65 N.C. App. 198 | N.C. Ct. App. | 1983
Nantahala and Tapoco first attack the methodology used by the Utilities Commission in establishing the charge to Nantahala’s retail customers. They argue that the Commission is required by law to recognize the NFA and the 1971 Apportionment Agreement in setting rates for Nantahala’s retail customers. They say this is so because both of these agreements have been filed with and approved by the Federal Energy Regulatory Commission (FERC) and the Utilities Commission is preempted by federal law from ignoring them. The Utilities Commission in setting retail rates has to give effect to wholesale rates established by the FERC. See F.P.C. v. Southern California Edison Co., 376 U.S. 205, 84 S.Ct. 644, 11 L.Ed. 2d 638, reh’g denied, F.P.C. v. Southern California Edison Co., 377 U.S. 913, 84 S.Ct. 1161, 12 L.Ed. 2d 183 (1964); Public Service Co. of Colorado v. P. U. C. of Colorado, 644 P.
We believe the resolution of this case largely depends on a proper analysis of the NFA and the 1971 Apportionment Agreement as affected by the order of the Utilities Commission. The Commission’s order does not change the energy entitlements received by Nantahala and Tapoco under the NFA and the 1971 Apportionment Agreement. Each receives its share of the power and uses it as received. The question is whether by not using these two agreements in setting Nantahala’s rates the Utilities Commission has changed the agreements, which it does not have the power to do.
When the Utilities Commission determined that Nantahala and Tapoco should be treated as one company for rate-making purposes, it was faced with the question of what constituted a proper charge to Nantahala’s retail customers for the power used by them. The Utilities Commission resolved this question by assigning to Nantahala’s retail customers a demand charge based on the percentage used by Nantahala of the firm energy generated and purchased by the unified system during the test year. It calculated the energy charge using the same method, that is, it assigned to Nantahala’s customers the percentage needed for their own energy requirements out of the total energy generated and purchased by the unified system.
The amount of energy generated by the unified system was not the same as the energy Nantahala received as entitlements.
Nantahala and Alcoa also argue that Tapoco’s four hydroelectric plants have been licensed by the FERC for the express purpose of supplying power to Alcoa’s Tennessee operations and that by directing a part of Tapoco’s power to Nantahala’s customers, the order of the Utilities Commission has imposed a condition on a federal license to operate their plants which it may not do. See First Iowa Hydro-Electric Cooperative v. F.P.C., 328 U.S. 152, 66 S.Ct. 906, 90 L.Ed. 1143, reh’g denied, 328 U.S. 879, 66 S.Ct. 1336, 90 L.Ed. 1647 (1946). We do not believe the Commission’s order diverts power from Tapoco to Nantahala. The order fixes the costs to Nantahala for the power it receives through the NFA and the 1971 Apportionment Agreement.
Nantahala and Alcoa contend that the order of the Commission places an impermissible burden on interstate commerce in violation of Article I, § 8 of the United States Constitution. The Commission recited in its order that “Nantahala-Tapoco combined system’s North Carolina public load has first call on the total electric energy output of the combined system, and to the extent that said output exceeds the requirements of the North Carolina public load, such excess will be available for sale and will be purchased by Alcoa.” Nantahala and Tapoco argue that it is a violation of the Commerce Clause to prefer the residents of one state over the residents of another state; and after stating it would do this, the Utilities Commission did so by the methodology it used
If the Utilities Commission had used a methodology that gave “first call” to the North Carolina customers it would violate the Commerce Clause. In spite of its recital, we do not believe the Utilities Commission did this. We believe that the methodology used by the Commission allows Nantahala to recover the costs of the percentage of energy it used based on its percentage of the costs of the energy generated and purchased by the combined system. We do not believe this prefers North Carolina customers over Tennessee customers.
