“Practicable” Subsidy Minimization Under PBR: Fairness-and-Rate‑Shock Factors, EV-Decoupling Exclusions Without EV-Specific Tariffs, and Deference to NCUC Technical Judgments

I. Introduction

In State ex rel. N.C. Utils. Comm'n v. Carolina Indus. Grp. for Fair Util. Rates II (consolidated with the related appeal involving Duke Energy Carolinas, LLC), the Supreme Court of North Carolina reviewed multiple challenges to final general rate orders issued by the North Carolina Utilities Commission (“Commission” or “NCUC”) granting rate increases and approving performance-based regulation (“PBR”) multiyear rate plans (“MYRPs”) for Duke Energy Progress, LLC (DEP) and Duke Energy Carolinas, LLC (DEC).

The case arises under N.C.G.S. § 62-133.16, enacted in 2021 as part of the State’s broader utility-emissions policy package, creating an alternative to traditional single-year ratemaking. Appellants—the Attorney General, industrial/customer associations (CIGFUR and CUCA), and multiple electric membership corporations (EMCs)—asserted statutory-interpretation errors, insufficient findings, and lack of substantial evidence across several disputed PBR components.

The Court’s opinion is significant for three reasons: (1) it supplies early, authoritative interpretations of core PBR statutory terms (especially “practicable”); (2) it confirms that the Commission may weigh fairness and rate-shock considerations when minimizing interclass subsidies within an MYRP; and (3) it illustrates the Court’s approach to deference in technically complex utility matters while maintaining de novo review of legal conclusions.

II. Summary of the Opinion

The Court affirmed the Commission’s DEP and DEC orders in full. Key holdings include:

  • Interclass subsidies: “Practicable” minimization in N.C.G.S. § 62-133.16(b) permits the Commission to balance subsidy reduction against statutory fairness and rate-shock considerations in N.C.G.S. § 62-133.16(d)(1); 10% uniform reductions were supported by substantial evidence.
  • EV charging decoupling exclusion: The EV exclusion in N.C.G.S. § 62-133.16(c)(2) does not require EV-exclusive tariffs; TOU schedules can qualify; the Commission had substantial evidence supporting an estimation methodology adopted via nonunanimous stipulation.
  • Future capital projects (“known and measurable”): The statute does not demand granular identification of every future action (e.g., each hazard tree); Commission interpretation aligned with practical future-looking ratemaking.
  • Hazard tree removal capitalization: The Commission did not commit legal error in allowing the programs as capital projects and found substantial evidence of long-term benefit.
  • Fuel-cost allocation: The Commission could discontinue the equal percentage methodology; the record supported findings of distortion and fairness concerns; the Commission did not act under a misapprehension of law.
  • TCA stipulation challenges: CIGFUR failed to preserve statutory-authority arguments under N.C. R. App. P. 10(a)(1) and failed to include due-process grounds in its notice of appeal under N.C.G.S. §§ 62-90(a), 62-94(c).
  • Return on equity (ROE): The Commission’s 10.1% ROE for DEC was supported by substantial evidence and satisfied State ex rel. Utilities Commission v. Cooper (Cooper I) by addressing customer impacts.

Justice Earls, joined by Justice Riggs, concurred in part and dissented in part, arguing that (i) DEC’s higher ROE was unlawful/arbitrary and insufficiently consumer-protective, and (ii) hazard tree removal should not receive rate base treatment.

III. Analysis

A. Precedents Cited

The Court grounded its review in established utility-law standards, administrative-law preservation doctrines, and recent statutory-interpretation precedent.

1. Utility ratemaking purposes and the Commission’s role

  • State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n, Inc., 348 N.C. 452 (1998): Used both for the “twin goals” framework (adequate utility investment vs. lowest practicable cost) and for the definition of “substantial evidence,” as well as the handling of nonunanimous stipulations.
  • State ex rel. Utils. Comm'n v. Gen. Tel. Co. of the Se., 285 N.C. 671 (1974): Reiterated that the Act’s “primary purpose” is reasonable rates for adequate service—not guaranteed shareholder growth.
  • State ex rel. Utils. Comm'n v. Morgan, 277 N.C. 255 (1970): Cited for the principle that the Court will not reverse merely because it would weigh evidence differently if legal standards are satisfied.

