The appellants, Public Staff and Kudzu Alliance, contend that the Commission erred by acting arbitrarily, capriciously and outside its statutory authority in granting a rate increase without determining reasonable test year fuel expenses pursuant to N.C. Gen. Stat. Sec. 62-133(b)(3). N.C. Gen. Stat. Sec. 62133(b)(3) directs the Commission to “[ascertain such public utility’s reasonable operating expenses, including actual investment currently consumed through reasonable actual depreciation.” In its Finding of Fact No. 16 the Commission stated:
The fuel cost component which should be included in the rates approved in this proceeding is the base fuel cost approved in Docket No. E-2, Sub 434, the most recent proceeding under G.S. 62-134(e).
The appellants contend that fuel cost determined pursuant to a proceeding under N.C. Gen. Stat. Sec. 62434(e) (repealed 1981) should not be used as a substitute for determining reasonable fuel costs in a general rate case because N.C. Gen. Stat. Sec. 62434(e) provides for an expedited proceeding which does not account for overall system efficiency in deriving the reasonable cost of fuel during the test year. We agree.
The Supreme Court in State ex rel. Utilities Comm. v. N. C. Textile Mfrs. Assoc., 309 N.C. 238, 306 S.E. 2d 113 (1983) held that it was improper to adopt fuel costs established in the next preceding fuel cost adjustment proceeding as the fuel cost component used in establishing the general rate. In a general rate case the reasonable operating expense of the utility must be determined by the Commission. These expenses include the cost of fuel and purchased power.
Therefore, we must reverse the order of the Utilities Commission and remand this cause for such further proceedings as may be necessary in light of recent Supreme Court decisions.
Reversed and remanded.
Judges Wells and Phillips concur.