Nantahala and Tapoco say that an illustration of the shifting of costs to out-of-state customers may be found in the way the demand cost allocation factor for Nantahala is calculated. Based on Nantahala’s peak load which was 24.6% of the total firm capability of the combined system, the Commission assigned 24.6% of the demand costs to Nantahala. Nantahala and Tapoco point out that Tapoco’s peak load was only 44.9% of the total firm capability of the combined system. They say that Tapoco is thus required to shoulder 75.4% of the demand costs, 30% more than its responsibility. We believe that in determining Nantahala’s reasonable demand cost, the Commission was not required to assure the recovery of 100% of the demand costs incurred in the combined system. Nantahala’s customers should not be required to pay more for demand than that for which they are responsible, even if it means that all the combined system demand costs are not recovered. See Utilities Comm. v. Telephone Co., 281 N.C. 318, 189 S.E. 2d 705 (1972), superseded by statute, Utilities Comm. v. Power Co., 305 N.C. 1, 287 S.E. 2d 786 (1982).
Nor do we believe New England Power Co. v. New Hampshire, 455 U.S. 331, 102 S.Ct. 1096, 71 L.Ed. 2d 188 (1982) governs this case. It was said in that case that “Our cases consistently have held that the Commerce Clause of the Constitution, Art. I, § 8, cl. 3, precludes a state from mandating that its residents be given a preferred right of access, over out-of-state consumers, to natural resources located within its borders or to the products derived therefrom.” Id. at 338, 102 S.Ct. at 1100, 71 L.Ed. 2d at 197. The facts of that case are distinguishable from this case. In
Alcoa argues that it, Nantahala and Tapoco are regulated by TV A; that TV A has approved the NFA and the 1971 Apportionment Agreement, and the Utilities Commission cannot refuse to give effect to these agreements. As we have said, we do not believe the Utilities Commission has refused to give effect to these agreements. It has calculated the costs to Nantahala’s customers of the power delivered to them under the agreements.
Alcoa also argues that the relationship between Alcoa, Nan-tahala and Tapoco is regulated by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 and the SEC has granted the companies an exemption from some of the requirements of the Act. We do not believe the order of the Utilities Commission has in any way affected the order of the SEC as to the three companies.
Nantahala assigns error to the Commission’s finding of fact that the NFA and the 1971 Apportionment Agreement resulted in substantial benefits to Alcoa to the detriment of Nantahala’s customers. Nantahala argues first that the Commission made no finding of fact that the two agreements were unfair to Nantahala’s customers but erroneously assumed our Supreme Court had found as a fact that they are unfair. It argues further that the only evidence at the hearing after the Supreme Court’s remand is that the agreements were fair. The Supreme Court questioned the fairness of an agreement which required Nantahala to purchase additional power regardless of the adequacy of its own generation. Nantahala’s witness testified that the only valid way to compare generation is on an hour-by-hour basis, that a hydroelectric power plant can generate more power than its customers use during a year, but if the power cannot be generated when there is a demand for it, the power generated during the period when it is not needed- is useless. Nantahala’s
We believe the Utilities Commission made an independent finding of fact that the NFA and the 1971 Apportionment Agreement were unfair to Nantahala’s customers. We believe a reading of our Supreme Court’s opinion in the previous appeal in this case leaves little doubt that they considered the NFA and the 1971 Apportionment Agreement unfair to the customers of Nantahala. We cannot hold because of this, however, that the Commission’s finding of fact on this issue, which we believe was supported by the evidence, was not independently made. The Commission did not comment on all the evidence as to the fairness of the two agreements but it was not required to do so.