2. Standards of review and evidence

  • State ex rel. Utils. Comm'n v. Cooper, 367 N.C. 644 (2014): Cited for the statutory framework in N.C.G.S. § 62-79(a).
  • State ex rel. Utils. Comm'n v. Va. Elec. & Power Co. (VEPCO), 381 N.C. 499 (2022): Used for de novo review of legal conclusions and for the principle that the Commission need not discuss every evidentiary detail to satisfy N.C.G.S. § 62-79(a).
  • State ex rel. Utils. Comm'n v. Piedmont Nat. Gas Co., 346 N.C. 558 (1977): Cited for the appellant’s burden to demonstrate legal error.

3. Statutory interpretation methodology and “practicable”

  • N.C. Dep't of Revenue v. Philip Morris USA, Inc., 388 N.C. 181 (2025) and N.C. Farm Bureau Mut. Ins. Co. v. Hebert, 385 N.C. 705 (2024): Reinforced the Court’s plain-language-first approach.
  • James H.Q. Davis Tr. v. JHD Props., LLC, 387 N.C. 19 (2025): Provided the Court’s recent articulation that “not practicable” means “unfeasible,” not “impossible,” informing the PBR subsidy-minimization analysis.

4. Adequacy of findings

  • State ex rel. Utilities Commission v. Conservation Council of North Carolina, 312 N.C. 59 (1984): Applied to reject the demand that the Commission respond to implied arguments and to confirm that minimal but sufficient findings satisfy N.C.G.S. § 62-79(a).

5. Cost prudence challenges and burden shifting

  • State ex rel. Utilities Commission v. Stein, 375 N.C. 870 (2020): Provided the evidentiary threshold for shifting the burden to a utility to affirmatively prove reasonableness and the Commission’s duty to “test” costs once that threshold is met.
  • State ex rel. Utils. Comm'n v. Intervenor Residents of Bent Creek/Mt. Carmel Subdivisions, 305 N.C. 62 (1982): Quoted via Stein for the Commission’s power to require affirmative proof when data are lacking.

6. Issue preservation on appeal

  • State v. Canady, 330 N.C. 398 (1991): Explained why contemporaneous objection is required—preventing strategic sandbagging.
  • Willowmere Cmty. Ass'n, Inc. v. City of Charlotte, 370 N.C. 553 (2018): Used to enforce that unpreserved issues are not reviewable.
  • In re Redmond, 369 N.C. 490 (2017) and State v. Wiley, 355 N.C. 592 (2002): Addressed when constitutional issues may be raised for the first time on appeal, but the Court ultimately relied on the separate statutory notice-of-appeal limitation in N.C.G.S. § 62-94(c).

7. ROE-specific precedent

  • State ex rel. Utilities Commission v. Cooper (Cooper I), 366 N.C. 484 (2013): Required the Commission to address the impact of changing economic conditions on customers when setting ROE.
  • State ex rel. Utils. Comm'n v. Cooper (Cooper II), 367 N.C. 430 (2014): Cited for definitional context: ROE affects shareholder profit and consumer cost.
  • State ex rel. Utils. Comm'n v. Cooper, 367 N.C. 741 (2015): Reinforced that consumer interests cannot be treated as an afterthought.

B. Legal Reasoning

1. Interclass subsidies: “minimized to the greatest extent practicable” is a balancing inquiry informed by § 62-133.16(d)

The central PBR statutory-interpretation holding is the Court’s treatment of “practicable” in N.C.G.S. § 62-133.16(b). While the Court agreed “so long as” introduces conditions precedent to approving PBR (cost causation and subsidy minimization), it rejected the appellants’ attempt to isolate subsidy minimization from the broader PBR criteria.

