In re Application of Duke Energy Corp. & Progress Energy, Inc. , 232 N.C. App. 573 ( 2014 )

NO. COA13-566
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
IN THE MATTER OF:
APPLICATION OF DUKE ENERGY
CORPORATION AND PROGRESS ENERGY,
INC., TO ENGAGE IN A BUSINESS
COMBINATION TRANSACTION AND TO
ADDRESS REGULATORY CONDITIONS AND
CODES OF CONDUCT
N.C. Utilities Commission
Nos. E-2, Sub 998
E-7, Sub 986
Appeal by City of Orangeburg, South Carolina and N.C. Waste
Awareness and Reduction Network from order entered 29 June 2012
by the N.C. Utilities Commission. Heard in the Court of Appeals
6 November 2013.
Allen Law Offices, PLLC, by Dwight W. Allen, Britton H.
Allen, and Brady W. Allen; Duke Energy Corporation Deputy
General Counsel Lawrence B. Somers; and Womble Carlyle
Sandridge & Rice, LLP, by James P. Cooney, III, for
Appellee Duke Energy Corporation.
Spiegel & McDiarmid, LLP, by James N. Horwood and Peter J.
Hopkins, pro hac vice; and Schiller & Schiller, PLLC, by
David G. Schiller, for Intervenor-Appellant City of
Orangeburg, South Carolina.
The Law Offices of F. Bryan Brice, Jr., by Matthew D.
Quinn; and John D. Runkle, for Intervenor-Appellant N.C.
Waste Awareness Reduction Network.
Public Staff Chief Counsel Antoinette R. Wike and Staff
Attorney Gisele L. Rankin, for Appellee Public Staff-North
Carolina Utilities Commission.
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McCULLOUGH, Judge.
Intervenors City of Orangeburg, South Carolina
(“Orangeburg”) and N.C. Waste Awareness and Reduction Network
(“NC WARN”) appeal from order of the N.C. Utilities Commission
(the “Commission”) entered 29 June 2012. For the following
reasons, we affirm the Commission’s order and dismiss
Orangeburg’s appeal.
I. Background
In accordance with N.C. Gen. Stat. § 62-111(a), on 4 April
2011, Duke Energy Corporation (“Duke”) and Progress Energy, Inc.
(“Progress”) (collectively the “applicants”) submitted an
application to the Commission for authorization to: “engage in
a business combination transaction; revise and apply Duke Energy
Carolinas, LLC’s (“DEC”) Regulatory Conditions and Code of
Conduct to Progress and Progress Energy Carolinas, Inc. (“PEC”);
and nullify PEC’s Regulatory Conditions and Code of Conduct.”
DEC and PEC, wholly-owned subsidiaries of Duke and Progress,
respectively, are electric utilities organized, existing, and
operating under the laws of the State of North Carolina.
Pursuant to the terms of the Agreement and Plan of Merger (the
“merger agreement”) entered into by the applicants and attached
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to the application as Exhibit 1, the business combination
transaction (the “merger”) would occur at the holding company
level with Diamond Acquisition Corporation, a wholly-owned
subsidiary of Duke, merging with and into Progress with the
result that Progress survives the merger as a wholly-owned
subsidiary of Duke.1 Progress and PEC would remain separate
legal entities following the merger, with the plan that PEC and
DEC would merge into a single legal entity in the future.
On 27 April 2011, the Commission entered an Order
Scheduling Hearing, Establishing Procedural Deadlines, and
Requiring Public Notice. By the terms of the order, a
Commission hearing on the application was scheduled to begin on
20 September 2011.
In the interim, the Commission allowed the intervention of
thirty-seven (37) different parties, including the Commission’s
public staff and appellants NC WARN and Orangeburg. Regarding
appellants, NC WARN filed a petition to intervene on 27 May 2011
that the Commission granted by order entered 7 June 2011;
Orangeburg filed a petition to intervene on 5 August 2011 that
the Commission granted by order entered 12 August 2011. Also in
the interim, on 2 September 2011, the applicants and the public
1
Duke would acquire all issued and outstanding common stock of
Progress in exchange for Duke common stock.
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staff entered into an agreement and stipulation of settlement
(the “Stipulation”) for consideration by the Commission pursuant
to N.C. Gen. Stat. § 62-69.
