The Utilities Commission regulates investor-owned companies that provide these utility services:
Water and Wastewater
Household Goods Moving
The Commission has only very limited oversight of phone companies, cooperative utilities, and utilities that are run by cities. The Commission does not regulate their rates, for example. And it does not regulate cable TV or internet providers at all.
The Commission has 7 members who are appointed by the Governor and approved by the General Assembly. They serve staggered six-year terms.
Commissioners have a job similar to that of a judge. They are required to make decisions based on the law and upon the facts of a case. They gather these facts via written documents submitted by the utilities and other interested parties, and via hearings that are held in Raleigh and throughout the State. For major decisions, like whether to allow construction of new power plants or power lines, or whether to approve rate increases, the Commission typically schedules one or more hearings in the part of the State that will be most impacted by the decision. Often the hearings are held in the evening in local county courthouses. A court reporter creates a transcript, a permanent written record, of the testimony that is given at these hearings.
Commissioners are prohibited from having a conflict of interest with the companies that they regulate. For example, Commissioners cannot own stock in any of these companies. A Commissioner must not participate in a decision if they have a personal stake in the outcome.
Commissioners are prohibited by law from holding any other job or engaging in any business or profession while they are serving as commissioners.
The Commission is funded by fees that are paid by the utilities that it regulates. It also receives funding from the Federal government to inspect natural gas operators to ensure that they are complying with Federal pipeline safety regulations. In total, the Commission has about 60 employees, mostly attorneys, accountants, clerks, engineers and computer experts.
Because utility providers are monopolies, and customers cannot usually choose their utility providers, the General Assembly established the Utilities Commission to have authority over utility prices, construction of new facilities, and service quality. More recently, the General Assembly made the Commission responsible for enforcing laws that require electric utilities to buy or produce electricity using renewable energy. You will occasionally see news stories about the Utilities Commission considering decisions about rate cases, utility company mergers, and proposals to build power plants, large power lines, and intrastate pipelines, that is, pipelines that are wholly located within the State of North Carolina.
There is a separate agency, the Public Staff of the North Carolina Utilities Commission, which represents customers before the Commission. The Public Staff has about 80 employees including accountants and engineers, who investigate utility requests and audit utility records. The Public Staff provides expert witness testimony before the Commission. The Attorney General of North Carolina sometimes participates in proceedings before the Commission as well.
Another important role of the Public Staff is to mediate disputes between customers and their utility providers. If you ever think your utility is being unfair or unreasonable, you should contact the consumer services division of the Public Staff for help.
Regulated utilities have the legal right to request price changes, and the Commission must consider every request that a utility files. Typically, the utility starts the process by filing a “rate case,” which includes financial and operational data, along with written expert witness testimony, showing why the company believes that it needs more revenue. The utility must provide its financial records for a recent 12-month period. These records include the company’s actual revenues collected from customers, their expenses, and the investment they have made in facilities to serve customers. The Public Staff and other parties to the case audit and review these records. Parties to the case can file their own expert witness testimony agreeing or disagreeing with the utility’s data or proposed rates.
The quarterly reports are due 45 days after the end of each quarter.
In general rate case proceedings (where all of a utility’s costs and charges are reviewed in their entirety), the Utilities Commission schedules two kinds of hearings. First, it holds public witness hearings in several towns where the utility serves customers. The Commission holds these in the evenings when most people are able to attend. The Commission wants to hear about the quality of service the utility is providing, and the impact the rate increase would have on customers.
The second kind of hearing the Commission holds is an expert witness hearing. This hearing takes place during business hours and is held in the Commission’s hearing room in Raleigh. Sometimes the expert witness hearing can last several days or even weeks. The utility’s experts must appear and be cross-examined by opposing attorneys. Other parties to the case, such as the Public Staff and the Attorney General, will present their own expert witnesses as well.
All of the written and verbal testimony, along with public statements taken at the public witness hearing and statements sent to the Commission, together form the official record of the case. The Commission uses this record, along with the law, to make its decision. The Commission’s staff helps by summarizing the record, developing decision options, and drafting orders at the Commission’s direction.
In cost recovery rider proceedings where the utility is requesting to increase or decrease its rates because of changes in only one component of its costs (such as fuel for making electricity), the Commission might not schedule a hearing. These rate change requests are investigated by the Public Staff. Instead of holding a hearing, the Commission might decide the matter after the Public Staff presents it during a regularly scheduled Monday morning Commission meeting. (These Commission meetings are for deciding relatively uncontroversial issues, and they are open to the public.)
Typically, the Commission makes its decision within seven to nine months after the utility makes its request, but most rate increase requests must be decided within 10 months. If not, the utility’s initial request can go into effect automatically.
There are five big decisions within a general rate case (one in which all of a utility’s costs and charges are reviewed in their entirety). To make these decisions the Commission relies on expert witness testimony, the law, and precedents from other cases that it has decided in the past.
First, the Commission decides whether the utilities’ expenses are necessary and prudent for serving customers. Expenses include things like employee salaries and fuel. Some expenses might be inappropriate to include in customer rates, such as some advertising costs, or lobbying expenses. All expenses that the utility wants to recover from customers in its proposed new rates must be supported by the testimony of its expert witnesses.
Second, the Commission reviews the utility’s capital costs, which are costs for the facilities that the utility has built or purchased for serving customers. Are all facilities necessary and in working order? If not, it might not be appropriate to require customers to pay for them.
Third, the Commission sets a return on investment for the Company’s shareholders and bondholders, basically deciding how much profit they should have the opportunity to earn, assuming the Company will be well managed. The Commission must be fair when setting the return on investment; if it is set too high, customers will pay too much for utility service. If it is set too low, the Company will have trouble attracting investors to build facilities to serve customers. A reasonable return on investment is a cost of doing business.
All of these costs together, the expenses, the facility costs and the return on investment, add up to the utility’s “revenue requirement.” In the fourth part of a rate case, the Commission decides how to divide this revenue requirement among the different customer groups. Residents, small businesses and large manufacturers are the largest customer groups. Generally, the goal is to make sure each customer group pays a fair share of the utility’s costs.
Finally, the Commission decides how to structure the rates for each customer group. This part of the decision is called “rate design.” The Commission must decide how much of the utility’s costs will be collected via flat fees, like a basic charge every month that doesn’t change, regardless of how much utility service you use. The other approach is a volumetric charge, like cents per kilowatt-hour of electricity used. Most rate designs include a mix of flat fees and volume-based fees. The Commission must decide issues such as whether volumetric charges should vary by time of day, or season, to mirror the utility’s costs or to incent customers to use less at certain times.
The utility, the Public Staff, and some or all of the other parties to the case, may negotiate with each other in order to reach an agreement, which is called a settlement. If a settlement is reached, the parties present that settlement to the Commission as their recommended terms for resolving the case. The Commission reviews the settlement and exercises its independent judgment to decide whether the settlement is fair to customers and the utility. The Commission may accept some or all of the terms of the settlement, or it could reject it entirely.
The Commissioners and the Commission’s employees are not allowed to discuss the substance of a pending matter with the utility or any of the other parties, unless all of the parties are present. They can explain the process, and they can help you find the relevant documents. But, they can’t discuss the substance of the issue until the case is over, which happens when the Commission issues a formal order, its decision, in the matter. This can be frustrating for citizens who attend Commission hearings hoping to get questions answered. The Public Staff is allowed to discuss the merits of a utility request, and citizens should reach out to them with their questions.
Parties to the proceeding that disagree with a Commission decision may ask the Commission to reconsider. Or, a party may appeal the decision to the courts.