State ex rel. Utils. Comm'n v. Att'y Gen.

IN THE SUPREME COURT OF NORTH CAROLINA

No. 234A13

FILED 12 JUNE 2014
STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION; VIRGINIA
ELECTRIC AND POWER COMPANY d/b/a DOMINION NORTH CAROLINA
POWER, Applicant; and PUBLIC STAFF – NORTH CAROLINA UTILITIES
COMMISSION, Intervenor
v.
ATTORNEY GENERAL ROY COOPER and NUCOR STEEL-HERTFORD,
Intervenors

On direct appeal as of right pursuant to N.C.G.S. §§ 62-90(d) and 7A-29(b)

from a final order of the North Carolina Utilities Commission entered on 21

December 2012 in Docket No. E-22, Sub 479. Heard in the Supreme Court on 19

November 2013.

McGuireWoods, LLP, by James Y. Kerr, II, for applicant-appellee Virginia
Electric and Power Company d/b/a Dominion North Carolina Power.

Antoinette R. Wike, Chief Counsel, and William E. Grantmyre and Dianna W.
Downey, Staff Attorneys, for intervenor-appellee Public Staff – North Carolina
Utilities Commission.

Kevin Anderson, Senior Deputy Attorney General; Phil Woods, Special Deputy
Attorney General; Margaret A. Force, Assistant Attorney General; and William
V. Conley, Special Deputy Attorney General, for intervenor-appellant Roy
Cooper, Attorney General.

Nelson, Mullins, Riley & Scarborough, LLP, by Joseph W. Eason and Phillip
A. Harris, Jr.; and Brickfield, Burchette, Ritts & Stone, P.C., by Damon E.
Xenopoulos, pro hac vice, for intervenor-appellant Nucor Steel-Hertford.

JACKSON, Justice.
 STATE EX REL. UTILS. COMM’N V. ATT’Y GEN.

Opinion of the Court

In this case we consider whether the North Carolina Utilities Commission

(“the Commission”) erred by approving certain adjustments made by Dominion

North Carolina Power (“Dominion”) to a study of the costs of providing retail electric

service to a large industrial customer. In addition, we consider whether the order of

the Commission, which authorized a 10.2% return on equity (“ROE”) for Dominion,

contained sufficient findings of fact to demonstrate that it was supported by

competent, material, and substantial evidence in view of the entire record. We

conclude that the Commission did not err by approving Dominion’s adjustments to

the cost-of-service study; however, we reverse that portion of the Commission’s

order in which it authorized a 10.2% ROE for Dominion and remand for additional

findings of fact in light of State ex rel. Utilities Commission v. Attorney General Roy

Cooper (“Cooper”), 366 N.C. 484, 739 S.E.2d 541 (2013).

On 30 March 2012, Dominion filed an application with the Commission

requesting authority to increase its retail electric service rates to produce an

additional $63,665,000—an increase of approximately 19.11% in overall base

revenues. Subsequently, Dominion reduced its proposed revenue increase to

$55,320,000 and requested an ROE of 11.25%. The ROE represents the return that

a utility is allowed to earn on its capital investment by charging rates to its

customers. As a result, a higher ROE impacts profits for shareholders and costs to

consumers. Id. at 485 n.1, 739 S.E.2d at 542 n.1. The ROE is one of the

components used in determining a company’s overall rate of return. State ex rel.

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Opinion of the Court

Utils. Comm’n v. Public Staff (“Public Staff III”), 323 N.C. 481, 490, 374 S.E.2d 361,

366 (1988).

In this case the Commission allowed petitions to intervene filed by Nucor

Steel-Hertford (“Nucor”), the Carolina Industrial Group for Fair Utility Rates, the

North Carolina Sustainable Energy Association, and the North Carolina Waste

Awareness and Reduction Network. Nucor is a large industrial customer of

Dominion. The Attorney General and the Public Staff of the Commission

intervened as allowed by law. See N.C.G.S. §§ 62-15, -20 (2013).

On 27 April 2012, the Commission entered an order declaring this proceeding

a general rate case and suspending the proposed new rates for up to 270 days. The

Commission scheduled four public hearings to receive testimony from public

witnesses. The Commission also scheduled an evidentiary hearing for 16 October

2012, at which additional public testimony as well as expert testimony would be

received.

During the course of the hearings, the Commission heard testimony from

twenty public witnesses and a number of witnesses presented by the parties. The

Commission also received evidence addressing the methodology used in Dominion’s

cost-of-service studies. Cost-of-service studies are used to allocate production and

transmission plant costs among multiple jurisdictions and customer classes.

