STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION, ATTORNEY GENERAL JOSHUA H. STEIN, PUBLIC STAFF – NORTH CAROLINA UTILITIES COMMISSION v. VIRGINIA ELECTRIC AND POWER COMPANY d/b/a DOMINION ENERGY NORTH CAROLINA
No. 477A20
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 17 June 2022
2022-NCSC-75
Appeal as of right pursuant to N.C.G.S. § 62-90 and N.C.G.S. § 7A-29(b) from a final order of the North Carolina Utilities Commission entered on 24 February 2020 in Docket No. E-22, Sub 562 and 566. Heard in the Supreme Court on 5 January 2022.
Public Staff – North Carolina Utilities Commission, by Chief Counsel Diane W. Downey and Staff Attorneys Lucy E. Edmondson, Nadia L. Luhr, Robert B. Josey, and Munashe Magarira, for North Carolina Utilities Commission, and Joshua H. Stein, Attorney General, by Margaret A. Force, Special Deputy Attorney General, appellees.
McGuire Woods, LLP, by Mary Lynne Grigg, Mark E. Anderson, W. Dixon Snukals, Nicholas A. Dantonio, and Bradley R. Kutrow, for Virginia Electric and Power Company d/b/a Dominion Energy North Carolina, appellant.
¶ 1 This appeal arises from an order entered by the Commission addressing an application
I. Factual Background
A. Substantive Facts
¶ 2 The application that Dominion filed with the Commission in this case sought an increase in the company’s North Carolina retail rates and charges, with the costs upon which Dominion’s application was predicated having included substantial amounts that Dominion had incurred in order to remediate conditions at the company’s coal ash storage facilities between 1 July 2016 and 30 June 2019,1 which included the costs of complying with both federal and state regulatory requirements that mandated the closure of existing coal ash basins and other storage areas. Among other regulations, certain Dominion facilities are subject to the “Hazardous and Solid Waste Management System—Disposal of Coal Combustion Residuals from Electric Utilities” rule, 80 Fed. Reg. 21301, or “CCR Rule,” which was promulgated by the Environmental Protection Agency on 17 April 2015. According to the CCR rule, affected utilities are required to retrofit or close all of their existing coal ash ponds and to perform groundwater monitoring, engage in various sorts of corrective action, and take other steps, as necessary, to prevent the harmful substances found in coal combustion residuals from percolating into nearby groundwater. Eight of Dominion’s
coal-fired generating facilities and related coal ash storage facilities are subject to the CCR rule.
¶ 3 Another coal ash-related regulatory requirement that affects Dominion’s operations is Virginia Senate Bill 1355, which was adopted in 2019 and requires Dominion to remove coal combustion residuals from the storage ponds used at four of Dominion’s coal-fired electric generating facilities and to place them into lined, permitted landfills, with the excavated coal ash waste to be permanently housed either in fully-lined onsite landfills that have been constructed consistently with modern standards or in offsite landfills and with Dominion being required to recycle approximately 25% of excavated coal ash waste in the event that it is economically
B. Prior Commission Decisions Relating to Coal Ash Remediation
¶ 4 On 31 March 2016, Dominion applied to the Commission for a general rate increase for the purpose, in part, of reflecting coal ash-related costs that it had incurred through 30 June 2016 in its North Carolina retail rates and charges. Application of Va. Elec. & Power Co., d/b/a Dominion N.C. Power, for Adjustment of Rates and Charges Applicable to Elec. Util. Serv. in N.C., Docket No. E-22, Sub 532, 2016 N.C. PUC LEXIS 1183, at *4-5 (N.C.U.C. Dec. 22, 2016). Subsequent to the filing of Dominion’s application, the Public Staff and Dominion entered into a stipulation that provided, with respect to Dominion’s coal ash-related costs, that:
(1) Amortization periods — CCR expenditures incurred through June 30, 2016, should be amortized over a five-year period. Notwithstanding this agreement, the Stipulating Parties further agree that the appropriate amortization period for future CCR expenditures shall be determined on a case-by-case basis.
(2) Deferral of future CCR expenditures — By virtue of the Commission‘s approval in this proceeding of a mechanism to provide for recovery of CCR expenditures incurred through June 30, 2016, the Company has authority pursuant to the August 6, 2004, Order in Docket No. E-22, Sub 420, to defer additional CCR expenditures, without prejudice to the right of any party to take issue with the amount or the treatment of any deferral of ARO costs in a rate case or other appropriate proceeding.