By Commission order entered following a pre-hearing
conference on 19 September 2011, the application, certain
exhibits, the revised Joint Dispatch Agreement, the Stipulation,
and the corrected Regulatory Conditions and Code of Conduct were
admitted into evidence as if introduced at the hearing on the
application set to begin the following day.
The Commission hearings on the application then began as
scheduled on 20 September 2011. The hearings lasted three days,
concluding on 22 September 2011. A supplemental hearing was
later held on 25 June 2012.
On 27 June 2012, NC WARN filed an offer of proof alleging
that many facts relevant to the merger had changed significantly
since the September 2011 hearings and, therefore, the Commission
should reopen the hearing process. The Commission, however,
determined the offer of proof was defective and on 29 June 2012
entered an Order Approving Merger Subject to Regulatory
Conditions and Code of Conduct (the “merger order”). In the
merger order, which includes 41 findings of fact and over 80
pages of analysis discussing the evidence and reasoning
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supporting the findings, the Commission stated its conclusions
as follows:
The Commission concludes that the
Stipulation, Regulatory Conditions, Code of
Conduct, Supplemental Stipulation, as
amended, guaranteed fuel and fuel-related
savings, Applicants’ contributions to
various work force development, low-income
assistance, environmental and charitable
programs, and the potential for future
merger cost savings for ratepayers are
sufficient to ensure that: (1) the merger
will have no adverse impact on the rates and
service of DEC’s and PEC’s North Carolina
retail ratepayers; (2) DEC’s and PEC’s North
Carolina retail ratepayers are protected as
much as reasonably possible from potential
costs and risks resulting from the merger;
and (3) there are sufficient benefits from
the merger to offset the potential costs and
risks. Therefore, the Commission further
concludes that the proposed business
combination between Duke and Progress is
justified by the public convenience and
necessity.
In accordance with the terms of the merger order, the
applicants filed a statement notifying the Commission they
accepted and agreed with all terms, conditions, and provisions
of the merger order on 2 July 2010, the same day the merger was
finalized.
On 26 July 2012, NC WARN filed a motion for reconsideration
of the merger order. The Commission denied NC WARN’s motion by
order entered 10 December 2012.
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Orangeburg and NC WARN appealed from the merger order to
this Court.2
II. Discussion
NC WARN and Orangeburg raise distinct issues on appeal. On
the one hand, NC WARN challenges the merger as a whole, claiming
there is not substantial evidence to support the Commission’s
decision to approve the merger. On the other hand, Orangeburg
challenges the constitutionality of certain regulatory
conditions imposed in connection with the Commission’s approval
of the merger. We address these issues separately.
A. Standard of Review
The scope of this Court’s review of a Commission decision
is governed by statute. As our Supreme Court has recognized,
“‘[t]he decision of the Commission will be upheld on appeal
unless it is assailable on one of the statutory grounds
enumerated in [N.C. Gen. Stat. §] 62–94(b).’” State ex rel.
Utilities Com'n v. Cooper, 366 N.C. 484, 490, 739 S.E.2d 541,
545 (2013) (quoting State ex rel. Utilities Com'n v. Carolina
2
NC WARN also appealed from the Commission’s denial of its motion
for reconsideration. The issues related to the denial of NC
WARN’s motion for reconsideration, however, were dismissed by
the Commission on 29 April 2013 following Duke’s 7 March 2013
motion to dismiss.
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Utility Customers Ass'n (CUCA I), 348 N.C. 452, 459, 500 S.E.2d
693, 699 (1998)). N.C. Gen. Stat. § 62-94(b) provides:
So far as necessary to the decision and
where presented, the court shall decide all
relevant questions of law, interpret
constitutional and statutory provisions, and
determine the meaning and applicability of
the terms of any Commission action. The
court may affirm or reverse the decision of
the Commission, declare the same null and
void, or remand the case for further
proceedings; or it may reverse or modify the
decision if the substantial rights of the
appellants have been prejudiced because the
Commission's findings, inferences,
conclusions or decisions are:
(1) In violation of constitutional
provisions, or
(2) In excess of statutory authority or
jurisdiction of the Commission, or
(3) Made upon unlawful proceedings, or
(4) Affected by other errors of law, or
(5) Unsupported by competent, material and
substantial evidence in view of the
entire record as submitted, or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 62-94(b) (2013). As explained by our Supreme
Court,
“[t]his Court's role under section 62–94(b)
is not to determine whether there is
evidence to support a position the
Commission did not adopt. Instead, the test
upon appeal is whether the Commission's
findings of fact are supported by competent,
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material and substantial evidence in view of
the entire record. Substantial evidence [is]
defined as more than a scintilla or a
permissible inference. It means such
relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.