The Court reasoned that “practicable” is narrower than “possible,” requiring feasibility in context. Because subsection (b) does not specify the feasibility criteria, subsection (d)’s mandatory considerations (no unreasonable harm; avoiding unreasonable prejudice and “rate shock”) provide the statutory content of practicability. In effect, the “practicable” inquiry is not a pure arithmetic maximization; it is a reasonableness-bound balancing judgment.

On evidence, the Court emphasized that substantial evidence supported the Commission’s reliance on expert testimony that larger reductions (e.g., 25%) would trigger unreasonable increases for certain classes (residential/lighting) and that gradualism is a legitimate ratemaking principle. The Commission was not required to independently search for alternative reductions not requested by parties.

2. EV decoupling exclusion: the statute permits exclusion under general rate schedules, including TOU rates

Addressing N.C.G.S. § 62-133.16(c)(2), the Court held the Attorney General’s reading—requiring a dedicated EV tariff or rider—was inconsistent with the statutory text. The explicit reference to “including EV charging during off-peak periods on time-of-use rates” signals legislative intent that qualifying schedules need not be EV-exclusive.

On the estimation methodology, the Court declined to apply Stein’s cost-prudence burden shift because the Attorney General did not introduce affirmative evidence that the method was exorbitant, wasteful, bad-faith, or otherwise within Stein’s trigger. Separately, the Court treated the nonunanimous stipulation as probative evidence under State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n, 348 N.C. 452 (1998) and found the Commission made an independent, reasoned adoption supported by record testimony.

3. “Known and measurable” capital projects under PBR: future-looking specificity is limited by feasibility

The Court rejected CUCA’s argument that “known and measurable” requires identifying each discrete future action (e.g., each hazard tree), reasoning that MYRP capital additions are inherently forward-looking. It cited the Commission’s analogous MYRP approach under N.C.G.S. § 62-133.1B and considered the Commission’s implementing rule (4 N.C. Admin. Code 11.R1-17B(d)(2)(j)) as a reasonable framework for the kind of project description and workpapers needed.

On hazard tree removal, the Court found no legal prohibition in the PBR statute against capitalization where the program yields long-term reliability benefits and protects existing “used and useful” lines. The Court also declined to treat FERC accounting classifications as controlling the meaning of “capital investments” in the North Carolina PBR statute.

4. Fuel-cost allocation: the Commission may abandon equal-percentage allocation based on fairness/distortion evidence

The Court sustained the Commission’s decision to discontinue the equal percentage methodology in future N.C.G.S. § 62-133.2 fuel rider proceedings. It rejected the claim that the Commission misunderstood the law, explaining that the Commission’s decision rested on record evidence of distortion and inequity, and that the Commission could apply cost-causation principles under its authority (including N.C.G.S. § 62-133.2(f)) without being compelled by PBR’s subsection (b).

The Court also treated dueling expert testimony as quintessentially within the Commission’s technical competence to weigh, invoking the longstanding principle that appellate courts do not reweigh competing methodologies.

5. Preservation: Commission-level objection and notice-of-appeal specificity are independent gates

The Court’s TCA-Stipulation discussion underscores two preservation requirements that operate cumulatively:

  • Rule 10(a)(1) requires a timely request/objection/motion before the “trial tribunal” (including the Commission). Mere questioning of witnesses without asking the Commission for relief was insufficient.
  • N.C.G.S. §§ 62-90(a) and 62-94(c) require the notice of appeal to “set[] forth specifically” the grounds, barring reliance on unlisted grounds—including due process—on appeal.

Even though In re Redmond, 369 N.C. 490 (2017) may allow certain constitutional challenges to be raised first in the appellate division, the Court held the Chapter 62 notice-of-appeal constraints still barred CIGFUR’s due-process argument.

6. ROE: Commission discretion within a “zone of reasonableness,” so long as Cooper I customer-impact findings are made

The Court upheld DEC’s 10.1% ROE, emphasizing:

  • The Commission must identify a “zone of reasonableness” bounded by investor and consumer interests and then select an ROE that it finds results in the lowest constitutionally permissible rates.
  • Changing Commission membership did not render the DEC ROE arbitrary where the DEC majority had previously articulated its ROE views in the DEP dissent and the Commission’s ultimate findings were supported by expert evidence.
  • Cooper I’s requirement was satisfied by detailed findings addressing economic conditions, affordability concerns, assistance programs, and the longer-term customer benefits of maintaining credit quality to reduce borrowing costs.