(3) Continuing amortization and deferral of CCR expenditures — The Company and the Public Staff reserve their rights in the Company‘s next general rate case to argue to the Commission (a) how the unamortized balance of deferred CCR expenditures incurred by the Company
prior to June 30, 2016, and the related amortization expense should be addressed; and (b) how reasonable and prudent CCR expenditures incurred by the Company after June 30, 2016, should be recovered in rates.
(4) Overall prudence of CCR Plan — The Public Staff‘s agreement in this proceeding to the deferral and amortization of CCR expenditures incurred through June 30, 2016, shall not be construed as a recommendation that the Commission reach any conclusions regarding the prudence and reasonableness of the Company‘s overall CCR plan, or regarding any specific expenditures other than the ones to be recovered in this case.
Id. at *137-39. After the conclusion of an evidentiary hearing, the Commission approved the portion of the parties’ stipulation relating to coal ash-related costs, determining that Dominion was
allowed to defer the costs of its remediation of coal combustion residuals through June 30, 2016, and shall be allowed to amortize those deferred costs over a period of five years. The Company submitted substantial evidence that its costs incurred to comply with federal and state law regarding disposal of CCRs were prudently and reasonably incurred. . . . However, the Commission’s approval of [Dominion]’s CCR cost deferral is based on the particular facts and circumstances presented in this docket and, therefore, is not precedent for the treatment of CCR costs in any future proceedings.
In addition, the Commission finds and concludes that the treatment of CCR costs incurred by [Dominion] after June 30, 2016, shall be reviewed in a future rate case, subject to the provisions of the Stipulation
regarding future amortization periods, deferral of future CCR expenditures, continuing amortization and deferral of CCR expenditures, and any other arguments or positions presented by the Company, the Public Staff, or another party at that time.
Further, the Commission‘s determination in this case shall not be construed as determining the prudence and reasonableness of the Company‘s overall CCR plan, or the prudence and reasonableness of any specific CCR expenditures other than the ones deferred and authorized to be recovered in this case.
Id. at *152-53. Based upon these findings, the Commission approved the stipulation between Dominion and the Public Staff “in its entirety,” so that Dominion was allowed to amortize the coal ash-related costs that it had incurred prior to 30 June 2016 over a period of five years and to earn a return on the unamortized balance. Id. at *374.
¶ 5 On 1 June 2017, Duke Energy Progress filed an application for a general rate increase that included, among other things, a request to account for certain coal ash-related remediation costs in the calculation of its North Carolina retail rates and charges. State ex rel. Utils. Comm’n v. Stein, 375 N.C. 870, 880 (2020). Similarly, on 25 August 2017, Duke Energy Carolinas filed an application with the Commission seeking a general rate increase that reflected certain costs relating to the closure of coal ash basins and other coal ash-related compliance costs in the calculation of its North Carolina retail rates and charges. Id. at 880–81. The Public Staff, the Attorney General, the Sierra Club, and several other parties intervened in these proceedings for the purpose of arguing that the Commission should not allow Duke to include some or all of these coal ash-related costs in the calculation of its North Carolina retail rates and charges, id. at 881, in light of Duke’s alleged
mismanagement of its coal ash basins, with the Public Staff having urged the Commission to adopt an “equitable sharing” plan that would have resulted in a 50-50 sharing of these costs between Duke’s shareholders and ratepayers. Application by Duke Energy Progress, LLC, for Adjustment of Rates and Charges Applicable to Elec. Util. Serv. in N.C.; Application by Duke Energy Carolinas, LLC, for Adjustment of Rates and Charges Applicable to Elec. Util. Serv. in N.C., 2021 N.C. PUC LEXIS 723, *1 (N.C.U.C. June 25, 2021). After conducting an evidentiary hearing, the Commission entered orders allowing Duke Energy Progress and Duke Energy Carolinas to amortize the coal ash-related costs that they had accumulated between 2015 and 2017 over a five-year period, and to earn a return on the unamortized balance of these costs. Id. at *1–2. On the other hand, the Commission imposed a $30 million mismanagement penalty on Duke Energy Progress and a $70 million mismanagement penalty on Duke Energy Carolinas as a result of the manner in which the companies had handled their coal combustion residuals. Id. at *2.
