respect With follows: testified as to adjustment rate base the from
T have not deducted with G.S. expense. Consistent depreciation annualize 62-133(b)(l) public cost of a original the which states that portion ‘that is to be reduced utility’s property Utilities Commission v. Duke Power Co.
cost which has been consumed use previous recovered by depreciation expense.’ case, E-7, In general a recent Docket No. Sub
237, the Commission concluded that: ‘In arriving proper at a level of revenue operating deduc- tions with which is consistent the test in- level of vestment the Commission has an amount to added to depreciation annualize expense depreciation applicable therefore, thereto. It is entirely consistent and to proper corollary adjustment make the to accumulated deprecia- tion. The the acknowledges pro Commission forma adjustment depreciation to has not expense been col- lected from the company’s customers during the test However, year. when considering year, the test has, fact, company not actually incurred such cost. Further, that the corollary Commission believes ad- justment expense necessary accumulated is to achieve a proper and of revenues equitable matching and costs.’ does Commission believe evidence in this case change warrants position Commission’s Commission, therefore, with respect matter. The con- $2,076,000 cludes that adjustment proposed Public Staff to depreciation give increase accumulated full effect to adjustment forma to annualize pro Further, expense proper. upon based same reasoning, concludes that proper increase ac- $1,803,000 to reflect cumulated amortization the effect of pro forma annualize nuclear fuel disposal (R. 245-46). cost. p. We find fully justified that the was that con- clusion.
If, as here come into at various were facilities service times *15 during year, the test is the pro allowed make ad- forma to the to reflect the justment year depreciation expense test year’s full depreciation future revenue of a requirement deprecia- depreciation tion and is not increase its accumulated required it would have account the same amount reflect what been year, the the full had facilities been the rate base for its only for adjustment customers would the increased pay IN THE SUPREME COURT Co. v. Duke Power Utilities Commission an inflated a rate of return on pay but would also depreciation $3,879,000 the of addi- argument, If Duke’s rate base. we followed ap- item would be expense for this of required tional revenues base, than artificially resulting in more an inflated rate plied to for Duke.1 fair rate of return 62-133, the Commission In of G.S. construing provisions § (d) an Fundamental section of statute.
must also consider understanding by this Court the deci- of the conclusion reached force and effect of appreciation sion of this case an “(d) (d) which as follows: provides subsection will of record that enable shall all other material facts consider just plain reasonable rates.” The what are determine (d) that, all fac- considering after other meaning subsection tors, adjustments specifically set forth in considerations and statute, “all the Commission must consider various sections which to be taken into con- ought other material facts of record” sideration in regard, just. are reasonable and In this setting rates which aby depreciation expense the fact that Duke increased was a material fact of record. adjustment Consequent- pro forma 62433(d) to ly, duty to G.S. pursuant had adjustment such have on ac- consider the effect should so that the Commission could determine depreciation cumulated what would be reasonable rates. just by using perhaps a variation of the formulas for 1. This can be illustrated ratemaking set dissent. out Justice Carlton’s year. Original property at end test cost of in service * - by depreciation depreciation expense. Accumulated recovered (CWIP). original plant Reasonable under construction + cost year Adjustments occurring ± for events between the end the test and the hearing. _beginning = Rate base. x Fair of return. = property. Return on Adjustments * plant probable expenses ± for future revenues and based on _equipment. = Level of revenue. year’s depreciation adjust- Simply put, requirement revenue future increased properly point designated in the formula ment was allowed at the the second adjustment depreciation asterisk. Since the in effect simulates a situation wherein period corresponding has test an entire been allowed and offset- ting adjustment should made to simulate such was or reserved year. corresponding accumulated for the entire test This occur should designated in the formula the first asterisk so that a rate of return will not be by adjustment. earned on amount added the first *16 IN THE SUPREME COURT
Utilities Commission v. Duke Co. Power In reducing Duke’s rate base the addition to ac- $3,879,000 cumulated depreciation account of the Commission statutory acted within its To have power. allowed Duke to claim a $3,879,000 increase in depreciation expenses its rates and not have an required offsetting adjustment to accumulated deprecia- expense tion would have in effect resulted in a windfall to Duke and a If penalty to its customers. we followed the narrow inter- Duke,
pretation suggested by the statute the effect would be to annualize one factor and not the other. This was one of the “other material facts” which the is required by Commission G.S. 62433(d) to consider “what are determining reasonable and just rates.”
When the Commission allowed Duke to annualize its actual (ie. year test depreciation expenses increase them to reflect what they would have been had all of its property used and useful at the end of the test been in service for the entire test period), correctly applied or corresponding offsetting adjustment increase the accumulated depreciation account to reflect what it would have been had that been in property service for the entire year. test
We hold that the Commission did not err in increasing Duke’s $3,879,000 accumulated depreciation account the amount of offset a corresponding adjustment which Duke had made to an- nualize its year. expense the test
IV. Rate Of Return Duke contends its brief that the rate* of return fixed (14.1%) arbitrary and capricious and not supported by substantial evidence because the determination of that rate is contrary to Duke’s uncontradicted evidence and because the Com- mission justification stated no or explanation for its rejection of such uncontradicted evidence.2 argument 2. apparently objection On oral narrowed its as to the rate of following
return issue. The argu- statement was made Duke’s counsel on oral ment as recording arguments: transcribed from our electronic of the oral question power reject We do not of the Commission to uncontradicted question power evidence. Nor do we compute of the Commission to a fair rate of return rate contesting within the evidence. Nor are we the amount of the contest, proceeding. of return fixed the Commission in this We do however, authority reject the Commission’s uncontradicted evidence giving without doing its reasons for so.