The Commission's knowledge, however expert,
cannot be considered by this Court unless
the facts and findings thereof embraced
within that knowledge are in the record.
Failure to include all necessary findings of
fact is an error of law and a basis for
remand under section 62–94(b)(4) because it
frustrates appellate review.”
Cooper, 366 N.C. at 490-91, 739 S.E.2d at 545 (quoting CUCA I,
348 N.C. at 460, 500 S.E.2d at 699–700 (alteration in original)
(citations and internal quotation marks omitted)); see also
State ex rel. Utilities Com’n v. Village of Pinehurst, 99 N.C.
App. 224, 226, 393 S.E.2d 111, 113 (1990) (“[T]he essential test
to be applied is whether the Commission’s order is affected by
errors of law or is unsupported by competent, material, and
substantial evidence in view of the entire record as
submitted.”). Yet, “[u]pon any appeal, . . . any . . . finding,
determination, or order made by the Commission . . . shall be
prima facie just and reasonable.” N.C. Gen. Stat. § 62-94(e).
B. NC WARN’s Appeal
NC WARN is a not-for-profit corporation with members across
North Carolina that, according to its motion to intervene, seek
“to reduce hazards to public health and the environment from
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nuclear power and other polluting electricity production through
energy efficiency and renewable energy resources.” In this
case, NC WARN was allowed to intervene to advocate that the
Commission investigate the public convenience and necessity of
the merger and to address its members’ concerns regarding the
merger’s potential impacts on the cost of electricity, renewable
energy projects, and energy efficiency programs.
Now on appeal, NC WARN contends the Commission erred in
approving the merger because there was insufficient evidence to
support approval. Specifically, NC WARN argues: (1) the
applicants failed to submit evidence of the risks posed by the
merger; (2) there is no evidence the merger will result in
benefits to the public; and (3) the merger is not justified by
the public convenience and necessity.
As provided in the Public Utilities Act, “[n]o . . . merger
or combination affecting any public utility [shall] be made
through acquisition or control by stock purchase or otherwise,
except after application to and written approval by the
Commission, which approval shall be given if justified by the
public convenience and necessity.” N.C. Gen. Stat. § 62-111(a)
(2013). Since 2000, the Commission has required that applicants
submit market-power and cost-benefit analyses as part of an
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application for an electric utility merger. See Order Requiring
Filing of Analyses, Docket No. M-100, Sub 129, at 7 (2 November
2000) (the “Sub 129 Order”).
1. Merger Risks
NC WARN first argues that neither the application nor
applicants addressed the risks posed by the merger, as required
by the Sub 129 Order. We disagree. Although there was no
specific document titled cost-benefit analysis, we find there
was sufficient consideration of the risks of the merger.
In approving the merger, the Commission explicitly found
“[t]he Applicants . . . are in compliance with the filing
requirements established in the Sub 129 Order with respect to
the market power and cost-benefit analyses submitted with the
application.” This finding reiterated a prior 27 April 2011
Commission order concluding the application satisfied the filing
requirements of the Sub 129 order.
Upon review of the record, we hold there was substantial
evidence to support the Commission’s approval where, in addition
to the application, the applicants submitted investment analyses
from three different financial institutions, an analysis of the
economic efficiencies under joint dispatch, a fuel synergies
review, and a market power study, among other exhibits.
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Despite recognition of the analyses submitted by the
applicants, NC WARN argues the analyses only examined the
potential benefits of the merger and did not constitute a
comprehensive cost-benefit analysis. We hold that the
Commission adequately addressed this argument in discussing its
finding that the applicants met the filing requirements of the
Sub 129 Order. In the merger order, the Commission noted,
“[t]he purpose of such analyses is to assist the Commission in
determining whether or not a merger meets the statutory standard
for approval.” The Commission then explained,
[t]he Applicants stated in the application
that the actual integration of Duke and
Progress and their service companies is
expected to produce cost savings in addition
to those identified in the Compass Lexecon
Study and the Fuel Synergies Review and that
there will be upfront costs associated with
achieving these savings. The fact that the
application did not include a quantification
of the costs and benefits associated with
these non-fuel savings, along with the
exhibits quantifying direct and immediate
fuel savings, does not constitute a filing
deficiency insofar as the Sub 129 Order is
concerned. Moreover, as discussed . . . ,
the record contains ample evidence regarding
the Applicants’ estimates of both fuel and
non-fuel savings to support a decision as to
whether the merger meets the statutory
standard for approval.