¶ 6 After the entry of these orders, the Attorney General, the Public Staff, and the Sierra Club sought relief from the Commission’s orders before this Court. Stein, 375 N.C. 870. As is discussed in more detail below, this Court determined in Stein that the Commission had the authority to allow Duke Energy to amortize coal ash-related costs in its North Carolina retail rates and charges and to allow the recovery of a return on the unamortized balance of those costs pursuant to
given that the enactment of the CCR Rule and other state laws regulating coal ash storage and disposal had “forced [Duke Energy] to confront an ‘extraordinary and unprecedented’ issue involving the potential expenditure of billions of dollars in order to address a significant environmental problem.” Id. at 926. On the other hand, this Court also found that the Commission was “required to consider all material facts of record” in the course of exercising its authority to consider “other facts” pursuant to
¶ 7 After this Court’s decision in Stein, Duke Energy entered into a settlement agreement with the Public Staff, the Attorney General, and the Sierra Club, 2021 N.C. PUC LEXIS 723, *10, for the purpose of “resolv[ing] not only the 2017 rate cases on remand from the Court but also the 2019 rate cases and future CCR costs to be incurred through” 2030 for both Duke Energy Progress and Duke Energy Carolinas. Id. at *27. In this settlement, Duke agreed to a significant reduction in the amount of coal ash-related costs that were to be included in the calculation of the companies’ rates, with “the net present value of the savings to [ratepayers] from forgone CCR cost recovery (including applicable financing costs) [having] amount[ed] to more than
$900 million,” id. at *29, including a $261,000,000 reduction in the amount of coal ash-related costs included in Duke Energy Progress’ North Carolina retail rates, a $224,000,000 reduction in the amount of coal ash-related costs included in Duke Energy Carolina’s North Carolina retail rates, “future reduced recovery of CCR costs through . . . 2030 of $162 million [for Duke Energy Progress] and $108 million [for Duke Energy Carolinas], and other additional customer-savings provisions.” Id. at *30. On 25 June 2021, the Commission entered an order approving the proposed coal ash cost-related settlement. Id. at *37.
C. Procedural History of the Current Dominion Rate Case
¶ 8 On 27 February 2019, Dominion filed a Notice of Intent to File a General Rate Application with the Commission in Docket No. E-22, Sub 562. On 29 March 2019, Dominion filed an application with the Commission for the purpose of seeking a $26,958,000 increase in its North Carolina retail rates and charges. On 17 September 2019, Dominion and the Public Staff entered into a stipulation resolving all of the matters at issue in this case with the exception of “issues associated with coal combustion residuals (CCR) costs.” The Commission conducted an evidentiary hearing for the purpose of resolving the issues that remained in dispute between the parties.
¶ 9 In the course of a hearing held before the Commission for the purpose of receiving expert witness testimony on 23 September 2019, Jason E. Williams testified
on behalf of Dominion that the Company had “historically managed CCR consistently with evolving industry standards and regulatory requirements”; that, by 1988, 80% of the coal ash generated at Dominion’s coal-fired generating facilities was stored in surface impoundments or landfills; and that the actions that the Company had taken “to comply with the federal and state requirements have been reasonable and prudent.” Jay Lucas, on the other hand, testified for the Public Staff for the purpose of describing its “equitable sharing recommendation,” pursuant to which Dominion shareholders would be required to cover 40% of the relevant coal ash costs while the remaining 60% would be included in calculating Dominion’s North Carolina retail rates.
¶ 10 According to Mr. Lucas, while the Public Staff’s equitable sharing plan was not predicated upon the use of a prudence standard, pursuant to which 100% of the company’s coal ash-related costs would have been disallowed, at least in his opinion, the agency’s proposal made sense in light of the magnitude and nature of Dominion’s coal ash remediation costs and the extent of Dominion’s culpability for the resulting environmental contamination given the company’s “fail[ure] to improve its CCR management practices despite the evolving knowledge of the risk of unlined CCR storage at the time,” which indicated that “wet storage of CCR in unlined surface impoundments was detrimental to the quality of surrounding groundwater and surface water.” Mr. Lucas described multiple known exceedances of the applicable
groundwater contaminant limits at several of Dominion’s coal ash sites, including an exceedance at the company’s Possum Point facility in the 1980s; elevated trace metal levels in the groundwater, surface water, and soil surrounding the Chisman Creek facility; and 548
¶ 11 In the same vein, Public Staff witness Michael C. Maness defended the Public Staff’s “equitable sharing” proposal on the grounds that:
[t]he total amount of the costs is large (approximately $377 million on a system level and approximately $22 million on a North Carolina retail level), which amounts to approximately $179 per North Carolina retail customer, or $60 per year per North Carolina retail customer, before
considering the impact of including the unamortized amount in rate base.