Utilities Duke Power Co. *17 regard We will Duke’s contentions with to consider follow- equity addressing of on common rate return 14.1% ing questions:
(1) testimony May reject the uncontradicted the Commission
of witnesses? Duke’s (2) explain its reasons for specify Must the Commission testimony? uncontradicted
rejecting (3) supported of return fixed the Commission Is in the record?
by substantial evidence (1) [4] May Commission reject the uncontradicted testimony of as to fair rate of return? We conclude Duke’s witnesses may. of only as to the rate evidence before F. testimony Dr. Sherwin Stephen was the of equity return on testimony was that a W. H. Their to the effect Grigg. and Mr. return on is between 15.0% and 15.5%. equity rate of reasonable return, Sherwin, to rate of called Duke Dr. an on was expert a fair of on His testify equity. opinion as to the rate return Duke in the of to range equity rate of return on 15.0% of three These studies on the results studies. was based 15.5% on what rate of return equity of question examine to Duke: necessary enable
(1) comparable level of to those earned earnings to achieve a with risks uncer- corresponding enterprises other
tainty. equity capital the cost of the to estimating In first to estimate. The three methods derive his he utilized with to earnings test reference comparable method was a A large sample firms. three industrial groups 400-company & Poor’s industry, the Standard American samples and five different composite; industrial which he contend- characteristics with risk manufacturers method, Duke. From to those of ed were similar equity that Duke’s cost of Sherwin concluded witness 15.5%. capital range was 15.0% body question opinion in the of our both the we treat Nevertheless have elected to question reject and the power uncontradicted evidence of the of the amount of the rate return fixed Commission. Utilities Commission v. Duke Power Co.
(2) to maintain its financial Dr. integrity. Sherwin made
comparison utility electric market-to-book ratios and with earnings those of industrial firms. From this analysis, Dr. Sherwin concluded that a reasonable equity return was 15.0% 15.5%.
(3) to capital attract on reasonable terms. Witness Sherwin
concluded that in order to attract capital reasonable terms, cost, costs, the current including financing would be 14.8% 15.3%.
At the of Dr. testimony, close Sherwin’s no party pro- *18 him, ceeding cross-examined and he was not by any questioned commissioner. No other witness presented any contrary evidence as to rate of return. Grigg, Duke’s witness a senior vice president of the who company testified that 15.0% was a reasonable of return, only was testify the other witness to as to rate of return. to No other party the to proceeding presented any evidence as rate of return.
It is credibility well settled that the of pro- witnesses and the particular testimony bative value of are for the administrative determine, to body may it reject and or in whole or in accept part testimony any the of body witness. While an administrative must consider all of the not may evidence and un- disregard credible evidence, not to disputed accept required particular testimony as true. 73 Public C.J.S. Administrative Bodies and (1951). Procedure 126
North is in with the rule Carolina accord well-established it is for body, adjudicatory pro- the administrative an to ceeding, weight sufficiency determine the of the evidence witnesses, credibility of the to draw inferences from the facts, conflicting and circumstantial evidence if appraise 381, Bureau, 406, any. Comr. 300 Insurance v. Rate 269 N.C. (1980). 547, C.J.S., S.E. 2d 565 73 supra. 398, Co., In Utilities Comm. Power 285 206 S.E. 2d N.C. (1974), Lake, 283 Justice fac- discussing weighing various utility this: determining tors in the fair value of said property times, credibility many As we have said it in weight given evidence and be the determination Commission, properties of the ‘fair value’ of the are for the 22 Co. Commission v. Duke Power
Utilities
Court,
.... The
to determine
not for this
Reilly’s
weight
Mr.
opinion
to accept
required
value,
though
even
these indicators
fair
given
each of
testimony.
Reilly
Mr.
contrary
As
expert
no
there be
testified,
given
to be
weighting
the determination
The
‘subjective judgment.’
a matter of
Commis-
indicators is
in this
may
judgment
own expert
sion
and should exercise its
(Citations omitted.)
determination.
409-10,
285
at
Justice
fair value of
said
determining
property,
tors in
Utilities
(1974):
377,
Co.,
269
“It
285
206 S.E. 2d
Commission v. Power
N.C.
credibility
to determine the
is the
the Commission
prerogative
it, even
such evidence be uncon-
though
of evidence before
390,
at
278.
witness.”
S.E. 2d at
tradicted
another
N.C.
fair rate of return.
to evidence
principle applies
same
Justice)
(now
Judge
principle
Britt reiterated that
identical
of a
case
the consideration
witness’s
language
involving
rate of
Utilities Commission v.
testimony concerning
return.
327,
(1975),
Co.,
2d 543
210 S.E.
App.
appeal
N.C.