The Commission relied on evidence that in 1963 an agreement had been made under which Nantahala received a minimum of 360,000,000 kwh annually plus its actual production in excess of 360,000,000 kwh. This allocation was based on engineering studies which showed that under the most adverse water conditions Nan-tahala could generate 360,000,000 kwh annually with the average energy that could be generated annually to be 439,000,000 kwh per year. Under the 1971 Apportionment Agreement, Nantahala received only 360,000,000 kwh per year. The additional power which Nantahala had received under the 1963 agreement went to Tapoco and was passed on to Alcoa. There was evidence that the peaking capacity allotted Nantahala under the 1971 Apportionment Agreement is less than its actual capacity. This results in Nantahala having to pay a demand charge to TVA when Nan-tahala’s customers demand is less than Nantahala’s capacity. Nan-tahala’s dams are upstream from Tapoco’s dams. This means
The Commission also relied on evidence that under the 1941 Fontana Agreement, Nantahala gave TVA the right in perpetuity to control the storage and flow of water from its hydroelectric projects. This constituted a loss of considerable value to Nan-tahala which the TVA recognized in the return entitlements of the NFA. Nantahala was paid $89,200 per annum by Alcoa for this loss under the 1963 agreement but received nothing for it under the 1971 Apportionment Agreement. There is evidence in the record which shows it is some benefit to TVA for Nantahala to be integrated into the TVA system. TVA recognized this in the NFA but no benefits were given to Nantahala in the 1971 Apportionment Agreement for this right.
There was evidence that the NFA is unfavorable to Nan-tahala in that it is structured to meet Alcoa’s needs and not the needs of Nantahala. This is so because the return entitlement is structured to meet Alcoa’s demand for a certain amount of stable electricity for purposes of aluminum production. It is not structured to meet Nantahala’s need for peaking capacity which a utility with a public service load requires. Nantahala has a need for assured, but constantly variable amounts. It has this peaking capacity but it does not receive it under the NFA. We believe this evidence supports the Commission’s finding of fact that the NFA and the 1971 Apportionment Agreement resulted in substantial benefits to Alcoa to the significant detriment of Nan-tahala’s customers. There was substantial evidence that the two agreements were fair but this evidence was by no means uncon-tradicted. We cannot disturb this finding by the Utilities Commission.
Nantahala contends that the Utilities Commission did not adopt a roll-in methodology within the scope of the remand by our Supreme Court. They argue that the Supreme Court envisioned a roll-in methodology which acknowledges the terms of the NFA and the 1971 Apportionment Agreement. Nantahala argues that the Supreme Court intended that the two agreements should be considered as valid and should control on the allocation of costs
We do not agree that the Utilities Commission was required by the opinion of the Supreme Court to use a roll-in methodology that acknowledges the NFA and 1971 Apportionment Agreements as controlling as to costs and benefits. The Supreme Court did not prescribe a formula for a roll-in. In discussing the NFA and the 1971 Apportionment Agreement which the Court felt required Nantahala to purchase extra power for its customers although it generated sufficient power for them, the Court said that to suggest such an arrangement fairly served the customers of Nan-tahala “assaults the common sense of this Court.” In light of this language by the Supreme Court, we do not feel its opinion requires the roll-in to be based on the NFA and 1971 Apportionment Agreement. It is true that the Supreme Court did not consider the federal questions in its opinion. We believe the Utilities Commission stayed within the mandate of the Supreme Court and it violated no federal law in so doing. The Utilities Commission was not required to consider payments made by Tapoco to prevent the curtailment of power because this did not occur in the test year.
Alcoa also contends that the roll-in applied by the Utilities Commission is not in conformity with the opinion of the Supreme Court. Alcoa points out that the Supreme Court’s concern was with the fact that Nantahala did not receive the fair economic equivalent of what its generating plants were capable of producing as a result of which Nantahala was forced to purchase expensive TVA power. Alcoa argues that an analysis of the NFA and the 1971 Apportionment Agreement shows that Tapoco and Alcoa did not receive any hidden benefits from them. The unified
Alcoa also objects to the roll-in because it includes the power which Nantahala purchased from TVA but does not include the power which Alcoa purchased from TVA. We believe the Commission was correct in not considering the power purchased by Alcoa from TVA. The Commission’s task was to determine the part Nantahala’s retail customers should be required to pay for their share of the energy received by the unified Nantahala-Tapoco system under the NFA and purchased from TVA. They should not be required to pay for energy purchased by Alcoa outside the unified system.