[Dominion] will be incurring significant additional costs in the future related to the CCR Excavation Act (Virginia Senate Bill 1355).
The incurrence of these costs will not provide any benefits to customers in terms of additional electric service or improvements to service.
The incurrence of CCR costs has not been the result of economic analysis that pointed toward an action that would be economically advantageous to ratepayers.
. . . [T]he Commission has implemented equitable sharing in several past circumstances involving incurred costs that did not provide any future benefits to retail customers.
According to Mr. Maness, the Public Staff’s proposal that ratepayers bear 60% of the costs and that shareholders bear 40% of the costs was appropriate in light of the manner in which Dominion had managed its coal combustion residuals and the nature and magnitude of the resulting costs and that the resulting “equitable sharing” could be achieved by precluding Dominion from earning a return on the unamortized balance of its coal ash-related costs and by amortizing the costs over an eighteen-year period, with it being likely that “the Public Staff would . . . recommend some level of sharing even in the absence of environmental culpability, due to the magnitude and/or nature of the costs.”
¶ 12 In rebuttal, Mr. Williams denied that Dominion had failed to properly manage its coal combustion residuals, asserting that “the Public Staff has acknowledged that
it is not capable of or willing to identify a specific action the Company could have taken in the past,” that “neither the Company nor the Public Staff could find any example prior to 2016 where the Public Staff had raised any concerns regarding groundwater or surface water issues,” and that the Public Staff should refrain from acting as an environmental regulator in the course of judging the prudence of the Company’s past actions. Based upon this logic, Mr. Williams concluded that the Public Staff’s proposal to disallow admittedly prudent and reasonable costs on the basis of “equitable sharing” was “shortsighted and could lead to an unpredictable and unhealthy regulatory environment for utilities and their customers.”
¶ 13 On 24 February 2020, the Commission entered an order in which it found as fact that:
Recovery of CCR Costs
49. Since its last rate case, on a North Carolina retail jurisdictional basis, from the period beginning July 1, 2016 and running through June 30, 2019 (the Deferral Period), [Dominion] has incurred $21.8 million in costs associated with the management of CCRs (the CCR Costs). The $21.8 million includes: (1) $19.2 million in expenditures made during the Deferral Period to
comply with federal and state environmental regulations associated with managing CCRs and converting or closing waste ash management facilities at seven of [Dominion]’s generation stations; and (2) $2.7 million in financing costs incurred during the Deferral Period. 50. The record includes substantial evidence that, particularly where CCRs were being managed in lined
landfills, the CCR Costs incurred during the Deferral Period were prudently incurred.
51. Although the Public Staff offered evidence challenging the manner in which [Dominion] had managed CCRs and its various CCR waste management facilities over several decades, insofar as the specific CCR Costs incurred during the Deferral Period are concerned, while the record contains evidence that identifies instances of imprudence, the record contains insufficient evidence to permit the Commission to quantify the effects of imprudent actions on ratepayers.
52. [Dominion] is entitled to recover the CCR Costs established in this general rate case, in the manner and subject to the conditions as set forth herein.
In addition, the Commission noted that the order that it had entered in connection with the Company’s 2016 rate case did “not have precedential value with respect to the CCR issues in this case” because the stipulation between Dominion and the Public Staff that had been approved in that proceeding provided that:
[t]he Public Staff’s agreement in this proceeding to the deferral and amortization of CCR expenditures incurred through June 30, 2016, shall not be construed as a recommendation that the Commission reach any conclusions regarding the prudence and reasonableness of the Company’s overall CCR plan, or regarding any specific expenditures other than the ones to be recovered in this case.