Telegraph
(1976).
mootness, 289
Utilities Commission v. Duke Power Co. Even where there is no direct evidence the record con- trary the expert’s opinion, body a regulatory may use own judgment in evaluating evidence as a matter within its exper- tise and is not bound even uncontradicted testimony of ex- An perts. expert’s opinion testimony may be given credibility less and therefore minimum consideration when the expert friendly or sympathetic party whose behalf he is testifying. The opinion of the expert may simply be intrinsically nonpersuasive Mezines, Stein, Gruff, even it is though uncontradicted. See 4 Ad- (1981). ministrative Law 28.06 § Under G.S. 62-133 the determination of what constitutes a §
fair rate of return requires exercise of a subjective judgment by the Commission and its decision may not be disturbed reviewing merely court because the court’s subjective judgment is different from that of the Commission. Nor is the Commission required accept as conclusive the subjective judgment of a witness, even though the record no contains expression of a con trary opinion by another witness. See Utilities Comm. v. Ed misten, General, 428, 101, Atty. App. N.C. 225 S.E. 2d affirmed (1976). S.E. 2d 647
We hold therefore that the Commission was not required accept return, Duke’s experts’ evidence as to the fair rate of even though there is no contrary expert testimony.
(2) [4] Duke contends that the Commission must state in its order its reason or reasons for rejecting the uncontradicted testimony. We do not agree.
G.S. 62-79 requires effect that the final order of the Com- mission “shall be sufficient detail to enable the court on appeal to determine the controverted questions presented in the pro- (1) ceedings and shall include: Findings and conclusions and the reasons or bases all the upon fact, material issues law therefor added.) or discretion presented in the record . . . .” (Emphasis
It can be argued that the rejection of expert uncontradicted testimony is discretionary a matter requiring a statement of the reasons for doing. so We not persuaded by are this argument. Comm.,
We find Baton Rouge Water Works v. La. Pub. Serv.
denied,
(1977),
342 So. 2d
cert.
Utilities
v. Duke Power Co.
Commission
utility
Public
the
the Louisiana
Service Com-
applied
that case
its
so
revenues
produce
rates
as
additional
mission
increase
on
a
the Com-
hearing
a
return
After
equity.
which included
13%
company
The
equity
only
a return on
10.5%.
mission allowed
appealed alleging
testimony show-
expert
that its uncontradicted
necessary in terms of raising
return on
was
equity
ed that 13%
The
introduced no
capital.
Commission
supporting equity
and
opposing
that the re-
The Commission concluded
expert evidence.
only
excessive and allowed
10.5%.
increase was
quested 13%
only
allowance of
ar-
10.5%
district court found the Commission’s
evidence,
the uncontradicted
contrary
as
to the
because
bitrary,
testimony
utility
the
was
expert
showed that
en-
company’s
the
order to
to a
rate and modified
Commission’s
higher
titled
Court, with
rate. The
one
Supreme
Louisiana
higher
allow
have
preferable
held that while would
been
justice dissenting,
order, in
increase
finding
requested
if
the Commission’s
excessive,
why the
re-
specifically
had
stated
Commission
was
return
which the
equity
the 13%
jected or modified
nevertheless,
necessary,
opinion stated was
expert
defendant’s
action are
reason for the Commission’s
findings
where the
necessarily
appellate
court’s
the record and where
implied
record shows that there is sufficient
study
administrative
determination,
little pur-
support
Commission’s
evidence
formality.
also
by a remand for such
See
would be served
pose
1952).
(Fla.
Schott,
(3) in its is not to state final required Although utility’s uncontradicted evidence for rejecting order its reasons as return, that in the we have concluded record fair to a so. has in fact done us the before Commission, as an exhibit did particular, We note in of return which Duke’s rate compares Dr. Sherwin sponsored forty-one years to in recent on average equity common with and electric-gas electric eighty-six electric utilities and other I Exhibit before Schedule 15 of Sherwin’s utilities. That exhibit is summary is follows: partial the Commission *21 IN THE SUPREME 25 COURT Utilities Commission v. Co. Duke Power In speaking of rate of return on common 14.1% equity reasonable, fixed as being Commission “fair and both to investors,” payers Duke’s rate and its the Commission said this: determination,
With respect
to this
the Commission notes
Company
that although
witness Sherwin was not cross-exam-
hearing,
ined at the
although
party
no other
the pro-
return,
ceeding presented evidence
of rate of
issue
is,
doubt,
the prerogative
without
of this Commission to
it,
credibility
determine the
of the evidence before
even
may
such
though
evidence
have been uncontradicted
an-
other witness.
Commission
Utilities
v. Duke Power Company,
(1974).
377,
285
The Commission rates which are not fixing just reasonable considers (d) re- 62-133. Subsection G.S. 62-133 enumerated G.S. § § Commission, rates, to fixing consider “all other quires not contemplate facts of record.” The statute does material may large “roam in an field.” at unfenced Justice Commission Co., Higgins in Utilities Commission Public Service 257 N.C. (1962). 233, 237, 457, legislature 125 S.E. 460 We believe the 2d would other recognized and understood that there facts and rightly of record which the Commission con- might circumstances sider in addition to those detailed G.S. 62-133. specifically § [5] 62433(b)(1) Prior to the 1976 Commission, subsequent considering amendments the reasonable to G.S. utility’s any original cost was consider property, required Bureau, Rating 4. We do find Comr. Insurance v. 292 S.E. N.C. (1977), import apposite 2d 720 of similar cited here cases the reason rejecting apparent uncontradicted evidence the face of the record. IN THE SUPREME COURT Utilities Commission v. Duke Power Co.