Alcoa assigns error to the Commission’s finding that Alcoa is a public utility and its requirement that Alcoa pay any portion of the refunds which Nantahala is financially unable to make. The Utilities Commission found Alcoa to be a public utility pursuant to G.S. 62-3(23)c which provides:
The term “public utility” shall include all persons affiliated through stock ownership with a public utility doing business in this State as parent corporation or subsidiary corporation*213 as defined in G.S. 55-2 to such an extent that the Commission shall find that such affiliation has an effect on the rates or service of such public utility.
Alcoa attacks this portion of the Utilities Commission’s order on three grounds. It says (1) G.S. 62-3(23)c is unconstitutional for vagueness, (2) it constitutes an unlawful delegation of legislative authority, and (3) the Commission misinterpreted and misapplied this section of the statute.
Under the due process clause of the Fourteenth Amendment to the United States Constitution, a statute is void for vagueness if its terms are so vague, indefinite and uncertain that a person cannot determine its meaning and therefore cannot determine how to order his behavior so as to avoid its dictates or avoid its application. See Lanzetta v. New Jersey, 306 U.S. 451, 59 S.Ct. 618, 83 L.Ed. 888 (1939) and State v. Poe, 40 N.C. App. 385, 252 S.E. 2d 843, cert. denied, 298 N.C. 303, 259 S.E. 2d 304 (1979), appeal dismissed, 445 U.S. 947, 100 S.Ct. 1593, 63 L.Ed. 2d 782 (1980). Alcoa argues that the legislature has failed to define what the effect on rates or services is necessary to impose public utility status on a parent corporation, and there is thus no guidance for the Commission as to whether Alcoa has had an effect on Nantahala. It argues further that a reading of the statute gives no indication of the parent company actions that the legislature was attempting to control or eliminate. We believe a person of ordinary understanding would know from reading the statute that if a parent corporation controls its wholly owned public utility in such a way that the rates of the utility are affected this has an effect on the rates and the parent corporation could be found to be a public utility. This prevents this section of the statute from being void for vagueness.
Alcoa contends that G.S. 62-3(23)c violates Article I, § 6 of the North Carolina Constitution because it delegates legislative power to the Utilities Commission. It says this is so because it is a legislative decision as to what shall be la public utility and that by enacting this section of the statute, the legislature has allowed the Commission to determine what corporations shall be designated public utilities and how they shall be regulated without adequate legislative standards to guide the Commission. We believe, without discussing all the hypothetical situations that on
Alcoa also contends the Utilities Commission has misinterpreted and misapplied G.S. 62-3(23)c. It argues that since the section contains the words “to such an extent,” the Commission may only regulate to the extent of the precise impact Alcoa has had on the rates of Nantahala. It argues that the Utilities Commission did not attempt to determine the extent to which Alcoa’s relationship with Nantahala has affected Nantahala’s rates and services and thus did not comply with the mandate of G.S. 62-3(23)c. Assuming that Alcoa is correct in this argument the Commission found the following: “Alcoa has so dominated certain transactions and agreements affecting its wholly owned subsidiary Nantahala that Nantahala has been left but an empty shell, unable to act in its own self interest, let alone the interest of its public utility customers in North Carolina.” We believe this finding by the Commission is sufficient as to the extent Alcoa’s affiliation with Nantahala had affected the rates of Nantahala so as to support the order of the Commission.
Alcoa also contends the Commission has engaged in retroactive ratemaking which it does not have the power to do. See Utilities Commission v. City of Durham, 282 N.C. 308, 193 S.E. 2d 95 (1972). It says this is so because the rates established in this proceeding are for the period from July 1977 through August 1981 and Alcoa was not held to be a public utility until October 1980. Alcoa argues that to make it responsible for a refund prior to the time it was declared a public utility is retroactive ratemaking. Retroactive ratemaking occurs when a rate is set so as to permit collection in the future for expenses attributable to past
Tapoco assigns error to the Utilities Commission’s finding that it is a public utility. The Commission found that Tapoco was a public utility under G.S. 62-3(23)a which provides a “person” is a public utility if it generates electricity for sale to the public. It also found Tapoco to be a public utility under G.S. 62-3(23)b which provides:
The term “public utility” shall for rate-making purposes include any person producing, generating or furnishing any of the foregoing services to another person for distribution to or for the public for compensation.