Dominion is required to submit such studies annually to the Commission.

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Opinion of the Court

Dominion used the summer and winter peak and average method (“SWPA”), with a

test period ending 31 December 2011, for its original study. The SWPA method

models cost of service using two factors: a peak demand component and an average

demand component. The peak demand component accounts for the power consumed

during the hour when demand for electricity is highest in the summer and winter

months. Average demand is calculated using the total power provided during the

year, divided by the number of hours in the year. To determine the cost of providing

service to a particular customer class, the peak and average demands for that class

are weighted using a value called the system load factor, which represents whether

the customer class uses more power during peak or off-peak periods. The effect of

the system load factor is to allocate base load production costs to customer classes

that use power during off-peak hours and peak production costs to customer classes

that use power during peak hours.

Nucor operates an electric arc furnace. During the test period, Nucor

consumed 21% of all electricity sold by Dominion in North Carolina. Nucor’s

maximum peak demand was 158 megawatts (“MW”), and its average demand was

104 MW; however, in its original cost-of-service study, Dominion reduced Nucor’s

peak demand component to 38 MW. This reduction reflected that Dominion has a

contractual right to interrupt Nucor’s power use for limited periods. The contract

between the companies provides for several types of interruption that place

conditions on Nucor’s use of electricity. During a period of interruption, Nucor may

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Opinion of the Court

purchase electricity pursuant to special price terms, depending upon the type of

interruption Dominion has requested. Also, depending upon the type of

interruption, Nucor may or may not be allowed to use this electricity to operate its

electric arc furnace.

Nucor offered the testimony of Dr. Dennis Goins, Economic Consultant with

Potomac Management Group, who recommended additional adjustments to the

treatment of Nucor in the cost-of-service study. Goins’s primary recommendation

was to treat the entirety of Nucor’s demand as interruptible or “non-firm.” Goins

testified that interruptible service should not cause Dominion to incur any

production capacity costs, so no production capacity costs should be allocated to

Nucor. In the alternative, Goins recommended that Dominion should reduce

Nucor’s average demand in the same manner that it adjusted Nucor’s peak demand.

Dominion witness Paul B. Haynes, Manager, Regulation for Dominion,

strongly opposed these proposals. Haynes noted that Goins’s primary

recommendation would assign no responsibility for production plant costs and other

costs to Nucor. He testified that this proposal would reduce the revenue

requirement assigned to Nucor by $11.5 million, but increase the revenue

requirement assigned to the residential class by $900,000. Haynes argued that

Goins’s secondary proposal was unfair because all other customer classes’ average

demand factors were calculated using the amount of energy they actually consumed.

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Opinion of the Court

Haynes testified that the proposal would ignore 63% of the energy Nucor actually

consumed, and it would potentially shift costs to other jurisdictions and adversely

affect other customer classes.

The Commission heard additional testimony concerning Dominion’s ROE.

Dominion presented the testimony of Robert Hevert, Managing Partner of Sussex

Economic Advisors, LLC, Inc. Hevert testified that in developing his ROE

recommendation, he relied primarily on the Constant Growth Discounted Cash

Flow (“DCF”) model, which estimates the ROE as the sum of expected dividend

yield and expected rate of dividend growth. Hevert also considered the Capital

Asset Pricing Model (“CAPM”), which estimates cost of equity as the expected

return on a risk-free investment plus a risk premium. Hevert further testified that

because Dominion is not publicly traded, it was necessary to perform the analysis

on a proxy group of publicly-traded companies comparable to Dominion. On direct

examination he recommended an ROE range of 10.75% to 11.50%; however, on

rebuttal he modified the range to 10.50% to 11.50%, with a specific recommendation

of 11.25%. He criticized the ROE recommendations of Public Staff witness Johnson

and Nucor witness Woolridge because he believed that their recommendations were

excessively low considering the 10.7% ROE authorized for Dominion in its last

general rate case order of 13 December 2010.

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Opinion of the Court

The Public Staff presented the testimony of Dr. Ben Johnson, Consulting

Economist and President of Ben Johnson Associates, Inc. Johnson used a market

approach and a comparable earnings approach to estimate Dominion’s cost of

equity. Johnson’s market approach included an analysis of historic market returns

earned by investors in publicly traded common stocks, a DCF analysis, and a CAPM

analysis. Johnson testified that the average regulated utility often has a

significantly lower cost of equity than an average unregulated, competitive firm

because public utilities have substantially less risk. In performing his analysis,

Johnson selected a different proxy group from that utilized by Hevert. Johnson

argued that Hevert’s proxy group improperly selected companies that were enjoying

better-than-average financial performance and a lower-than-average risk profile.