“other factors” In relevant its fair value. discussing that sec- tion of the former statute this said: Court facts’
‘Other which the considers in determining utility’s the ‘fair value’ of the properties must be found and order, set forth in its so that the reviewing may court see what these authority elements are and determine the of the consider them as ‘relevant to the present fair value.’ Co., 318, 340, Utilities Comm. v. 189 S.E. Telephone 2d (1972).
705, 719 While that of setting forth requirement “other facts” in the order applied part Commission’s another statute relating fair value of which property, has since been *23 repealed, we believe a similar rule should to the apply require- 62433(d). ment of the current G.S. We therefore hold that the “other by material facts of record” considered the Commission in fixing just reasonable and rates must be forth in found and set its order so that the reviewing may court see what these elements are. The in Commission has done so the record before us ex- plaining at some in final length order its reasons for adopting a rate of return on opposed 14.1% the equity urged 15.0% by Duke’s witnesses Sherwin and Grigg:
First, 1980, Commission, in its of 7 Final Order October the return, in supporting its determination of rate of noted that “at matter, the time in this financial hearing market conditions had shown significant as indicated in improvement decline in- (R. 272) terest rates and a rise in stock prices.” p.
Second, the “certainly noted that it‘was mindful benefits now Duke’s debt and inuring equity investors from arising the inclusion of in CWIP the Company’s rate base undoubtedly effect which in plays CWIP in- decreasing (R. 272) vestor risk.” p. Pursuant to an amendment to G.S. 62433(b)(1), 1979, July effective 1 Work in Construction Prog- § ress (CWIP) may In included the rate base. this proceeding this amendment had the effect of increasing Duke’s rate base (R. 247) $174,218,000. This amount accounted for over p. 10.0% Duke’s rate base and had the effect of the risk to reducing Duke’s debt and investors. equity
Third, the Commission considered “other factors” which also “to served decrease the level of risk faced Duke’s shareholders THE IN SUPREME COURT Power Co.
Utilities Commission 272) (R. updated to the test These factors relate p. and investors.” procedure growth the continued year, fuel revenues: Duke’s electric has for an test legislature updated example, provided
For against year Company which insulate increases helps Likewise, year. after the test Duke en- occurring expenses which joys adjustment procedure of a fuel enables benefit operating in its costs from resulting to recover increases Additionally, experience cost of fuel. recent increases Duke’s electric revenues have continued indicates that to offset the effect of inflation. grow, thereby helping 267-268) (R. pointed of these factors is p. importance up to certain evidence in the appearing reference Commission’s year in this is the 12 proceeding the test “Although record: 31, 1979, Public and the ended Staff Com- months December year to the changes respect for all known with test pany adjusted (R. 1980.” capital April p. costs as operating level of 267) one also stated its order that The Commission states that Duke’s “approximately Public Staff’s witnesses 65°/o three updated are times expenses and maintenance operation adjustment procedure, the fuel cost increases in cost via operating expenses subject considera- Duke’s leaving 35% (R. 267) general proceeding.” p. in a rate case only tion *24 $3,200,000 Fourth, in Duke’s included North Commission premiums to cover insurance Nuclear retail rates Carolina (NEIL) Insurance, to cover Limited for insurance a por- Electric by reason of a power tion of costs incurred future replacement shutdown such as occurred unexpected extended reactor at coverage station. This Three Mile nuclear serves power Island from loss in the catastrophic its customers protect also to reduce the of a nuclear accident —it serves risk event in the final recognized This was order Duke’s investors. equity “The these words: also feels com- the Commission in in of Duke’s approval participa- to note that its this Order pelled trial further serves to lessen investor tion in NEIL basis (R. 272-273) p. risk.” Fifth, component capital of Duke’s struc- equity the common (R. 268) In was its Find- hearings p. ture at the close of 35.8%. IN THE SUPREME COURT
Utilities Commission v. Duke Power Co. ing Fact No. 13 its conclusions supporting that finding approved a capital structure which included a equity which, ratio or an 38.0% increase of over 2.2% actual evidence introduced Duke’s witness Grigg, allowed Duke an (R. $5,800,000 269) 28, 237, additional in revenue. pp. The Commis- sion also noted its order that this factor serves to lessen in- vestor risk. “Similarly, the Commission believes that the capital structure set forth in Finding of Fact No. 13 above offers support (R. 273) to this premise.” p.