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We find it evident from a review of the merger order that the
Commission had sufficient evidence to determine whether the
merger was justified by the public convenience and necessity.
Throughout the merger order, the Commission weighed and
balanced the benefits of the merger with the known and potential
costs and risks of the merger. Specifically, in Finding of Fact
22, the Commission documented the potential costs and risks to
retail ratepayers that it considered.
Known and potential costs and risks of the
merger to North Carolina retail ratepayers
include direct merger costs and other
merger-related cost increases that could
impact North Carolina retail rates; the
potential for preemption of the Commission’s
regulatory authority under the FPA,
particularly as it relates to the JDA and
the Joint OATT, and under the Public Utility
Holding Company Act of 2005 (PUHCA 2005);
potential adverse effects on DEC and PEC of
transactions within the holding company
family and the resulting need for increased
regulatory oversight of such transactions,
including the treatment of joint dispatch
costs and savings; the potential for DEC and
PEC to unreasonably favor their unregulated
affiliates over nonaffiliated suppliers of
goods and services; potential adverse
impacts on DEC’s and PEC’s cost of capital;
the exposure of DEC, PEC, and their
respective retail ratepayers to costs and
risks associated with Duke, Progress, and
their subsidiaries; and the potential for
DEC’s and PEC’s quality of service to
deteriorate because of increased management
focus on cost savings and earnings growth.
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In identifying these costs and risks, the Commission noted that
“[t]he known and potential costs and risks to North Carolina
retail ratepayers from a merger affecting one or more regulated
electric utilities have been well documented in prior merger
proceedings.” The Commission further found, however, that
despite these costs and risks, the retail ratepayers were
adequately protected by the Regulatory Conditions and
Stipulation approved by the Commission with the merger.
Although no single document entitled cost-benefit analysis
was presented by the applicants quantifying the known and
potential costs and risks of the merger, we hold there was
sufficient evidence of the costs, considering the benefits and
protections afforded to retail ratepayers, to allow the
Commission to determine that the merger met the statutory
standard for approval.
2. Public Benefit
NC WARN also argues that there is no evidence that the
merger will result in benefits to the public. NC WARN instead
maintains that the benefits resulting from the merger accrue
solely to the benefit of the emerging entity. We disagree.
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Based on claims in the application and supporting evidence
in the analysis of economic efficiencies under joint dispatch
and fuel synergies review, the Commission found,
[t]he primary quantifiable benefits of the
merger to North Carolina retail ratepayers
consist of an estimated $364.2 million in
total system fuel and fuel-related cost
savings over the five-year period 2012
through 2016 through joint dispatch of DEC’s
and PEC’s generation assets and an
additional estimated $330.7 million in total
system fuel and fuel-related system cost
savings through sharing and implementing
best practices for fuel procurement and use
over the same five-year period.
These savings in turn benefit the ratepayers. As further found
by the Commission,
[t]he Stipulation [agreed upon by the
applicants and the public staff] guarantees
that North Carolina retail ratepayers will
receive their allocable share of $650
million of these cost savings, as well as a
small amount of non-fuel operations and
maintenance (O&M) cost savings, over five
years through DEC’s and PEC’s annual fuel
clause proceedings. . . . Further, if the
fuel and fuel-related savings achieved by
DEC and PEC exceed the guaranteed $650
million during the first five years after
the merger, then North Carolina ratepayers
will receive their allocable share of the
additional savings.
NC WARN does not dispute the fuel cost savings on appeal,
but contends the savings are temporary, are not a product of the
merger, and are diminished by settlements to allocate fuel
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savings to wholesale customers. We are unpersuaded by NC WARN’s
contentions.
