State ex rel. Utilities Commission v. Kudzu Alliance , 64 N.C. App. 183 ( 1983 )

Because of the similarity of the facts and the issues presented by the appeals in these two cases, we have combined our consideration of them. We note at the outset that G.S. 62-134(e), the statute governing the instant proceedings before the Utilities Commission, has been repealed. 1981 Session Laws (Reg. Sess., 1982) c. 1197, s. 2. The repealing statute provides that “all rates and changes under G.S. § 62434(e) shall terminate not later than December 1, 1982.” 1981 Session Laws (Reg. Sess., 1982) c. 1197, s. 3. Since the rate increases in the present cases involve a period before 1 December 1982, G.S. 62434(e) controls the proceedings and our consideration of the orders emanating therefrom. State ex rel. Utilities Commission v. Public Staff, 58 N.C. App. 480, 293 S.E. 2d 880 (1982), rev’d on other grounds (see below), 309 N.C. 195, 306 S.E. 2d 435 (1983).

Appellant contends that the Commission erroneously considered factors other than the cost of fossil fuels in determining the increase in rates due to increased fuel costs. In State ex rel. Utilities Commission v. Public Staff, 309 N.C. 195, 306 S.E. 2d 435 (1983), our Supreme Court held that the Utilities Commission in fuel cost adjustment proceedings can consider only the fluctuations in the cost of fossil fuels — oil, coal and natural gas — used by the utility in the production of electric power in its generating units. We therefore agree with appellant and hold that it was error for the Utilities Commission to consider factors other than the cost of fossil fuel in the instant proceedings.

Appellant’s remaining contentions are whether it is proper, in the context of a G.S. 62434(e) fuel cost adjustment proceeding, to use a base rate, established in a general rate proceeding, the fuel cost component of which was itself derived from a G.S. 62434(e) proceeding. In State ex rel. Utilities Commission v. North Carolina Textile Manufacturers Association, 309 N.C. 238, 306 S.E. 2d 113 (1983), our Supreme Court held, in a per curiam opinion, that it was improper to adopt the fuel costs established in the next preceding fuel cost adjustment proceeding as the fuel cost component used in establishing the general rate. Rather, that case holds that the cost of fuel is an operating expense of the utility and that, as such, the Utilities Commission must examine these costs for the reasonableness of their having been incurred before incorporating them into the base rate. The decisions of the Supreme Court in that case, and in State ex rel. Utilities Commission v. Public Staff supra, are controlling with respect to this question.

Appellee admits that the fuel cost component of the base rate used in the instant fuel clause proceedings was established by the very method found improper by the Supreme Court in State ex rel. Utilities Commission v. North Carolina Textile Manufacturers Association, supra. Appellant contends that to allow the fuel cost adjustment established in the proceedings below would allow the utilities to set rates in order to recover past expenses. Inasmuch as the fuel cost component of the base rate in the present cases has not been properly examined for reasonableness, we agree with appellant’s contention. It is improper to allow a utility to recover its past expenses through a rate that is supposed to be prospectively applied. Utilities Commission v. Edmisten, Atty. General, 291 N.C. 451, 232 S.E. 2d 184 (1977).

Accordingly, we must reverse the orders of the Utilities Commission and remand these causes for such further proceedings as may be necessary in light of the recent opinions of our Supreme Court, cited above.

Reversed and remanded.