The Commission advanced as a third reason for finding Tapoco to be a public utility that it had obtained from the Utilities Commission in 1955 a certificate of public convenience and necessity. The Commission found as a fourth reason for holding Tapoco is a public utility was that its articles of incorporation state that one of its purposes is to produce and provide electric power to the public and provide it with the powers of eminent domain.
We do not decide whether the Commission was correct in holding Tapoco to be a public utility as provided by G.S. 62-3(23)a because it holds a certificate of public convenience and necessity or because its articles of incorporation state that one of its purposes is to generate electricity for sale to the public. We do not believe that determination is necessary for a decision in this case. We believe the evidence is sufficient to find Tapoco is a utility for ratemaking purposes. Tapoco’s generation is exchanged with TVA for power from TVA. We believe this constitutes furnishing electricity to TVA for distribution to the public for compensation. This would make Tapoco a public utility for ratemaking purposes. Although the Utilities Commission did not set a rate for Tapoco, the price Tapoco charges for electricity will be affected by the outcome of this case. We hold that for this case Tapoco is a utility for ratemaking purposes and is a proper party to the case.
Tapoco argues that the Commission’s finding that Nantahala and Tapoco constitute a single integrated electric system operated as such by and as a coordinated part of the TVA system is arbitrary and capricious and not based on substantial evidence. It argues that the evidence shows that the two companies operate independently of each other, that they serve different customers and are regulated by different agencies. Finally, Tapoco argues that the historical development of the two companies is such that they cannot be considered one integrated system. These facts may have been sufficient for the Commission to have found that the two companies were not a single, integrated electric system but there were other facts. The two companies traded all their generation to TVA and received in exchange for this entitlements of energy which they divide as they please. We believe the Commission could conclude from these facts that the two companies constitute a single, integrated system for ratemaking purposes.
Tapoco also argues the Commission did not properly consider the evidence because it gave too much weight to what it called the findings of the Supreme Court. Tapoco points out that the Supreme Court cannot make findings of fact and for the Utilities Commission to refer to findings by the Court, which “findings” were made before Tapoco was a party to the proceedings is error. Tapoco argues that no weight should be given to this language of the Supreme Court. Although the Utilities Commission referred to some of the statements in the Supreme Court’s opinion as findings we believe the Commission made its own findings based on competent evidence which we cannot disturb.
Alcoa argues that it was denied due process for several reasons. It says first that it was not given adequate notice of what it would be required to defend. It contends it was not put on notice that it might be required to be responsible for a part of the refund until the issuance of the Commission’s order on 2 September 1981. Alcoa argues that the failure to be notified of what the issues would be deprived it of due process of law. See Morgan v. United States, 304 U.S. 1, 58 S.Ct. 773, 82 L.Ed. 1129 (1938). In this case Alcoa was made a party to the proceedings and held to be a public utility by order of the Commission on 3 October 1980. We believe that when Alcoa was held to be a public utility and made a party to a general rate case this was adequate notice that it might be held liable for the refund.
Alcoa also contends its due process rights were violated by requiring it to prefile its testimony prior to the prefiling of the intervenors’ testimony and requiring it to file its brief concurrently with the intervenors. It argues that it had a right to know what the contentions of the intervenors would be with a chance to meet them which it did not have under the procedure used by the Utilities Commission. Alcoa argues that it did not know the position of the intervenors as to the hidden benefits to Alcoa under the NFA and the 1971 Apportionment Agreement until the intervenors’ brief was filed with the Utilities Commission at which time it did not have a chance to meet these contentions. We believe that in a general rate case to which Alcoa was a party and in which the NFA and the 1971 Apportionment Agreement were integral parts of the case Alcoa should have been forewarned that the intervenors intended to show the agreements were beneficial to Alcoa at the expense of Nantahala’s customers. We hold the
Alcoa next contends it was deprived of due process by the Commission’s consideration of evidence introduced at the hearings before it was made a party. There was sufficient evidence introduced at the hearings to which Alcoa was a party to support the Commission’s findings of fact. We assume the Commission relied on this evidence.