First, the fact that the savings are only guaranteed over
the first five years does not diminish the benefit of the
guaranteed savings to retail ratepayers. Second, the fuel
savings are a product of the merger. As the Commission
explained, the fuel cost savings “are the result of using the
lower cost resources of each company to displace the higher cost
resources of the other depending on the marginal cost of
production of each utility’s available resources in a given
hour.” Without the merger, these savings from joint dispatch
would not be possible. Similarly, without the merger, it is
unlikely the savings from the implementation of best practices
for fuel procurement and use would be realized because companies
do not usually share their proprietary skills and practices with
unaffiliated entities. Third, we are unconvinced that the
savings to retail ratepayers will be diminished by settlements
with wholesale customers. As the Commission noted, there was
testimony that “the settlement agreements between the Applicants
and parties other than the Public Staff were considered by the
Public Staff in its negotiations of its settlement with the
Applicants.” Furthermore, the Commission ultimately sets retail
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rates and the Commission is not bound by the terms of those
settlement agreements.
In addition to the quantifiable fuel cost savings, the
Commission also found that “substantial non-fuel O&M cost
savings are expected to result from the integration of Duke and
Progress over the long term.” As explained by the Commission,
this finding is supported by an internal study on merger
integration savings and witness testimony that a major source of
the O&M savings is lower payroll costs resulting from the
elimination of duplicate positions.
Lastly, in addition to the fuel and non-fuel cost savings,
the Stipulation provides that DEC and PEC will make annual
community support and charitable contributions of at least $9.2
million and $7.28 million, respectively, in their service areas
over four years and contribute $15 million for workforce
development and low income energy assistance during the first
year following the merger. Additionally, the merger order
requires DEC and PEC to contribute $2 million to NC GreenPower.
Considering the significant guaranteed fuel cost savings
and potential non-fuel cost savings, as well as the commitments
by DEC and PEC to contribute funds to support the community,
workforce development, and low income energy assistance, we hold
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there was substantial evidence before the Commission that the
merger will result in benefits to the public.
3. Public Convenience and Necessity
In NC WARN’s third argument, NC WARN contends the merger is
not justified by public convenience and necessity for three
reasons: (1) the merger allows the applicants to manipulate
prices and harm local markets; (2) the merger will result in job
losses; and (3) the merger harms low income families. It is
evident from the merger order that the Commission considered
each of these concerns; nevertheless, the Commission found the
merger justified by public convenience and necessity. Upon
review, we affirm the Commission.
Monopsony
NC WARN first argues the merger contradicts the public
convenience and necessity because it is likely to create a
monopsony, “a market situation in which one buyer controls the
market.” Black’s Law Dictionary 1023 (7th ed. 1999). NC WARN
contends this control could allow the buyer to manipulate
prices, harming local markets, such as the market for renewable
energy. NC WARN further contends that based on uncontroverted
witness testimony concerning the potential for a monopsony
following the merger, the Commission should have concluded “the
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merger will harm [local markets] within North Carolina – such as
renewable energy markets – and therefore the merger cannot be in
the public convenience and necessity.”
While we acknowledge the potential of a monopsony was
raised in testimony provided during the Commission hearing, we
find the Commission adequately addressed the issue in the merger
order. In explaining the potential costs and risks of the
merger enumerated in Finding of Fact 22, the Commission
specifically addressed the testimony of Richard S. Hahn, noting
“Hahn testified that a result of the merger would be market
dominance by the merged entities with regard to the procurement
of renewable energy, leading to unaffiliated renewable energy
developers foregoing North Carolina development activities.”
Yet, after considering the rebuttal testimony of B. Mitchell
Williams, the Commission was not persuaded that the merger would
negatively impact the market for renewable energy. The
Commission reasoned,
PEC and DEC are required to meet their
[Renewable Energy and Energy Efficiency
Standards (“REPS”)] renewable energy
obligations in the least cost manner. In
doing so, they minimize the rate impact to
their customers of complying with this
statutory mandate. In addition, to the
extent the merger allows PEC and DEC to
lower their REPS compliance costs through
more efficient resource procurement
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procedures, this will be a direct benefit to
their North Carolina customers.
The Commission further explained,
following the close of the merger DEC and
PEC will each continue to have the same
obligations they had before the merger to
refrain from favoring or subsidizing their
affiliates, to pursue the most reliable,
prudent and cost-effective resources and
projects, and to demonstrate that they have
done so in appropriate proceedings before
the Commission[.]
Upon review, we hold the Commission’s analysis is supported
by Williams’ testimony and the governing statutes, N.C. Gen.
Stat. §§ 62-133.8(b) and 62-133.9(b).
