“Practicable” Means Feasible and Fair: North Carolina Clarifies Performance-Based Regulation Limits Under N.C.G.S. § 62-133.16

1. Introduction

This decision addresses consolidated direct appeals from final rate orders of the North Carolina Utilities Commission granting rate increases to Duke Energy Progress, LLC (DEP) and Duke Energy Carolinas, LLC (DEC) and approving performance-based regulation (PBR) under N.C.G.S. § 62-133.16. The principal challengers included the Attorney General, Carolina Industrial Group for Fair Utility Rates (CIGFUR), the Carolina Utility Customers Association (CUCA), and multiple electric membership corporations (EMCs).

The appeals posed a set of recurring interpretive and administrative-law issues that will likely define early North Carolina PBR practice: (i) how aggressively interclass subsidies must be reduced “to the greatest extent practicable,” (ii) how the EV-charging exclusion from decoupling works, (iii) what counts as “known and measurable” capital investment in a multiyear rate plan (MYRP), (iv) the Commission’s discretion in fuel cost allocation methods, (v) preservation rules governing challenges to stipulations and Commission authority, and (vi) the Commission’s return-on-equity (ROE) determinations, including the role of customer impacts.

2. Summary of the Opinion

The Court affirmed both the DEP and DEC final orders. Applying N.C.G.S. § 62-94’s standards, it held that the Commission: (1) correctly construed the PBR statute, (2) made findings sufficient under N.C.G.S. § 62-79(a), and (3) supported contested determinations with competent, material, and substantial evidence in view of the entire record. The Court rejected challenges to the Commission’s interclass-subsidy reduction (10%), EV-decoupling exclusion methodology, approval of DEC future capital projects (including hazard-tree programs), elimination of the “equal percentage” fuel cost allocation methodology, and DEC’s higher ROE (10.1% vs. DEP’s 9.8%).

It also held that CIGFUR failed to preserve challenges to the Transmission Cost Allocation (TCA) Stipulation, both under Rule 10(a)(1) and, independently, under the notice-of-appeal specificity requirements in N.C.G.S. §§ 62-90 and 62-94.

Justice Earls concurred in part and dissented in part, disputing (i) the lawfulness/arbitrariness of DEC’s higher ROE and the adequacy of customer-interest findings, and (ii) the classification of hazard tree removal as capital eligible for rate base treatment.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Court’s Review)

Commission deference, record review, and burdens

• State ex rel. Utils. Comm'n v. Morgan (1970): The Court reiterated it will not reverse merely because it would have reached a different conclusion if the Commission applied the law and substantial evidence supports the decision.
• State ex rel. Utils. Comm'n v. Piedmont Nat. Gas Co. (1977): Appellants bear the burden to show legal error; Commission-set rates are prima facie just and reasonable (reinforced by N.C.G.S. § 62-94(e)).
• State ex rel. Utils. Comm'n v. Va. Elec. & Power Co. (VEPCO) (2022): Used repeatedly for (i) de novo review of legal conclusions, (ii) substantial-evidence review, and (iii) adequacy-of-findings standards—especially that the Commission need not “comment upon every single fact.”
• State ex rel. Utils. Comm'n v. Gen. Tel. Co. of the Se. (1972): Cited for the Commission’s prerogative to assess credibility—critical in disputes driven by competing expert testimony (subsidy reductions, fuel allocation, capital-project projections).
• State ex rel. Utils. Comm'n v. Duke Power Co. (1982): Restated the fundamental posture on appeal: affirm if no error of law and findings are supported by competent, material, substantial evidence.

Adequacy of findings under § 62-79(a)

• State ex rel. Utilities Commission v. Conservation Council of North Carolina (1984): The Court used this benchmark to reject demands for exhaustive responses; findings “barely pass[ing] muster” can suffice if they enable review of controverted questions.

Nonunanimous stipulations

• State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n (1998): Central to the EV issue; the Court relied on it to explain how the Commission may consider and adopt a nonunanimous stipulation if it independently concludes the result is just and reasonable based on the whole record.