C. Impact

1. Early, durable interpretive guideposts for PBR litigation

This decision is among the first Supreme Court interpretations of N.C.G.S. § 62-133.16. It supplies practical litigation guideposts: (i) “practicable” is a feasibility-and-reasonableness standard informed by subsection (d); (ii) PBR does not require “perfect” projections to satisfy “known and measurable”; and (iii) EV exclusion authority is broader than EV-only tariffs.

2. Reinforced deference to Commission expertise—paired with strict procedural preservation

Substantively, the Court reaffirmed heavy deference on technical matters (expert disputes, cost allocations, projection methods) when supported by substantial evidence. Procedurally, it enforced preservation and notice-of-appeal specificity rigorously, particularly under N.C.G.S. §§ 62-90(a), 62-94(c).

3. Future ROE disputes may focus on what “lowest constitutionally permissible” means in practice

Although the majority upheld Commission discretion within the “zone,” the dissent frames a continuing fault line: whether the Commission must select the lowest point within a reasonableness range absent explicit, supported reasons for a higher selection. That debate is likely to recur in future rate cases, especially under MYRPs where ROE effects persist across multiple years.

IV. Complex Concepts Simplified

  • PBR / MYRP: A Commission-approved multi-year plan (up to three years) allowing preapproved base-rate changes in years two and three without a new full general rate case.
  • Decoupling: A mechanism that adjusts revenues so a utility’s earnings are less tied to how much electricity residential customers use, reducing incentives to boost consumption.
  • EV exclusion from decoupling: A carve-out allowing utilities to keep additional revenues associated with EV charging to preserve an incentive to promote EV adoption.
  • Cost causation principle: Rates and cost allocations should reflect which customer classes cause the costs (how they use the system).
  • Interclass subsidy: When one customer class pays more (or less) than its cost-based share, effectively subsidizing another class.
  • Gradualism: The ratemaking idea that abrupt elimination of embedded subsidies can create harmful “rate shock,” so changes should be staged.
  • Fuel rider: A separate periodic adjustment to reflect changes in fuel and fuel-related costs after a general rate case.
  • Equal percentage fuel-cost allocation: Spreads fuel-cost changes among classes in proportion to their share of total revenues, which may diverge from fuel usage.
  • Used and useful: A requirement that property in the rate base be serving customers (not merely planned or idle) during the relevant period.
  • ROE and “zone of reasonableness”: ROE is the allowed shareholder return; the “zone” is a bounded range the Commission deems constitutionally and statutorily acceptable, within which it selects a specific ROE based on evidence and judgment.
  • Nonunanimous stipulation: An agreement among some (not all) parties; the Commission may adopt it if it independently finds it just and reasonable based on the whole record.

V. Conclusion

The Supreme Court of North Carolina affirmed the Commission’s first major PBR MYRP approvals and, in doing so, established pivotal interpretive principles for N.C.G.S. § 62-133.16. Most notably, it held that minimizing interclass subsidies “to the greatest extent practicable” is a feasibility-and-fairness inquiry that legitimately incorporates the statute’s explicit protections against unreasonable harm and rate shock. It also clarified that EV-related decoupling exclusions may operate through general rate schedules (including TOU rates), approved a practical understanding of “known and measurable” future capital projects, reinforced the Commission’s authority to revise fuel-cost allocation methodologies based on record evidence, and emphasized stringent preservation requirements under both appellate rules and Chapter 62’s notice-of-appeal statutes.

In the broader legal landscape, the decision signals substantial judicial deference to Commission technical judgments in PBR implementation—while preserving a meaningful role for appellate review on pure legal interpretation and on the adequacy of findings and evidentiary support. The partial dissent highlights that ROE selection methodology and capitalization boundaries may remain active battlegrounds as PBR matures.