Job Losses
NC WARN also argues the merger contradicts the public
convenience and necessity because it results in job losses. NC
WARN specifically points to the testimony of James Rogers,
William D. Johnson, and Paula Sims to emphasize the applicants’
plan to terminate 2,000 or more jobs (approximately 6.7% of the
applicants’ workforce) as a consequence of the merger. NC WARN
argues that “[t]hese job losses, in a time of economic crisis,
weigh strongly against the merger of Duke and Progress.”
We agree the job losses weigh against the public
convenience and necessity; yet, the number of jobs lost must not
be considered in isolation.
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Although 2,000 or more jobs were expected to be lost as a
result of the merger, the evidence before the Commission tended
to show that a majority of these job reductions would occur
through retirement, normal attrition, and voluntary severance.
Furthermore, witness testimony reassured the Commission that
these reductions would not affect the quality, safety, and
reliability of DEC and PEC service because the majority of the
reductions would occur in corporate functions, rather than
operational functions. Testimony also provided that retained
employees would benefit from the merger as a result of a larger,
more diverse company with better career opportunities,
compensation, and benefits.
It is evident from the merger order that the Commission
considered the number of jobs lost, the manner in which the
workforce was reduced, the benefits to the retained employees,
and the potential benefits to retail ratepayers as a result of
savings expected to be realized from lower payroll costs in its
determination that the merger was justified by the public
convenience and necessity. It is not this Court’s role to
second guess the determination of the Commission where its
findings and conclusions are supported by the evidence.
Low-Income Families
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In NC WARN’s final argument, NC WARN argues the merger
contradicts the public convenience and necessity because it
harms low-income families. Specifically, NC WARN relies on the
testimony of Roger D. Colton and contends the merger will
eliminate the individualized customer service on which low-
income families rely to manage the costs of electricity.
It is evident from the merger order that the Commission
considered Colton’s testimony but was unpersuaded. The
Commission explained,
[t]he Commission determines that the needs
of low-income customers to manage their
energy usage and be financially able to pay
their bills are undeniably real and
substantial, and the agencies and
individuals who are committed to addressing
those needs, particularly in times of
economic hardship and high unemployment,
have a considerable undertaking to manage.
However, the Commission does not agree with
witness Colton that the merger will
adversely affect those customers or that
conditions of the merger approval should be
a major vehicle for addressing their energy
needs.
The Commission was persuaded, however, “that the Applicants’
commitments in the proposed Regulatory Conditions, along with
the Commission’s Rules and Regulations and monitoring by the
Commission and the Public Staff, are sufficient to ensure that
there is no diminution of resources to assist low-income
customers and other customers of DEC and PEC.”
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Upon review of Williams’ rebuttal testimony, we hold the
Commission’s analysis is supported by the evidence. In
rebuttal, Williams testified that Colton’s concerns were
speculative and “that this merger will do absolutely nothing to
impair or modify [the] Commission’s jurisdiction, consumer
protection authority or regulatory control over the combined
company.” Specifically, Williams identified numerous Commission
Rules and Regulatory Conditions that ensure quality customer
service. Williams further testified the merger would not affect
the discretion of customer service representatives and would not
constrain the range of options available to customer service
representatives assisting low income families manage payments.
NC WARN further contends that the payment of $15 million
dollars by DEC and PEC within the first year following the
merger is inadequate to remedy the harm to low income families
resulting from the merger. NC WARN instead asserts that the
Commission should have required the applicants to pay $270
million, $27 million per year for 10 years, as recommended by
Colton. We disagree.
As stated above, the Commission was clear that it did not
agree with Colton’s analysis. Although there is no direct
evidence to link the $15 million payment to the harm to low-
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income families, we hold the Commission did not err in approving
the payment. As the Commission noted, the merger approval
should not be the vehicle to address the energy needs of low
income families. The statutory requirement for merger approval
is that the merger is justified by the public convenience and
necessity. Here, the $15 million dollar payment agreed to in
the Stipulation is just a portion of the economic benefits to
low income families, who also benefit from the $650 million in
guaranteed savings to retail ratepayers.
Where it is evident that the Commission considered the
potential costs and risks of the merger and weighed them against
the anticipated benefits, and where there is substantial
evidence supporting the Commission’s findings and conclusions,
we will not second guess the Commission’s determination that the
merger is justified by the public convenience and necessity.
Thus, we affirm the Commission’s approval of the merger in the
merger order.