Johnson also testified that Hevert had relied solely upon data concerning projected

earnings per share growth, which he characterized as more subjective and less

reliable. Johnson’s market approach estimated a cost of equity range of 7.89% to

9.08%, and his comparable earnings approach estimated that Dominion’s cost of

equity was in the range of 9.75% to 10.75%. He suggested that the Commission

could average the upper and lower bounds of each range to create a composite range

of 8.82% to 9.91%. He further recommended that the Commission exercise

discretion in determining how much weight to put on each of his approaches.

Assuming equal weight, he recommended a 9.37% ROE.

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Opinion of the Court

Nucor presented the testimony of Dr. J. Randall Woolridge, finance and

business administration professor at the University Park Campus of Pennsylvania

State University, Director of the Smeal College Trading Room, and President of the

Nittany Lion Fund, LLC. Woolridge testified that he, like Hevert, had applied both

the DCF and CAPM approaches; however, Woolridge testified that Hevert had

included only ten companies in his proxy group, while Woolridge had included

thirty-six. Woolridge also criticized Hevert’s analysis for relying solely upon

projected earnings per share growth rates because he stated that those estimates

are overly optimistic and upwardly biased. Woolridge’s DCF analysis estimated

that the cost of equity was 8.5% for his proxy group and 8.6% for Hevert’s proxy

group. Woolridge testified that for both proxy groups, his CAPM analysis estimated

the cost of equity at 7.5%. He concluded that the appropriate equity cost rate was

between 7.5% and 8.6%; however, he gave greater weight to the DCF model and

recommended an authorized ROE of 8.5%.

On 21 December 2012, the Commission issued an order that authorized an

increase of $21,954,000 in Dominion’s gross annual revenues and approved an ROE

of 10.2%. The Commission approved Dominion’s treatment of Nucor in its cost-of-

service study. The Commission determined that it was appropriate to reduce

Nucor’s peak demand to reflect the value of the interruptible nature of its contract

with Dominion. However, the Commission did not accept the recommendations of

Nucor’s witness Goins. The Commission found that “[o]utside of the relatively few

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Opinion of the Court

hours the Company can contractually request Nucor to curtail its arc furnace load,

Nucor is free to buy through all other requests at a fixed price arrangement.” In

addition, the Commission noted that “it is completely up to Nucor during these buy-

through time periods to decide how much energy to consume and the resulting

demand that it places on the system, and when to consume that energy.” The

Commission concluded that no additional adjustment should be made to the cost-of-

service study to account for Nucor because “[t]o do otherwise would inappropriately

shift costs to other customer classes and jurisdictions.”

In support of its ROE determination, the Commission summarized the

testimony of Hevert, Johnson, and Woolridge. The Commission noted that Hevert

had updated his analysis during his rebuttal testimony by adding a company to the

proxy group and adjusting the expected growth rates. The Commission found that

given the small size of Hevert’s proxy group, the update “inordinately influenced”

his results. In weighing the testimony of Johnson and Woolridge, the Commission

noted that their recommendations were “below any authorized ROE determination

for a vertically-integrated electric utility like [Dominion] by any Commission in the

last 30 years.”

The Commission also acknowledged that it was required to consider whether

the order was fair and reasonable to consumers, stating:

[T]he Commission is required to consider the economic
effects of its ROE decision on a public utility’s customers

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Opinion of the Court

pursuant to G.S. 62-133(b)(4). In particular, G.S. 62-
133(b)(4) states, in pertinent part, that in fixing rates the
Commission must fix a rate of return on the utility’s
investment that “will enable the public utility by sound
management to produce a fair return for its shareholders,
considering changing economic conditions and other
factors, including, but not limited to . . . to compete in the
market for capital funds on terms that are reasonable and
that are fair to its customers and to its existing investors.”
One of the “terms” on which a public utility competes in
the market for capital funds is the utility’s authorized
ROE. Thus, the Commission must consider whether that
term is reasonable and fair to the utility’s customers.

(ellipsis in original.) But the Commission cited only the following evidence

regarding this factor:

Public Staff witness Johnson testified in depth concerning
the economic downturn, including the unemployment
rate. In addition, the Commission received testimony and
written statements from numerous public witnesses
concerning the impact of current economic conditions on
[Dominion’s] customers. Therefore, the Commission has
ample evidence to consider in determining whether the
various ROEs supported by the expert testimony strikes
[sic] a fair balance between a reasonable rate of return for
shareholders and reasonable rates for the Company’s
customers.