Expense reasonableness and “testing” challenged costs

• State ex rel. Utilities Commission v. Stein (2020): The Attorney General invoked this to argue the Commission had a duty to “test” EV estimation reasonableness; the Court applied Stein’s burden-shifting framework and held the Attorney General did not meet the evidentiary threshold to trigger heightened scrutiny.
• State ex rel. Utils. Comm'n v. Intervenor Residents of Bent Creek/Mt. Carmel Subdivisions (1982): Quoted via Stein for the principle that absence of data can justify requiring affirmative proof; the Court found the record did not present the kind of data void that would compel such a demand.

Statutory interpretation methods

• N.C. Dep't of Revenue v. Philip Morris USA, Inc. (2025) and N.C. Farm Bureau Mut. Ins. Co. v. Hebert (2024): Cited for plain-language analysis—key to interpreting “so long as” and “practicable,” and rejecting the Attorney General’s narrow EV reading.
• James H.Q. Davis Tr. v. JHD Props., LLC (2025): Provided the Court’s recent gloss on “practicable” as “feasible,” not “possible,” anchoring the subsidy-minimization holding.
• Savage v. N.C. Dep't of Transp. (2025): The Court declined deference but “consider[ed] and respect[ed]” the Commission’s reasoning—used in the “known and measurable” capital-project analysis.

Preservation and appellate procedure

• State v. Canady (1991): Invoked to explain why Rule 10(a)(1) exists—preventing sandbagging and ensuring the tribunal has a chance to rule.
• Willowmere Cmty. Ass'n, Inc. v. City of Charlotte (2018): Cited for the proposition that unpreserved issues are not reviewed.
• In re Redmond (2017) and State v. Wiley (2002): Used to distinguish when constitutional issues may be raised first on appeal from an administrative tribunal; even if permitted, the Court enforced the independent statutory notice-of-appeal specificity bar in §§ 62-90 and 62-94.

ROE and customer-interest doctrine

• State ex rel. Utils. Comm'n v. Cooper (Cooper I) (2013): The Court reaffirmed that the Commission must make findings regarding the impact of changing economic conditions on customers when selecting ROE.
• State ex rel. Utils. Comm'n v. Cooper (Cooper II) (2014): Used for basic ROE concepts and why ROE affects shareholder profits and consumer costs.
• State ex rel. Utils. Comm'n v. Cooper (2015): Cited to emphasize consumer interests cannot be treated as an “afterthought.”
• State ex rel. Utils. Comm'n v. Public Staff-North Carolina Utils. Comm'n (1988): Quoted for the proposition that rate-setting “requires the exercise of subjective judgment,” supporting the Court’s refusal to reweigh technical evidence.

3.2 Legal Reasoning (Issue-by-Issue)

A. Interclass subsidization: “practicable” integrates anti-rate-shock fairness factors

The centerpiece statutory interpretation concerns § 62-133.16(b): PBR is permitted “so long as” the Commission (i) allocates revenue requirements by the cost causation principle and (ii) interclass subsidization is minimized “to the greatest extent practicable by the conclusion of the MYRP period.”

CIGFUR argued for a rigid two-step approach: first maximize subsidy reduction under subsection (b), and only afterward consider subsection (d)’s public-interest and rate-shock factors. The Court rejected that structure, holding that “practicable” is a feasibility judgment that necessarily incorporates reasonableness and fairness as articulated in § 62-133.16(d)(1), including avoiding “rate shock” and “unreasonabl[e] harm.”

On substantial evidence, the Court credited expert testimony supporting 10% reductions as the greatest feasible uniform reductions without unreasonable impacts, accepted the Commission’s reliance on credibility determinations, and held the Commission had no duty to “cast about” for alternative reduction levels not requested by parties.

B. EV charging exclusion: no EV-only tariff prerequisite; estimation can be reasonable

The Attorney General claimed § 62-133.16(c)(2) limits the EV exclusion to EV-specific schedules/riders. The Court read the provision’s inclusion of “time-of-use rates” as proof the legislature contemplated non-exclusive schedules (TOU rates apply to more than EV charging).