Moreover, the Commission noted that it had explicitly stated that its order in that proceeding should “not be construed as determining the prudence and reasonableness of [Dominion]’s overall CCR plan, or the prudence and reasonableness of any specific
CCR expenditures other than the ones deferred and authorized to be recovered in this case,” Application of Va. Elec. & Power Co., Ord. Approving Rate Increase and Cost Deferrals and Revising PJM Regul. Conditions, Docket No. E-22, Sub 532, at *3 (N.C.U.C. Dec. 22, 2016), and that it would be “inappropriate to give the 2016 [Dominion] Rate Case Order precedential effect” in view of the fact that the evidence that had been presented in that proceeding was “far less extensive” than the evidence that had been presented in this proceeding given that Dominion and the Public Staff had entered into a stipulation in the earlier proceeding, so that the “issues of prudence and reasonableness were not fully litigated and no significant evidentiary record was developed.”
¶ 14 According to the Commission, Dominion had made a prima facie showing that the coal ash-related costs that it had incurred between 1 July 2016 and 30 June 2019 had been prudently incurred in light of the fact that the company had largely discontinued wet storage of coal ash and moved towards storing dry ash in lined landfills. On the other hand, the Commission noted that, even though the Public Staff had not “expressed [an] opinion on the prudence and reasonableness of the [coal ash c]osts,” one of its witnesses had “testified to a number of deficiencies in [Dominion]’s historical management of [coal ash] and the resulting environmental impacts,” such as late and deficient groundwater monitoring, the decision to ignore a recommendation to construct a dry waste disposal facility at one of the coal ash sites,
and groundwater data showing exceedances of certain elements and heavy metals such as barium, cadmium, copper, iron, manganese, nickel, phenols, potassium, sodium, and zinc at one of the coal ash sites. In addition, the Commission noted the existence of evidence that “call[ed] into question” the prudence of the manner in which Dominion had incurred certain coal ash-related costs, such as the fact that, prior to the adoption of the CCR Rule, Dominion had planned to permanently store some of its coal ash in unlined wet ponds and to cover the ponds with soil, a practice that was likely to cause hydraulic
¶ 15 In finding that Dominion’s coal ash costs had been prudently incurred, the Commission noted that, “while the evidence demonstrates a difference of opinion or dispute as to whether certain [of Dominion]’s actions, omissions or decisions were prudent,” neither party had “presented evidence to attempt to quantify which, if any, of the [coal ash c]osts might have been avoided if [Dominion] had used a different approach to managing [coal ash recovery] at some point during the last several decades” and stated that
it would be very difficult to go back and recreate the timing and cost of such different approaches. For example, one could argue that [Dominion] should have converted all of its coal-fired plants to dry ash handling at least at some time during the 1990s. However, to quantify the costs and benefits of this strategy would require establishing, with some level of certainty, the costs that [Dominion] would have incurred for such conversions, and the savings in
present [coal ash] remediation costs that would have resulted from such conversions. In addition, [Dominion] could have been entitled to recover those conversion costs, plus a return on its increased rate base, from its ratepayers over the past several decades. On the present record, the Commission has no substantial evidence on which to make such determinations. Thus, based on the foregoing, . . . the Commission concludes that the [coal ash c]osts were prudently incurred.
¶ 16 After reaching this conclusion, the Commission determined that it would be “just and reasonable” to deny Dominion a return on the unamortized balance of the coal ash costs that it had incurred between 1 July 2016 and 30 June 2019 and to permit the amortization of those costs over a ten-year period. In support of this result, the Commission concluded that:
Ratemaking Treatment of Recoverable CCR Costs
53. Just and reasonable rates will be achieved by excluding from rate base the CCR Costs and amortizing recovery of the CCR Costs over a period of ten years.
54. It is reasonable, based on the evidence in the record in this proceeding, for [Dominion] to recover its financing costs on the CCR Costs incurred during the Deferral Period, up to the effective date of rates approved pursuant to this Order, calculated at [Dominion]’s previously authorized weighted average cost of capital.
55. It is reasonable, based on the evidence in the record in this proceeding for annual compounding to be used in calculating the financing costs of deferred costs, including the CCR Costs, during the Deferral Period.
As further support for this determination, the Commission reasoned that Dominion should not be allowed to earn a return on the unamortized balance of coal ash costs in light of:
(1) the Commission’s obligation to set just and reasonable rates that are fair to both the utility and the ratepayer in accordance with
N.C.G.S. § 62-133(a) ; (2) the Commission’s historical treatment of extraordinary, large costs, such as [Manufactured Gas Plant] environmental remediation costs and plant cancellation costs; and (3) the Commission’s obligation to consider all other material facts of record that will enable it to determine what are just and reasonable rates in accordance withN.C.G.S. § 62-133(d) .