Sixth, as elsewhere treated in opinion this with regard to the rejection of Duke’s uncontradicted expert testimony as to rate of return, the Commission felt that Duke’s actual experience in the increase of its return on average from equity in 1975 to 9.6% (based in 1979 13.1% on averages as reflected in Sherwin’s Ex- 15) I, hibit fully Schedule supported the rate of fixed 14.1% the Commission. This actual historical return earned Duke in years those significantly showed greater improvement in earnings than the two comparison groups used Duke’s witness Sher- instance, win—for the return on average equity for the group of (based 41 electric utilities on averages) declined from 12.0% (R. 274) 1975 to in 1979. p. 11.1% The Commission’s statement the final order was: “In regard the Commission strongly I, believes that the evidence reflected Sherwin Exhibit 15, clearly Schedule supports rate of return the Commission (R. 273) has hereinabove found fair.” p. The foregoing enumerated fully items state explain Commission’s reasons for arriving at the fair return on equity rather 14.1% than the urged by 15.0% Duke and sup- port Commission’s determination. Duke’s witness Grigg testified that for the twelve months (the ended 30 April 1980 date of a number of Duke’s updatings data)
from the actual test period Duke achieved a return 13.3% (R. 43) on the actual book value of common equity. p. This was achieved under a Commission-approved rate of and did 13.59% not reflect a full twelve months effect of a substantial increase *25 (R. 113) which had been approved of 1979. October p. Witness Grigg also testified that Duke’s revenues were increasing (R. 42) substantially. p. IN THE SUPREME
30 COURT Power Co. Commission v. Duke Utilities 1, I, Schedule tended Winters’ Exhibit Public Staff witness that, by requested the increase adjusted, rate properly show if of on a return common million would rate permit $91.5 of of equity 17.44%. of on only the return here rate
Though
addressing
we are
of
overall
of
the
rate
component
which is but one
common equity
return,
of
addressing
overall rate
case law
the
we
our
believe
it is
in a
of cases that
have said
number
is
We
apposite.
return
Court,
Commission,
what is a fair
not for
determine
for the
Co.,
377, 206
285
Comm. v. Power
N.C.
of return. Utilities
rate
Co.,
398,
(1974);
206
v. Power
285 N.C.
269
Utilities Comm.
S.E. 2d
(1974).
by
of return
fixing
of the rate
Commis-
S.E. 2d
no
where there is
evidence
appeal
sion will
on
upheld
unreasonable,
or
arbitrary
disregard
or
of law
action
capricious,
rate,
at such
where
arriving
of the
part
by
supported
competent,
are
material
findings
the Commission’s
v.
Utilities Comm.
substantial evidence
the record. See
318,
(1972);
Co., 281
we must affirm the decision of the Court *26 IN THE SUPREME COURT Utilities Duke Power Commission v. Co.
Affirmed. part, part.
Justice CARLTON concurring dissenting I concur with the but III majority all section of the opinion which holds that Utilities properly increased account, Duke’s accumulated depreciation thereby reducing base, $3,879,000 the amount of as an adjust- offset an ment in that same amount made Duke to probable reflect its future depreciation expense. This of the portion majority decision is, view, in my patently and I erroneous dissent respectfully therefrom. majority The of the reasoning is strained and I untenable as shall demonstrate below. it,
The primary reasoning majority, of the as I understand that a all the reading of sections and subsections of G.S. 62-133 action, together justifies the Commission’s on the relying princi- ple statutes materia are to be pari construed together. The majority acknowledges the well-established principle statutory construction that a statute with a dealing situa- specific situation, tion respect rejects controls with to that but then (and 62-133(b)(l) involved) principle specific G.S. statute here —the concludes, as being majority here. The inapplicable “the legislature intended to establish an overall scheme for fixing rates, be interpreted entirety and it must in its in order to com- with ply intent.” With that I legislative wholly conclusion agree. My is not with problem principle statutory construc- tion majority; relied on it is with its application, or rather with its here. application, inconsistent This is so because after stating broad construction then approach, majority pro- ceeds to pick and choose the numerous among subsections of the (subsections 62-133(b)(l) statute other like than but G.S. dealing § matters) with what it specific determining considers to be the “overall scheme while ratemaking” completely ignoring clearest admonition found in all statute —that ratemaking the only depreciation to be from the cost deducted original utility’s is that property “which has been previous consumed 62-133(b)(l). use by depreciation recovered expense,” G.S. majority never rationalizes its to apply refusal this clear language except to hold that when conjunction read in parts with other statute, this subsection says! does not mean what it Power
Utilities Commission v. Duke Co. follow this kind of Neither the ma- reasoning. I am unable to course, I, be certain of what the jority Legislature nor can *27 can, however, We cer- say statute. be ratemaking to in the meant choice, and, the I Legislature say, given tain as to what the did body it what it legislative that said meant. That a opt to believe believe, is, statutory I the first rule of con- what meant said should When the of a apply. language an court appellate struction unambiguous, appellate and an court should statute is clear statutory canons of construction to render apply strain to other 590, 596, v. 252 ineffective. 296 N.C. Phillips Phillips, that statute (1979). in Phillips, S.E. As Justice stated Sharp 2d Chief subject with the matter dealing “It true that statutes same is ‘When, however, dealing the section together. be construed must face, it and on its specific with a matter is clear understandable ” (quoting no Id. Utilities Commission construction.’ requires 250, 260, 663, 670 166 S.E. 2d Electric Membership Corp., (1969)). analyze I the statute with that applicable shall to proceed This, incidentally, absolutely no does foremost mind. principle the majority to “in materia” rule on which pari violence the Indeed, rule the that application relies. it causes correct because, I determining ratemaking, the “overall scheme” for not, blatantly ignore plainly the a worded majority, shall as has my “in understanding pari That is the subsection a statute. considered, not all of an act should be materia” rule —that parts By lead result. applying which to a desired just parts might those I to below that correctly, attempt rules shall demonstrate these by statute not authorize the the “overall scheme” established did beyond Duke’s accumulated depreciation to increase hence, and, actually at the of the test recovered end the rate base. improperly that the Commission reduced majority taken with positions While there are several below, most error in deter- disagree, I as noted its serious which view, statute, my from is the “overall scheme” our mining of G.S. 62-133.The statute to thrust failure understand bifocal believes, not, to single limited majority apparently factors, an Two rate separate time factor for determination. here absolutely critical to the issue of which is understanding by the statute. posited, clearly contemplated explained I be wish to make can best point The critical by G.S. ratemaking provided summarizing procedure first IN THE SUPREME COURT Utilities Commission v. Duke Power Co.