On the methodology challenge, the Court applied (even if only arguendo) State ex rel. Utilities Commission v. Stein’s “test the reasonableness” trigger and found the Attorney General’s critique of imprecision did not amount to affirmative evidence of exorbitance, waste, bad faith, or above-market costs. The Court also leaned on the Commission’s permissible consideration of the nonunanimous stipulation under State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n (1998), and highlighted the Commission’s independent evaluation through witness testimony and forward commitments to improve data.

C. “Known and measurable” capital projects: forward-looking specificity is bounded by feasibility

CUCA argued DEC’s programs (hardening/resilience, infrastructure integrity, cathodic protection, pole upgrades, hazard tree removals) were too indefinite to qualify as “known and measurable” and not “discrete and identifiable” projects. The Court endorsed a practical standard: future-oriented programs can satisfy the statute when described with reason, scope, timing, depreciation life, and impacts— consistent with Commission Rule R1-17B(d)’s detailed informational requirements.

The Court rejected the notion that DEC must identify every hazard tree in advance, emphasizing industry experience and historical data as a rational basis for cost/scope estimation.

D. Hazard tree removal as capital and “used and useful”: Commission permitted to treat as capital project

CUCA and the Attorney General argued hazard tree removal is maintenance (and pointed to FERC accounting treatment). The Court held that the Commission’s statutory task is governed by the PBR statute and Chapter 62, not FERC accounting rules. It also accepted the Commission’s conclusion (supported by witness testimony) that hazard tree removal provides long-term reliability benefits and can substantially prolong system life, satisfying “used and useful” in a functional sense.

E. Fuel cost allocation: Commission may discontinue “equal percentage” methodology based on distortion evidence

The Commission ordered the Utilities to discontinue the equal percentage fuel allocation method. CIGFUR argued the Commission misapplied the PBR statute’s cost causation principle to fuel riders and ignored evidence that fuel riders include “capital costs.”

The Court found no “misapprehension of law” requiring remand under N.C. Dep't of Env't & Nat. Res. v. Carroll (2004). It held the Commission’s decisions relied heavily on factual testimony demonstrating allocation distortion (shifting fuel costs away from industrial customers) and that, in DEC’s order, the Commission independently grounded authority in N.C.G.S. § 62-133.2(f). The Court treated the dispute over “capital cost” content in the fuel rider as a classic expert conflict that the Commission could resolve by credibility and weight.

F. TCA Stipulation: strict preservation and statutory notice requirements

CIGFUR challenged the Commission’s approval of a stipulation shifting about $20 million of revenue requirement from DEP to DEC to address Carbon Plan-related rate disparity concerns. The Court refused to reach the merits because CIGFUR did not preserve the statutory-authority objection before the Commission under Rule 10(a)(1). It also held CIGFUR’s due process argument was barred because it was not “set forth specifically” in the notice of appeal as required by N.C.G.S. § 62-90(a), and N.C.G.S. § 62-94(c) forbids reliance on grounds not stated in the notice.

G. ROE: “zone of reasonableness,” subjective judgment, and Cooper I customer impacts

The Court upheld DEC’s 10.1% ROE despite DEP’s 9.8% ROE being approved months earlier. It reasoned that the Commission’s decision reflected discretionary weighing of voluminous technical evidence and that the change in Commission membership explained the different result without making it arbitrary.

Addressing the dissent’s claim that the Commission must choose the lowest number within a reasonable range, the majority reframed the “zone of reasonableness” as a narrowing device used to find the lowest constitutionally permissible rate, not a license for random selection. It concluded the Commission expressly found 10.1% to be the lowest constitutionally permissible in the DEC case.

On State ex rel. Utils. Comm'n v. Cooper (Cooper I), the Court held the Commission’s customer-interest findings were extensive and adequate, including consideration that economic effects are embedded in ROE models, acknowledgement that some customers will struggle, and reliance on assistance programs (LIAC, CAP pilot, Payment Navigator, IRA funding opportunities) alongside capital-market access rationale.

3.3 Impact (Practical and Doctrinal)

1) PBR litigation will pivot on “practicability” as a balancing concept, not a maximization command.
This decision makes § 62-133.16(b)’s “minimized to the greatest extent practicable” inseparable from § 62-133.16(d)’s fairness and rate-shock considerations. Future appellants will need to attack (a) the Commission’s feasibility/fairness balancing and (b) the substantial-evidence basis for why a higher reduction (or alternative design) would be unreasonably harmful.