More specifically, the Commission noted that, when Public Service Company of North Carolina, Inc., had sought recovery of substantial costs incurred for the purpose of remediating hazardous by-products that were created at manufactured natural gas plants, it had determined that, while the utility should be authorized to amortize its prudently incurred remediation costs to rates over a period of years, the company should not be allowed earn a return on the unamortized balance of those costs on the grounds that such a result struck the “proper balance between ratepayer and shareholder interests” and gave the utility “an incentive to minimize clean-up costs and to pursue contributions from third parties where appropriate.” In addition, the Commission cited to a 1983 order in a proceeding
in which the Commission had concluded that, while the relevant nuclear plant abandonment costs had been prudently incurred and should be amortized to rates, Dominion should not be allowed to earn a return on the unamortized balance of those costs on the theory that “[a] middle ground must be found on which the Company bears some of the risk of abandonment and the ratepayer is protected from unreasonably high rates.” Id.
¶ 17 Furthermore, the Commission concluded that it had a “well-established history of allocating prudently incurred costs, specifically in the context of extraordinary, large costs such as environmental clean-up and plant cancellation costs, between ratepayers and shareholders in order to strike a fair and reasonable balance” and that “fairness dictate[d] this same treatment” in the present proceeding. According to the Commission, “[a] number of material facts in evidence call[ed] into question the prudence” of Dominion’s coal ash-related costs, including the occurrence of groundwater violations and its refusal to build a dry waste storage facility at the Possum Point plant contrary to the standards for coal ash storage that the Environmental Protection
the steps that Dominion took to ensure that its CCR management practices complied with relevant environmental requirements, as well as the evidence that the Commission relied upon in concluding that a sharing of those costs between the utility and its customers would be appropriate.
¶ 40 Finally, we find no merit in Dominion’s equal protection argument. Because the Commission’s ratemaking decisions are legislative in nature, they need not be supported by strict consistency or absolute equality of treatment in order to satisfy constitutional requirements; rather, such decisions need only be rationally related to a legitimate government purpose. See State ex rel. Utils. Comm’n v. Carolina Util. Customers Ass’n, 348 N.C. 452, 472 (1998); see also FCC v. Beach Commc‘ns, Inc., 508 U.S. 307, 313 (1993) (noting that a legislative classification satisfies the equal protection clause if there is any “rationally related” state interest). Here, the Commission’s decision to require that Dominion’s shareholders bear a portion of the clean-up costs and to set a ten-year amortization period is rationally related to the Commission’s statutory obligation to fix just and reasonable rates, which requires striking a balance between shareholder and ratepayer interests. See
¶ 41 Consequently, we conclude that the Commission did not err in its decision to deny Dominion the opportunity to earn a return on the unamortized
AFFIRMED.
Justice BARRINGER dissenting.
¶ 49 The issue I address today is whether the Utilities Commission needed to explain why it departed from its reasoning in two cases that were decided less than two years prior, had materially similar facts, and were brought to the
I. Relevant Facts
¶ 50 On 29 March 2019,
As part of the rate increase, Dominion sought to recover CCR compliance expenses incurred from 1 July 2016 to 30 June 2019 through a five-year amortization period as well as a return on the unamortized balance. Id. at 86. Dominion requested this recovery method as
II. Analysis
¶ 51 Dominion Energy contends that the Commission’s failure to provide any explanation directly addressing why it did not allow Dominion the same recovery as Duke was arbitrary and capricious. In response, the Public Staff argues that while “the Commission did not expressly distinguish those orders . . . the Commission’s extensive explanation” for why it did not allow Dominion Energy a five-year amortization
Additionally, the Public Staff contends that even if the Commission erred by failing to expressly distinguish the Duke cases, remand would serve no purpose since this Court reversed the Duke orders in State ex rel. Utilities Commission v. Stein, 375 N.C. 870 (2020).