C. Orangeburg’s Appeal
Orangeburg, through its Department of Public Utilities,
provides electric services to approximately 25,000 residential,
industrial, and commercial customers in the City of Orangeburg
and Orangeburg County. With a generation capacity of only 23.5
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megawatts and a growing total peak load of over 180 megawatts,
Orangeburg is reliant on wholesale purchases of power to meet
the needs of its customers.
When the Commission entered the merger order, the
Commission approved the application “subject to the provisions
of [the merger order] and the Regulatory Conditions and Code of
Conduct[.]” Just as Orangeburg argued before the Commission,
Orangeburg, as “a potential wholesale power customer of Duke or
Progress and a competitor for industrial load with utilities in
the Southeastern United States[,]” challenges Regulatory
Conditions 3.6, 3.7, and 3.9 on appeal.
In short, these Regulatory Conditions provide the
following: (1) DEC and PEC “shall continue to serve [their]
Retail Native Load Customers with the lowest-cost power it can
reasonably generate or obtain . . . before making power
available for sales to customers that are not entitled to the
same level of priority[;]” (2) DEC and PEC shall give written
notice to the Commission prior to “execut[ing] any contract that
grants Native Load Priority to a wholesale customer” other than
the historically served wholesale customers recognized by the
Commission; and (3) “[t]he Commission retains the right to
assign, allocate, impute, and make pro-forma adjustments with
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respect to the revenues and costs associated with both DEC’s or
PEC’s wholesale contracts for retail ratemaking and regulatory
accounting and reporting purposes.”
Orangeburg argues these Regulatory Conditions effectively
restrict the sale of low cost wholesale power to certain
Commission-favored wholesale customers in violation of the
Commerce Clause and Supremacy Clause of the U.S. Constitution.
As a result, Orangeburg, which is not one of the Commission-
favored wholesale customers, contends it is competitively
disadvantaged and will not receive competitive offers to
purchase wholesale power in the future.
Below, the Commission considered these same arguments;
nevertheless, the Commission approved the merger subject to the
Regulatory Conditions finding,
[t]he Commission-approved Regulatory
Conditions effectively protect as much as
reasonably possible the Commission’s
jurisdiction as a result of the merger,
including risks related to agreements and
transactions between and among DEC, PEC, and
their affiliates, including the JDA;
financing transactions involving Duke, DEC,
or PEC, and any other affiliate; the
ownership, use and disposition of assets by
DEC or PEC; participation in the wholesale
market by DEC or PEC; and filings with
federal regulatory agencies. In addition
they insulate DEC’s and PEC’s retail
ratepayers as much as reasonably possible
from any adverse consequences potentially
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resulting from the merger.
In fact, in discussing the evidence and conclusions supporting
the above finding, the Commission specifically addressed
Orangeburg’s challenges to Regulatory Conditions 3.6, 3.7, and
3.9, noting that “[t]he Commission, the North Carolina appellate
courts[,] and FERC have been confronted by Orangeburg’s
arguments or by similar arguments by others on previous
occasions.” Following a discussion of these prior occasions,
the Commission then explicitly rejected Orangeburg’s challenges.
“The Commission [further] determine[d] that Orangeburg lacks
standing at this time and in these dockets to raise these issues
and alternatively that Orangeburg’s arguments as they
contemplate potential future harm are not ripe for
consideration.”
Upon review, we agree with the Commission’s analysis; yet,
we do not reach the merits of Orangeburg’s challenges to the
Regulatory Conditions on appeal because we hold Orangeburg lacks
standing to appeal the merger order. Therefore, we dismiss
Orangeburg’s appeal.
N.C. Gen. Stat. § 62-90 provides that a “party aggrieved”
by a final Commission order or decision has standing to appeal.
N.C. Gen. Stat. § 62-90(a) (2013). “Generally, ‘a “party
aggrieved” is one whose rights have been directly and
-27-
injuriously affected by the judgment entered[.]’” State ex rel.
Utilities Com'n v. Carolina Utility Customers Ass'n, Inc. (CUCA
II), 163 N.C. App. 1, 10, 592 S.E.2d 277, 282 (2004) (quoting
Hoisington v. ZT-Winston-Salem Assocs., 133 N.C. App. 485, 496,
516 S.E.2d 176, 184 (1999) (citations omitted)). In this case,
we hold Orangeburg is not a party aggrieved at this time.