In addition, the Commission noted that “Hevert and . . . Johnson testified that it is

not necessary to consider the impact of changing economic conditions on consumers

in the context of an ROE economic analysis, other than in a broader macroeconomic

sense, when analyzing changing market conditions for the purpose of making ROE

recommendations.”

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Opinion of the Court

The Commission determined that an ROE of 10.2% “strikes a fair balance

between the interests of the Company, its shareholders and ratepayers based on the

current financial market and economic conditions.” The Commission explained that

10.2% fell within the range of Hevert’s DCF and CAPM results and the comparable

earnings method used by Johnson. Furthermore, the Commission noted that

“interest rates and authorized returns have trended down since the Company’s last

general rate case order in December of 2010, when [Dominion] was allowed a rate of

return on common equity of 10.70%.” Nucor and the Attorney General appealed.

Subsection 62-79(a) of the North Carolina General Statutes “sets forth the

standard for Commission orders against which they will be analyzed upon appeal.”

State ex rel. Utils. Comm’n v. Carolina Util. Customers Ass’n (“CUCA I”), 348 N.C.

452, 461, 500 S.E.2d 693, 700 (1998). Subsection 62-79(a) provides:

(a) All final orders and decisions of the Commission
shall be sufficient in detail to enable the court on appeal
to determine the controverted questions presented in the
proceedings and shall include:

(1) Findings and conclusions and the reasons or bases
therefor upon all the material issues of fact, law, or
discretion presented in the record, and

(2) The appropriate rule, order, sanction, relief or
statement of denial thereof.

N.C.G.S. § 62-79(a) (2013). When reviewing an order of the Commission, this Court

may reverse or modify the decision if the substantial
rights of the appellants have been prejudiced because the

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Opinion of the Court

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.

Id. § 62-94(b) (2013). Pursuant to subsection 62-94(b), this Court must determine

whether the Commission’s findings of fact are supported by competent, material,

and substantial evidence in view of the entire record. Id.; CUCA I, 348 N.C. at 460,

500 S.E.2d at 699 (citations omitted). “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.” CUCA I, 348

N.C. at 460, 500 S.E.2d at 700 (alteration in original) (citations and quotation

marks omitted). The Commission must include all necessary findings of fact, and

failure to do so constitutes an error of law. Id.

In its appeal Nucor argues that the Commission “is prohibited from

considering the potential impact of its decision on ratepayers in other jurisdictions

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Opinion of the Court

when determining the total amount of revenues required from North Carolina’s

retail ratepayers.” As a result, Nucor contends that the Commission erred by

finding that further adjustments to the cost-of-service study would “inappropriately

shift costs to other . . . jurisdictions.” In support of its assertion, Nucor notes that

the Commission must consider costs associated with “providing the service rendered

to the public within the State,” N.C.G.S. § 62-133(b)(1) (2013), and fix a rate of

return “in accordance with the reasonable requirements of its customers in the

territory covered by its franchise,” id. § 62-133(b)(4) (2013). In Nucor’s view, this

language establishing the Commission’s role in North Carolina means that the

Commission is prohibited from considering any effect, however harmful, that its

order might have beyond North Carolina.

The express legislative mandate of section 62-133 is that the Commission “fix

such rates as shall be fair both to the public utilities and to the consumer.”

N.C.G.S. § 62-133(a) (2013); see also, e.g., id. § 62-131(a) (2013); CUCA I, 348 N.C.

at 462, 500 S.E.2d at 701 (noting that the Commission must determine “a rate that

is just and reasonable both to the utility company and to the public”). In its order

the Commission explained in detail that Goins’s recommendations were not fair to

investors or other consumers. The Commission noted that the specific terms of

Nucor’s contract impose minimal service interruption on Nucor and permit use of

electricity during a period of curtailment. The Commission noted that Dominion

often “has no option other than to provide . . . energy whenever it is demanded.” As

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Opinion of the Court

a result, the Commission found that Nucor’s use of energy creates substantial costs

for Dominion and concluded that those costs should be included in the cost-of-

service study. The Commission’s comment that Goins’s recommendation “would

inappropriately shift costs to other customer classes and jurisdictions” represents

the Commission’s determination that it would be unfair to make further

adjustments to the cost-of-service study to account for Nucor’s interruptible

contract. We hold that this determination was not “[i]n excess of statutory

authority or jurisdiction of the Commission.” N.C.G.S. § 62-94(b)(2).