62-133. I am first to concede that this statute is disjointed, inartfully somewhat drawn and confusing. analysis, Careful however, reveals that the Legislature provided a methodical scheme of ratemaking.
The first point be made is that G.S. 62-133 contemplates fixing rates charged utility is public based on two separate The failure of the majority to recognize factors. leads, think, this critical dichotomy I majority’s failure understand the two factors contemplated statute how those factors affect the rate determination. The two factors which (1) must be determined in order properly fix rates are (2) base, utility’s probable expenses. These factors future differ both in terms of the type making data each up *28 of the terms relevant time at which is majori- each measured. The and, thus, ty opinion completely confuses the time periods treats the ratemaking only year entire if the process as test period were Again, involved. failure understand the bifocal nature of rate determination leads to the only misunderstanding one time is involved. The period will, believe, following summary brief of the statute I confirm this conclusion.
For the of the purpose question presented appeal, this the is following summary an accurate relevant of provisions 62-133, ratemaking the statute. G.S. Commission, rates,
The a in step setting as first must ascer- the rate is determining tain base. This done the reasonable utility’s original public cost of the in property service as the of the test From is period. end that amount ac- subtracted of cumulated “which has been consumed by previous To use recovered this by depreciation expense.” amount is added original the reasonable cost of in plant investment under con- 162-133(b)(l). struction. The is the resulting figure rate base. G.S. Thus, the rate basé factor involves data concerning unrecovered base, cost of as of the test property end the The rate period. 1, which for convenience I shall then multiplied call Factor is what the fair Commission has determined a rate return and the return on the in product represents property fair serv- ice at end of the The frame for period. computation the time the base, pro- of Factor the rate is “the of the test period,” end 62-133(b)(l) 62-133(c). in excep- vided both The sole G.S. and G.S. SUPREME IN THE COURT Co. v. Duke Power
Utilities (c), determining the tion, is that by subsection provided also of actual cost consider evidence the shall base rate the occurring events circumstances upon based changes after applica- has no hearing. exception This the test but before period which led events and occurrences us. The tion in the case before place only here took adjustments question to the depreciation itself. test during period the utility’s is that of the to be determined
The second factor then This is added expenses. figure operating probable future and the base in order fix rate of return rate product utility. This rates be charged and lawful appropriate however, factor, and has separate accounting involves data second rate base. As from that timing consideration different above, is of the end of the test the rate base determined as stated and, in occurred on which have period already based events sense, up The the second fac- expenses making accompli. a fait tor, however, likely involve to occur are those future expenses future probable an This estimation estimation. of the test period. service at end plant based the level on the level of service as estab- plant While Factor relies estimation, encompass 1 for its the two factors lished Factor The to the periods two different of time. first factor looks entirely to the the second past, future. factor, clear; dichotomy statutory is thus the first base, cost of the original concerns the in service at the plant (events occurred); already which have end of test sec- *29 ond, on the the probable expenses (projections based level future year). of (rate base) in service the of the test When Factor 1 at end plant by rate of product is the return and that is multiplied (future 2 their sum the expenses), represents
added Factor the by pay level of revenue deemed the adequate and to its utility’s operating expenses give reasonable investors a fair on their investment. This sum is the amount of return utility through will receive sale its services. In revenue form, I as ratemaking tabular would summarize it procedures to this thusly: case1 applies- 62-133(c) Again, although adjustments 1. must be noted that allows G.S. year, changes occurring for rate base actual cost after close the test inapplicable opinion is to this subsection case. The formula set forth in adjustments occurring for those in which no are for cases made events after year. test IN THE SUPREME 35 COURT
Utilities Commission v. Duke Power Co.
Statutory Formula (Factor Return) = 1 x Rate of + Factor Revenues earn-
ed through charges utility’s for service (Rate Base) = Factor 1 cost of Original plant service at end
test less: depreciation accumulated sumed expense” has been “which con- use previous depreciation recovered original reasonable cost plus: plant under construc- tion. =2
Factor expenses Probable equipment on plant based level of future at operation the end of the test period. Statutory
The Time Frame For Factor
End of the occurring period (except adjustments test for events 62-133(c)). test period allowed G.S. after For Factor 2
Determine probable expenses based on the plant future equipment service at the end of the test period. us, Applying foregoing to the record before I think the at crucial in the point ratemaking process. Commission erred one In its submitted application, properly figure representing cost of in service original plant its on December end of the test Subtracted from this is the period. figure amount utility’s of accumulated depreciation reserve books at the period. close the book by previous test accumulated reserve
entry representing property “which has been consumed
use recovered depreciation expense” as the end period, test the precise computation prescribed G.S. 62-133(b)(l).Duke also submitted a figure representing prob- (not able plant test depreciation expense based on the period) future at equipment in service the end of the test period.2 The *30 majority’s adjustment 2. pro The assertion that Duke made a to its test forma incorrect; year depreciation expense figure represents probable ex- future penses. Power Co.