Alcoa next contends that the Utilities Commission improperly shifted the burden of proof. In its order the Utilities Commission made the following statement:
These findings by the Supreme Court, that Nantahala and Tapoco constitute a single, integrated electric system and should be treated as one system for rate-making purpose [sic], have been carefully considered by the Commission for purposes of this proceeding. However, since Alcoa and Tapoco were not parties to the original proceeding that led to the June 14, 1977 Order, the Commission has allowed them and Nantahala to introduce evidence in the remand proceeding to challenge the findings of the Supreme Court.
Alcoa argues that by treating statements in the Supreme Court’s opinion as findings of fact and requiring it to challenge them, the Commission placed a burden of proof on Alcoa which constitutes error. We do not believe we can hold the Utilities Commission placed the burden of proof on Alcoa. It did not say that it did so and there is sufficient evidence for the Commission to find the facts as it did without the use of any presumption against Alcoa. It is unfortunate that the Utilities Commission used the language it did since the Supreme Court did not and could not find facts. Nevertheless, we do not believe this language requires us to reverse the Utilities Commission.
Alcoa’s last argument is that the Commission violated its own rules by conducting the hearing as a general rate case and not as a complaint proceeding against Alcoa without the procedural rules of a complaint proceeding which could have given a different result. We believe the Utilities Commission was correct in conducting the proceeding as a general rate case. The primary question was what is a fair rate of return on Nantahala’s invest
Nantahala assigns error to the Commission’s requirement that it “refund to its North Carolina retail customers all revenue collected under the rates approved by Commission order issued June 14, 1977, to the extent that said rates produce revenue in excess of the rates approved herein.” It argues that neither G.S. 62-132 nor G.S. 62-135 authorizes the Utilities Commission to order this refund. The opinion of our Supreme Court contains the following language:
“We believe that essential fairness to all the parties is best served by allowing the increased rates to remain in effect, conditional upon Nantahala’s guarantee that it will in the future refund to its customers any overcharges should the new rates ultimately be deemed excessive. Accordingly, we . . . direct the Commission to obtain adequate assurances of Nantahala’s willingness and continued ability to refund such overcharges as may ultimately result from imposition of the 1977 rate schedule.” Utilities Comm. v. Edmisten, Attorney General, at 444, 263 S.E. 2d at 592.
We believe the Utilities Commission was following the mandate of the Supreme Court in this portion of the order. We would have to overrule the Supreme Court to sustain this assignment of error, which we cannot do.
Finally, Nantahala argues that the order of the Commission confiscates the property of Nantahala and thus violates its due process rights. It contends that its refund obligation is more than its net worth and although Alcoa was ordered to pay so much of the refund obligation as Nantahala cannot pay and remain solvent. Alcoa denies its obligation to pay. Nantahala says it may be years before Alcoa has exhausted its remedies in federal court and in the meantime Nantahala will not be able to serve its customers if it is responsible for the refund. It argues that such an order cannot be in the best interests of its customers.
We believe the Utilities Commission has conducted hearings and entered an order within the mandate of the Supreme Court’s opinion. The appellants make persuasive arguments, particularly as to the equities involved. Indeed a good argument could be made that the best friend Nantahala’s customers have is Alcoa. It financed the building of large hydroelectric facilities at a time when Nantahala could not have justified constructing them for its public customers. Nantahala’s customers have had for many years the benefit of these facilities built at 1941 costs. Nevertheless, these are not factors which the law allows to be taken into account in setting utility rates.
Affirmed.