2) The EV exclusion is operational even without EV-specific tariffs—so long as the Commission finds reasonableness.
Utilities may proceed with estimation methods backed by stipulations and testimony, particularly where the record includes commitments to improve data over time. This reduces the risk that PBR decoupling will unintentionally penalize EV electrification load growth.

3) “Known and measurable” in multiyear plans is not a trapdoor for opponents demanding impossible granularity.
The Court’s acceptance of programmatic capital projects—supported by historical experience and engineering/accounting testimony—suggests Commission rules and detailed program descriptions will be pivotal. Challenges will likely focus on whether the described “discrete” projects are sufficiently bounded in scope, governance, and verification, rather than whether every unit is pre-identified.

4) Appellate preservation rules will shape the substantive law that gets made.
The Court’s dual reliance on Rule 10(a)(1) and §§ 62-90/62-94 means even significant statutory-authority or due process claims can be lost if not cleanly presented below and specified in the notice of appeal. Parties should treat the notice of appeal as a merits document, not a formality.

5) ROE disputes will remain largely Commission-driven unless appellants can show legal error or missing/insufficient findings.
The Court reinforced that it will not reweigh competing expert models. Successful ROE appeals likely require pinpointing: (i) failure to make Cooper I customer-impact findings, (ii) internal inconsistency or unexplained rejection of required statutory considerations, or (iii) a record lacking substantial evidence for a key premise (e.g., capital-market access or risk).

4. Complex Concepts Simplified

• Performance-Based Regulation (PBR): A framework allowing multiyear plans with preapproved rate adjustments, intended to align utility incentives with policy goals (including emissions reduction) while still requiring “just and reasonable” rates.
• MYRP (Multiyear Rate Plan): A plan lasting up to three years; year one uses traditional ratemaking, while years two and three can adjust based on approved projections.
• Decoupling: A mechanism that “breaks the link” between residential sales volume and utility revenue by refunding or collecting through a rider to match a per-customer revenue target.
• EV exclusion from decoupling: A statutory carveout letting utilities keep EV-related incremental revenue outside decoupling to preserve incentives to promote EV adoption.
• Cost causation principle: Rates should reflect a causal link between customer class usage of the system and the costs incurred to serve that class.
• Interclass subsidization: One customer class paying more than its cost responsibility, effectively subsidizing another class.
• “Practicable” vs. “possible”: The Court treats “practicable” as “feasible” in context—what can reasonably be done without creating unreasonable harm or rate shock.
• Fuel rider allocation: After base fuel rates are set in a general rate case, fuel cost changes are adjusted through a rider; the allocation method determines how those adjustments are divided among customer classes.
• ROE (Return on Equity): The allowed percentage return shareholders can earn on the utility’s equity investment; higher ROE tends to increase customer rates.
• Zone of reasonableness: A Commission-determined range intended to bracket constitutionally permissible ROE outcomes; the Commission still must justify the selected ROE within that zone.
• Preservation (Rule 10 / §§ 62-90, 62-94): To raise an issue on appeal, parties generally must (i) timely and specifically raise it before the Commission and (ii) specifically list it in the notice of appeal.

5. Conclusion

The Court’s affirmance substantially stabilizes the Commission’s early implementation of PBR under N.C.G.S. § 62-133.16. The opinion’s most consequential interpretive move is its integration of “practicable” subsidy minimization with the statute’s explicit fairness and rate-shock protections, confirming that gradualism and feasibility judgments are lawful when supported by substantial evidence.

Equally important, the decision signals a demanding approach to issue preservation in direct Commission appeals and confirms that technical ratemaking disputes—particularly ROE and allocation methodologies—will rarely be overturned absent clear legal error, missing findings, or a lack of substantial record support.

The partial dissent underscores the pressure points for future litigation: whether “lowest constitutionally permissible” requires selection of the lowest figure within a reasonable range, and whether certain reliability programs (such as hazard tree removal) are properly treated as capital rather than operating expenses. Those questions may reappear as PBR matures and as MYRP projections are reconciled with actual experience.