North Carolina § 62-133 - How rates fixed.

§ 62-133. How rates fixed.

In fixing the rates for any public utility subject to the provisions of this Chapter, other than bus companies, motor carriers and certain water and sewer utilities, the Commission shall fix such rates as shall be fair both to the public utilities and to the consumer. In fixing such rates, the Commission shall: Ascertain the reasonable original cost or the fair value under G.S. 62-133.1A of the public utility's property used and useful, or to be used and useful within a reasonable time after the test period, in providing the service rendered to the public within the State, less that portion of the cost that has been consumed by previous use recovered by depreciation expense. In addition, construction work in progress may be included in the cost of the public utility's property under any of the following circumstances: To the extent the Commission considers inclusion in the public interest and necessary to the financial stability of the utility in question, reasonable and prudent expenditures for construction work in progress may be included, subject to the provisions of subdivision (4a) of this subsection. For baseload electric generating facilities, reasonable and prudent expenditures shall be included pursuant to subdivisions (2) or (3) of G.S. 62-110.1(f1), whichever applies, subject to the provisions of subdivision (4a) of this subsection. Apply the rate of return established under subdivision (4) of this subsection to rights-of-way acquired through agreements with the Department of Transportation pursuant to G.S. 136-19.5(a) if acquisition is consistent with a definite plan to provide service within five years of the date of the agreement and if such right-of-way acquisition will result in benefits to the ratepayers. If a right-of-way is not used within a reasonable time after the expiration of the five-year period, it may be removed from the rate base by the Commission when rates for the public utility are next established under this section. Estimate such public utility's revenue under the present and proposed rates. Ascertain such public utility's reasonable operating expenses, including actual investment currently consumed through reasonable actual depreciation. Fix such rate of return on the cost of the property ascertained pursuant to subdivision (1) of this subsection as 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, the inclusion of construction work in progress in the utility's property under sub-subdivision b. of subdivision (1) of this subsection, as they then exist, 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. Require each public utility to discontinue capitalization of the composite carrying cost of capital funds used to finance construction (allowance for funds) on the construction work in progress included in its rate based upon the effective date of the first and each subsequent general rate order issued with respect to it after the effective date of this subsection; allowance for funds may be capitalized with respect to expenditures for construction work in progress not included in the utility's property upon which the rates were fixed. In determining net operating income for return, the Commission shall not include any capitalized allowance for funds used during construction on the construction work in progress included in the utility's rate base. Fix such rates to be charged by the public utility as will earn in addition to reasonable operating expenses ascertained pursuant to subdivision (3) of this subsection the rate of return fixed pursuant to subdivisions (4) and (4a) on the cost of the public utility's property ascertained pursuant to subdivisions (1) and (1a) of this subsection. The original cost of the public utility's property, including its construction work in progress, shall be determined as of the end of the test period used in the hearing and the probable future revenues and expenses shall be based on the plant and equipment in operation at that time. If the public utility elects to establish rate base using fair value, the fair value determination of the public utility's property shall be made as provided in G.S. 62-133.1A, and the probable future revenues and expenses shall be based on the plant and equipment in operation at the end of the test period. The test period shall consist of 12 months' historical operating experience prior to the date the rates are proposed to become effective, but the Commission shall consider such relevant, material and competent evidence as may be offered by any party to the proceeding tending to show actual changes in costs, revenues or the cost of the public utility's property used and useful, or to be used and useful within a reasonable time after the test period, in providing the service rendered to the public within this State, including its construction work in progress, which is based upon circumstances and events occurring up to the time the hearing is closed. The Commission shall consider all other material facts of record that will enable it to determine what are reasonable and just rates. The fixing of a rate of return shall not bar the fixing of a different rate of return in a subsequent proceeding. Repealed by Session Laws 1991, c. 598, s. 7. Reserved. Repealed by Session Laws 1998-128, s. 4, effective September 4, 1998. History (1899, c. 164, s. 2, subsec. 1; Rev., s. 1104; C.S., s. 1068; 1933, c. 134, s. 8; 1941, c. 97; 1963, c. 1165, s. 1; 1971, c. 1092; 1973, c. 956, s. 1; c. 1041, s. 1; 1975, c. 184, s. 2; 1977, c. 691, ss. 2, 3; 1981, c. 476; 1981 (Reg. Sess., 1982), c. 1197, s. 6; 1985, c. 676, s. 15(2); 1989 (Reg. Sess., 1990), c. 962, s. 4; 1991, c. 598, s. 7; 1998-128, s. 4; 2007-397, s. 8; 2018-51, s. 1.) Cross References. - As to small water and sewer utility rates, see G.S. 62-133.1. Editor's Note. - Session Laws 2007-397, s. 3, provides: "If the federal government imposes requirements similar to those set out in G.S. 62-133.8 on electric power suppliers in the State, the Utilities Commission shall determine the applicability of federal and State requirements so as to apply the more stringent requirements except to the extent that State requirements may be specifically preempted by federal law. The Commission shall adopt rules to establish a procedure as an alternative to the procedure set out in G.S. 62-133 to annually adjust the rates of electric public utilities to allow timely recovery of all reasonable costs of compliance with the federal and State requirements pursuant to G.S. 62-133.8(h), as enacted by Section 2 of this act. In adopting rules to establish the procedure, the Commission shall incorporate the provisions of this act in accordance with this section and the public interest." Session Laws 2007-397, s. 15 contains a severability clause. Effect of Amendments. - Session Laws 2007-397, s. 8, effective January 1, 2008, rewrote subdivision (b)(1); added subdivisions (b)(1)a. and b.; in subdivision (b)(4), inserted "of this subsection" following "pursuant to subdivision (1)", inserted language beginning "including, but not limited to, the inclusion of construction work" and ending "subdivision (1) of this subsection", and substituted "that" for "which" twice. Session Laws 2018-51, s. 1, effective June 25, 2018, added "or the fair value under G.S. 62-133.1A" following "the reasonable original cost" in subdivision (b)(1); and added the second sentence in subsection (c). Legal Periodicals. - For survey of 1972 case law on public utility rate regulation, see 51 N.C.L. Rev. 1140 (1973). For survey of 1974 case law on public utilities, see 53 N.C.L. Rev. 1083 (1975). For survey of 1976 case law dealing with administrative law, see 55 N.C.L. Rev. 898 (1977). For survey of 1977 law on public utility rate regulation, see 56 N.C.L. Rev. 847 (1978). For survey of 1978 administrative law, see 57 N.C.L. Rev. 831 (1979). For survey of 1979 administrative law, see 58 N.C.L. Rev. 1185 (1980).