Next, Nucor argues that the Commission’s findings rejecting Goins’s

recommendations regarding the cost-of-service study were not supported by

competent, material, and substantial evidence. Nucor contends that the evidence

shows that Goins’s proposals would not have shifted costs to other customer classes

or jurisdictions and would have produced a lower revenue requirement.

Nonetheless, it is the role of the Commission, not the reviewing court, to weigh the

evidence. See Public Staff III, 323 N.C. at 491, 374 S.E.2d at 367 (citation omitted).

“ ‘The rate order of the Commission will be affirmed if . . . the facts found by the

Commission are supported by competent, material and substantial evidence.’ ”

State ex rel. Utils. Comm’n v. Thornburg, 325 N.C. 463, 476, 385 S.E.2d 451, 458

(1989) (citation omitted). The Commission rejected Goins’s recommendations, and

there was substantial evidence in the record, including the testimony of three other

expert witnesses who strongly opposed Goins’s recommendations, to support the

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Opinion of the Court

Commission’s findings. As a result, Nucor’s argument is meritless. Accordingly, we

affirm that portion of the Commission’s order concerning the treatment of Nucor in

Dominion’s cost-of-service studies.

In the second issue before us, the Attorney General argues that the

Commission’s order is legally deficient because the Commission failed to make

required findings and conclusions regarding changing economic conditions and the

resulting impact on consumers. In addition, the Attorney General contends that the

Commission’s order does not contain sufficient findings and reasoning regarding

interest rate trends and the ROE range it referenced in reaching its decision.

Furthermore, the Attorney General asserts that the Commission’s order

inappropriately considered ROEs authorized for other utilities by other

commissions and the prior ROE authorized for Dominion, which do not reflect

current economic conditions.

The Commission has a statutory obligation to treat both shareholders and

consumers fairly. Subdivision 62-133(b)(4) of the North Carolina General Statutes

requires the Commission to fix a rate of return that

will enable the public utility by sound management to
produce a fair return for its shareholders, considering
changing economic conditions and other factors . . . to
maintain its facilities and services in accordance with the
reasonable requirements of its customers in the territory
covered by its franchise, and to compete in the market for
capital funds on terms that are reasonable and that are
fair to its customers and to its existing investors.

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Opinion of the Court

N.C.G.S. § 62-133(b)(4). We have explained that this provision advances the

Legislature’s “twin goals of assuring sufficient shareholder investment in utilities

while simultaneously maintaining the lowest possible cost to the using public for

quality service.” CUCA I, 348 N.C. at 458, 500 S.E.2d at 698.

Most recently, we stated that “customer interests cannot be measured only

indirectly or treated as mere afterthoughts . . . . Instead, it is clear that the

Commission must take customer interests into account when making an ROE

determination.” Cooper, 366 N.C. at 495, 739 S.E.2d at 548. In Cooper the

Commission adopted the ROE stipulation of a nonunanimous settlement proposal.

See id. at 486, 489, 739 S.E.2d at 542-44. We concluded that the order did not

contain sufficient findings to demonstrate that the Commission had exercised its

own independent judgment. Id. at 493, 739 S.E.2d at 547. In addition, we

concluded that the Commission had not made sufficient findings regarding the

impact of changing economic conditions on consumers. Id. at 494, 739 S.E.2d at

547.

The Commission did not have the benefit of our guidance in Cooper when it

issued its order in the case sub judice. As a result, the findings of fact regarding

this issue are virtually identical to the findings we held were deficient in Cooper:

The Commission’s Order in This Case The Commission’s Order in Cooper

[Dominion] witness Hevert and Public Duke witness Hevert and Public Staff
Staff witness Johnson testified that it is witness Johnson testified that it is not