In January 2011, Orangeburg entered into a wholesale power
supply agreement with S.C. Electric & Gas Co. (“SCE&G”) to
purchase its power requirements from SCE&G from 1 January 2012
through at least 31 December 2022.3 As a result of this
agreement, Orangeburg is not currently in the market to purchase
wholesale power from DEC or PEC and will not be until it
reenters the market in search of a new agreement several years
before the current agreement expires. Thus, Orangeburg is not
aggrieved by the Regulatory Conditions it challenges.
Furthermore, we find our holding is bolstered by Orangeburg’s
own declaration that it is merely “a potential wholesale power
customer of Duke and Progress.” As the Commission recognized,
there are many variables subject to change prior to the time
Orangeburg is back in the wholesale market.
3
The wholesale power supply agreement between Orangeburg and
SCE&G provided SCE&G an option to extend the agreement through
31 December 2023.
-28-
Despite its contract to purchase wholesale power from SCE&G
through at least 31 December 2022, Orangeburg argues it has
standing to challenge the regulatory conditions because the
Commission, by allowing it to intervene, necessarily determined
that it had an interest in the merger and a right to be heard.
We are unpersuaded by Orangeburg’s argument.
The standards for intervention and standing are discrete
and distinguishable. Intervention in a Commission proceeding is
governed by Commission Rule 1-19, which provides that “[a]ny
person having an interest in the subject matter of any hearing .
. . before the Commission may become a party thereto . . . by
filing a verified petition with the Commission” that includes,
among other requirements, “[a] clear, concise statement of the
nature of the petitioner’s interest in the subject matter of the
proceeding, and the way and manner in which such interest is
affected by the issues involved in the proceeding.” N.C. Admin.
Code. tit. 4, c. 11, r. 1-19(a) (June 2012). Rule 1-19 further
provides:
[L]eave to intervene filed within the time
herein provided, in compliance with this
rule and showing a real interest in the
subject matter of the proceeding, will be
granted as a matter of course, but granting
such leave does not constitute a finding by
the Commission that such party will or may
be affected by any order or rule made in the
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proceeding.
N.C. Admin. Code. tit. 4, c. 11, r. 1-19(d) (emphasis added).
On the other hand, and as discussed above, standing is statutory
and requires the party to be aggrieved. See N.C. Gen. Stat. §
62-90(a). As this Court has recognized, “[t]his Court's
interpretation of ‘party aggrieved’ as it relates to an appeal
of an order by the Commission . . . suggests that more than a
generalized interest in the subject matter is required.” CUCA
II, 163 N.C. App. at 10, 592 S.E.2d at 282-83 (citing State ex
rel. Utilities Com’n v. Carolina Utility Customers Ass’n, 104
N.C. App. 216, 408 S.E.2d 876 (1991) (holding CUCA was not an
aggrieved party and dismissing its appeal of an order by the
Commission for lack of standing because CUCA had failed to show
that its interest in person, property, or employment has been
substantially adversely affected, directly or indirectly); State
ex rel. Utilities Com'n v. Carolina Utility Customers Ass'n, 142
N.C. App. 127, 136, 542 S.E.2d 247, 253 (2001) (holding that
CUCA was not a “party aggrieved” and thus, lacked standing to
appeal “because the Commission's order did not impact rates and
because any rate increases [would] be effectuated at subsequent
rates cases”)).
Although Orangeburg may have had an interest in the
proceedings before the Commission, Orangeburg is not currently
-30-
in the market to purchase wholesale power and, therefore, not
directly and injuriously affected by the Regulatory Conditions
approved by the Commission at this time. Thus, we hold
Orangeburg is not an aggrieved party and dismiss its appeal for
lack of standing. Additionally, although we dismiss
Orangeburg’s appeal for lack of standing, we take this
opportunity to note, as did the Commission, that regulatory
conditions similar to those challenged by Orangeburg have been
upheld by the Commission, this Court, and FERC in prior cases.
See State ex. re. Utilities Com’n v. Carolina Power & Light Co.,
359 N.C. 516, 614 S.E.2d 281 (2005).
III. Conclusion
For the reasons discussed above, we hold the Commission did
not err in determining the merger was justified by the public
convenience and necessity and, therefore, affirm the
Commission’s approval of the merger. Furthermore, having
determined Orangeburg lacks standing to raise a challenge to the
regulatory conditions on appeal, we dismiss Orangeburg’s appeal.
Affirmed in part and appeal dismissed in part.
Judges ELMORE and STEPHENS concur.