¶ 52 The Commission does not have “unbridled discretion in exercising its judgment.” State ex rel. Utils. Comm’n v. Thornburg, 314 N.C. 509, 516 (1985). Instead, this Court may reverse a decision of the
¶ 53 After careful review, I cannot find a case where this Court has addressed whether or not the Commission must explicitly explain why it departed from a recently decided case with materially similar facts that was brought to its attention. However, this Court has previously recognized that “[w]hile the Commission is not covered by our Administrative Procedure Act[,] . . . the Commission is still an administrative agency of the state government, and general tenets of administrative law are applicable to its operation except where modified by statute.” State ex rel. Utils. Comm’n v. Nantahala Power & Light Co., 326 N.C. 190, 199–200 (1990). Looking to the general tenets of administrative law, “[i]t is textbook administrative law that an agency must provide[ ] a reasoned explanation for departing from precedent or treating similar situations differently.” New England Power Generators Ass’n, Inc. v. Fed. Energy Regul. Comm’n, 881 F.3d 202, 210 (D.C. Cir. 2018) (second alteration in original) (quoting W. Deptford Energy LLC v. FERC, 766 F.3d 10, 20 (D.C. Cir. 2014)); Trump Plaza Assocs. v. NLRB, 679 F.3d 822, 827 (D.C. Cir. 2012) (noting that an agency “cannot ‘ignore its own relevant precedent but must explain why it is not controlling[,]’ B B & L, Inc. v. NLRB, 52 F.3d 366, 369 (D.C. Cir. 1995)”); see also 2 Am. Jur. 2d Admin. Law § 360 (2022).2
Accordingly, though an administrative agency “need not address every precedent brought to its attention, it must provide an explanation where its decisions appear to be ‘on point.’ ” Nat’l Weather Serv. Emps. Org. v. Fed. Lab. Rels. Auth., 966 F.3d 875, 883–84 (D.C. Cir. 2020) (quoting Brusco Tug & Barge Co. v. NLRB, 247 F.3d 273, 277 (D.C. Cir. 2001)).
¶ 54 Here, the Commission never explained why, in this case, it allowed a different recovery for Dominion’s CCR costs than the recovery it allowed for Duke’s CCR costs two years prior.3
In the Duke cases, the Commission allowed Duke to recover its CCR costs through a five-year amortization period and receive a return on the unamortized costs. In contrast, in this case, the Commission only allowed Dominion to recover its CCR costs through a ten-year amortization period and not receive a return on the unamortized costs. The Commission’s order in this case contained several reasons explaining why it allowed a ten-year amortization period with no return on the unamortized costs. However, none of those reasons relate to the Duke cases or explain why the Commission departed from the Duke cases.4
The Commission’s failure to provide that explanation rendered its order arbitrary and capricious.
¶ 56 Further, contrary to the Public Staff’s contention, reversing this case for the Commission to correct its erroneous reasoning would not be “futile.” According to the Public Staff, since Stein reversed the two Duke cases, “there is now no need for the Commission to distinguish the ratemaking treatment that it afforded Duke that was later reversed and superseded.” However, this argument only highlights the problem with the Commission’s decision in this case. Without an explanation from the Commission, this Court has no basis for knowing why the Commission chose not to follow the Duke cases. Thus, this Court can only speculate as to what effect Stein would have on the Commission’s reasoning in this case.
¶ 57 More importantly, at the time the Commission decided this case, Stein had not yet been decided by this Court. Thus, the Commission must have chosen to depart from the Duke cases for some reason other than Stein. Accordingly, the partial reversal of the Duke cases in Stein and their ultimate settlement does not provide this Court with any further insight as to why the Commission chose not to follow them or permit us to conclude that its decision to depart from the Duke cases was not arbitrary and capricious.
¶ 58 Ultimately, the lack of an explanation by the Commission is the fatal flaw in this case. While nonarbitrary explanations for why the Commission treated one utility differently than another utility certainly could exist,6
so could arbitrary ones. For instance, the Commission might arbitrarily treat out-of-state-based utilities differently than locally
III. Conclusion
¶ 59 An agency’s decision is arbitrary and capricious if it does not explain why it decided to depart from two cases decided less than two years prior that featured materially similar facts and were brought to its attention. The majority’s decision to the contrary now permits the Commission to treat two similarly situated entities differently without ever having to directly address the reason for the disparate treatment. The majority’s decision on this point contradicts general tenets of administrative law. Because this case should be remanded to the Commission to address the issue discussed herein, I respectfully dissent.
Chief Justice NEWBY and Justice BERGER join in this dissenting opinion.