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Opinion of the Court

not necessary to consider the impact of necessary to consider the impact of
changing economic conditions on changing economic conditions on
consumers in the context of an ROE consumers in the context of an ROE
economic analysis, other than in a economic analysis, other than in a
broader macroeconomic sense, when broader macroeconomic sense, when
analyzing changing market conditions analyzing changing market conditions
for the purpose of making ROE for the purpose of making ROE
recommendations. However, the recommendations. However, the
Commission is required to consider the Commission is required to consider the
economic effects of its ROE decision on economic effects of its ROE decision on
a public utility’s customers pursuant to a public utility’s customers pursuant to
G.S. 62-133(b)(4). In particular, G.S. G.S. 62-133(b)(4). In particular, G.S.
62-133(b)(4) states, in pertinent part, 62-133(b)(4) states, in pertinent part,
that in fixing rates the Commission that in fixing rates the Commission
must fix a rate of return on the utility’s must fix a rate of return on the utility’s
investment that “will enable the public investment that “will enable the public
utility by sound management to utility by sound management to
produce a fair return for its produce a fair return for its
shareholders, considering changing shareholders, considering changing
economic conditions and other factors, economic conditions and other factors,
including, but not limited to . . . to including, but not limited to . . . to
compete in the market for capital funds compete in the market for capital funds
on terms that are reasonable and that on terms that are reasonable and that
are fair to its customers and to its are fair to its customers and to its
existing investors.” One of the “terms” existing investors.” One of the “terms”
on which a public utility competes in on which a public utility competes in
the market for capital funds is the the market for capital funds is the
utility’s authorized ROE. Thus, the utility’s authorized ROE. Thus, the
Commission must consider whether Commission must consider whether
that term is reasonable and fair to the that term is reasonable and fair to the
utility’s customers. Public Staff witness utility’s customers. Public Staff witness
Johnson testified in depth concerning Johnson testified in depth concerning
the economic downturn, including the the economic downturn, including the
unemployment rate. In addition, the unemployment rate. In addition, the
Commission received testimony and Commission received extensive
written statements from numerous testimony from public witnesses
public witnesses concerning the impact concerning the impact of current
of current economic conditions on economic conditions on Duke’s
[Dominion’s] customers. Therefore, the customers. Therefore, the Commission
Commission has ample evidence to has ample evidence to consider in
consider in determining whether the determining whether the proposed ROE

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Opinion of the Court

various ROEs supported by the expert of 10.5% is fair to Duke’s customers.
testimony strikes [sic] a fair balance (ellipsis in original).
between a reasonable rate of return for
shareholders and reasonable rates for
the Company’s customers. (ellipsis in
original) (citation omitted).

We recognize the appeal of using boilerplate findings of fact in cases that

frequently may appear so similar, but this type of pro forma fact-finding is

insufficient to meet the Commission’s obligations pursuant to Chapter 62 of the

General Statutes. We reiterate our concern with the Commission treating

consumer interests as incidental to its statutory mandate or as a “mere

afterthought[ ].” Cooper, 366 N.C. at 495, 739 S.E.2d at 548. Although the

Commission’s order mentions testimony by Johnson and the public witnesses, the

order omits the substance of this evidence and, more importantly, the weight which

it was given. This ROE determination fails to meet the statutory requirement that

“the Commission must make findings of fact regarding the impact of changing

economic conditions on customers when determining the proper ROE for a public

utility.” Id.

In addition, we note that the evidence offered by Johnson and Woolridge

suggested that Dominion’s cost of equity may have fallen substantially since its last

general rate case order in December 2010. These experts recommended ROEs

significantly below the 10.7% ROE last authorized by the Commission; however, the

Commission gave little weight to their testimony because their recommendations

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Opinion of the Court

were “below any authorized ROE determination for a vertically-integrated electric

utility like [Dominion] by any Commission in the last 30 years.” The Commission

then made an ROE determination within the higher range of Hevert’s DCF and

CAPM results, 10.5% to 11.5%, and Johnson’s comparable earnings method, 9.75%

to 10.75%.

We previously have stated that “[t]he Commission’s concern about an

‘extreme fluctuation’ between the rate of return allowed in [the company’s] last

general rate case and that allowed here . . . is an improper consideration in

determining rate of return. It has nothing to do with the [c]ompany’s existing cost

of equity.” State ex rel. Utils. Comm’n v. Public Staff, 331 N.C. 215, 225, 415 S.E.2d

354, 361 (1992) (citing N.C.G.S. § 62-133(b)(4) (1989)). There does not appear to be

any evidence in the record indicating that the economic conditions facing Dominion,

its shareholders, and its consumers today are comparable to the conditions facing

other utilities over the last thirty years. Fundamentally, the Commission’s reliance

on past ROE determinations authorized for other utilities, without evidence tying

those determinations to the facts of the case sub judice, prevented the Commission

from fairly considering current economic conditions.

For the foregoing reasons, we reverse and remand that portion of the order

addressing the Commission’s ROE determination with instructions to make

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Opinion of the Court

additional findings of fact concerning the impact of changing economic conditions on

consumers. We affirm the remainder of the Commission’s order.

AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

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