Utilities Commission v. Duke
however,
Commission,
accumulated
only
subtracted
of the test
but
period
as of the end
on Duke’s books
depreciation
(the
$3,879,000
estimation
same amount as Duke’s
also the sum of
adjustment
as a
expense)
depreciation
pro
forma
future
year.
I
for the test
As
understand
depreciation
the accumulated
it,
it regards
pro
is that
ad-
reasoning
the Commission’s
forma
necessary
to be a
account-
justment
depreciation
to accumulated
which
adjustment
Duke made for
corollary to the
ing
pro forma
(This
what the de-
expense.
figure represents
depreciation
future
full
would have been had the de-
expense for the
preciation
throughout
been
service
question
preciated property
through-
come into service at various times
year.
actually
It had
that the additional
year.)
acknowledged
The
out the
Commission
$3,879,000
thereby
depreciation,
accumulated
reduc-
to the
added
base,
company’s
collected from the
rate
not been
ing
“ha[d]
it
also stated
its order that was
The Commission
customers.”
The Com-
previous
proceeding.
on its
relying
precedent
rate base achieved
adjustment
that the
to the
mission concluded
In
and costs.”
so
matching
revenues
proper
equitable
“a
I
committed serious error.
acting,
believe
above,
majority’s
I
error in affirming
think
explained
As
from its failure to understand the
action results
the Commission’s
and the
time
established
our statute
relevant
different factors
62-133(b)(l)
plain
factors. G.S.
encompassed
those
frames
(Factor 1)
that the rate base
be based on
unambiguous:
requires
only that
period,
at the end of the test
less
plant
in service
cost
consumed and
previously
which represents
depreciation
violated this
expense.
recovered
from
subtracting
company’s
of the statute here
portion
depreciation which had not been
plant cost accumulated
original
of the end of
depreciation expense as
and recovered
consumed
Duke, however,
entitled
the additional
was
period.
the test
Factor
by way of an
under
depreciation expense
entirely
time
an
different
factor
is based on
because
(including, expenses
future
probable
—the
projection
frame
course, depreciation expense).
ex rel.
before. In State
spoken to this issue
This
has
Court
Edmisten,
Utilities (1976),it was said: *31 IN THE SUPREME COURT
Utilities Commission v. Duke Power Co. Apparently Attorney General is that arguing the Com- mission must utility’s assume the operating expenses re- will they main the same as during were the test in period setting rates for some future period. This is not the law. Rate eye schedules are set with an no less toward future than (b)(3) (c) 62-133(b)(2), to the past. General Statutes con- template that the will consider “probable future revenues expenses” setting in rates for the future. “Ob- viously, conditions do remain . . static.” . The company’s experience during the period test regarding revenues pro- duced and operating expenses incurred “is basis for a reasonably accurate estimate of may what be in anticipated if, if, only the near future but appropriate pro ad- forma justments are made for abnormalities which existed in the test period and for in changes conditions occurring during period. the test ...” ... Estimates regarding probable however, revenues and expenses, must based upon future the utility’s plant and actually in equipment operation at the end period. test (citations added)
291
omitted).
at
conjunction view G.S. taken this dissent does indeed read in conjunction these statutes with one another. clearly Both provide original utility’s cost of a public property to be determined as the end test period no provide for the support Commission’s action. Nor am I any able support find ac- Commission’s 62433(d),
tion G.S. which allows the Commission to consider “all other material facts of record will enable it to determine Power Co. v. Duke
Utilities Commission my opin- provision, rates.” This just are and reasonable what ion, may unusual situations which catch-all intended cover *32 complex too are too numerous and arise in future rate cases and expense is not such by legislation. Depreciation with to be dealt always have future probable will an “unusual situation.” Utilities initially into do not come and most plants depreciation expense, fully ex- January Legislature I that the service on 1. believe into service in plant’s coming of a with the situation plicitly dealt (c). 62-133(b)(l) make These subsections mid-year with G.S. which the base and expense within clear the time frames to I cannot believe that are be measured. components common of such a situation relegated the treatment Legislature general provision. to catch-all here, within the as adjustments period, made test
When are to referring “probable 62-133 is that portion of G.S. applicable And, of the the first sentence future and expenses.” revenues probable future shall clearly expenses that these provides statute at the end operation plant equipment based of this is about as clear and unam- test the statute period. point, On it be. possibly as could biguous view seems ap-
I this of statute might add also well. As standpoint me from an economic stated propriate to (1961): Utility 197 Public Rates Bonbright, J. Principles of depreciation represents What accumulated reserve] [the part assets in the sense of that is the costs of the amortized which already been or should charged, of the costs which has periods operation. to “Cost charged, previous have been expression for is therefore a shorthand depreciation” minus charges opera- future to be amortized remaining costs against future the con- indirectly charges and hence tion utility service. public sumers words, depreciation of the reserve purpose
In other it, utility recognize I is to that amount regulation, as understand already through recovered of the cost of which has been plant State ex rel. acknowledged principle rates. This Court Inc., 457, Utilities, 288 219 N.C. Utilities Commission Heater (1975). on this of the understanding purpose S.E. 56 Based 2d reserve, obviously follows that depreciation an accumulated reserve reflect is made when a pro forma IN THE SUPREME COURT Utilities Commission v. Duke Power Co. rates,
something through which has been recovered previous utility will never recover on that then increment therefore, are, and the rates deficient under our statute. This Court has decided numerous which cases hold that the not free devise its own principles ratemaking but must with comply requirements 62 of our Chapter General Statutes. State ex rel. E.g., Utilities Commission v. Duke Co., (1974). Moreover, Power 206 S.E. 2d Commission, ratemaking of the even practice one which it has (as here) years I many suspect followed is the case and is com monly accepted jurisdictions, in other if contrary is unlawful 62-133(b)(l). I my G.S. would also add that reading brief appellee’s conclusion that the compels Commission has taken the action in question primarily here on the basis what it *33 considers to be a fundamental that of accounting principle, double entry bookkeeping. may While Commission’s action accord with sound it accounting principles, necessarily does not follow that those accounting principles apply to ratemaking. Ratemaking matter; statutory a in setting up a ratemaking procedure our chooses, is free Legislature any process to it adopt so even one which does not follow I principles. accounting believe it has done so here. While may accounting principles be helpful ratemak- ing, they do not process. control the
I wish also make these additional observations: (1) The majority devotes several pages to explaining that various subsections of G.S. 62-133 conjunction must be‘ read in above, with one I agree another. As noted that the subsections a statute should together. be construed Duke itself does not con- statutory test this canon of construction. majority’s lengthy absolutely discourse lends no support majority’s to the ultimate conclusion that the pro Commission’s offset to accumulated forma depreciation “should be made.”
(2) I also think it worthwhile to note that the fur- majority ther strains to rationalize its decision quoting at length from Staff testimony. Public Witness Winters’ Mr. Winters testified as to the Public Staff’s reasoning behind seeking the offset to ac- cumulated depreciation. After giving extensive from excerpts states, testimony Winters’ on this point, majority simply “We find that the fully Commission was justified in that conclusion.” IN THE SUPREME COURT v. Duke Power Co.
Utilities Commission rely decision-making novel approach judicial I find testimony a witness to whether the action of on the determine my error of law. It was agency is affected an administrative mistaken, of law were understanding, apparently questions speculation. not for a witness’s for the courts and matters (3) any explanation, majority real also opinion Without concerning the issue before us notes that to hold favor Duke yield “windfall” to Duke in rates which would at would result instance, In un- any resulting expense ratepayers. Duke, This so ratepayers. not the first because fairness is definitely will be This expense incurred Duke. logical itself. It seems me acknowledged the Commission is that, expenses, expenses for future without An and the rates therefore deficient. be understated would Should wage be an increase rates. would situation analogous obviously during period, the test increased employee wages of the test must be period at the end being paid higher wages for the expenses revenues and in predicting probable considered the test they paid throughout were though even future period. hand, base, property must include all on the other
The rate artificially not be reduced. When should serving public deprecia- the accumulated by adjusting is decreased the rate base on the company’s that recorded which exceeds tion books, an amount on its fair rate of return not earn the company will position in the *34 no or fairness logic I find simply total plant. utility on taking depreciation should be reduced the rate base of the test period the end yet occurred at which has property rate base is supposed that the clearly provides our statute when in time. precise point of that basis figured to be above correctly explained as is understood 62-133 When G.S. of G.S. language unambiguous of the completely in light 62-133(b)(l), as a mat- erred that the Commission crystal clear it Indeed, quar- without offset. making pro ter of law forma review, appropriate to the standard as majority with the reling authority in statutory exceeded the Commission I believe 62-94(c)(2). to the respect so because with This is violation G.S. make statutes to authority in our absolutely no I base find occurring for events the rate base adjustments pro forma Mims v. Mims connection, within the test In this be con- period. plant actually period. as it existed at the end the test sidered my I must confess that initial majority, In fairness which of the led me to the same conclusion study briefs submitted very appeal- it I at that time persuaded has reached. was would for the accounting practices that normal call ing argument determined, Having now after offset ordered the Commission. statute, a dif- study Legislature of the that had painstaking above, mind, I explained for methodology ratemaking ferent is the methodology ratemaking dissent. The respectfully must or this not that Legislature, prerogative Court. above, I
For the reasons stated vote reverse Court The case should be decision on the here discussed. Appeals’ point it remand to the to that court with instructions remanded with the rates recompute Utilities directions for accumulated removing after the pro forma depreciation. join this dissent- Justice BRANCH Justice
Chief Exum ing opinion. MIMS, v. MARSHA P. MIMS
ALLEN L. JR.
No. 1982) (Filed January 14; spouse fur- § —one Trusts 13.4— marital real estate and Wife 1. Husband gift spouse husband or nishing presumption of in other whether consideration — wife requires nor the Constitution While neither the U.S. Constitution disputes, settling property employ presumptions gift or trust courts to grew legal modifying out of a compelling the rules which reasons for there are system applies society presumption whether the husband the same so that First, original rationale for property. to marital or the wife receives title longer in cases longer viable as no all employing presumptions is no different Second, spouse. dependent supporting the wife the husband the is the *35 gift the hus- employ presumption of whether other courts have chosen Third, spouse. purchased other grantee property wife band or gifts husbands and supported presumptions of for both commentators have