NC Utilities Commission Issues Performance Based Regulations Order

By Matt Abele | February 11, 2022

On Thursday, in accordance with the requirements of HB951: Energy Solutions for North Carolina, the NC Utilities Commission (NCUC) issued an order adopting rules governing Performance-Based Regulations (PBR) for the regulated electric utilities in North Carolina. Performance-based regulation is an approach to utility regulation that incentivizes utility performance through mechanisms such as multi-year ratemaking and performance-incentive mechanisms. Successful PBR rules can more closely align utility and customer interests by focusing on desired, measurable outcomes, as opposed to prescriptive processes. 

NCSEA, along with numerous other organizations intervened in the docket advocating for the NC Utilities Commission to exercise the robust authority it was granted by the legislature in HB951, while establishing PBR rules that balance both the needs of the utility and the needs of all ratepayers, including low- and moderate-income customers. Outlined below are the issues covered in this docket, NCSEA’s position, and the ruling of the NCUC. 

Issue 1: Structure of Rule 

  • NCSEA’s position: NCSEA did not take a position on where in the NCUC’s rules PBR should appear but did request that the definition of “Distributed Energy Resources” include aggregation. 
  • NCUC ruling: The NCUC declined to adopt NCSEA’s proposed definition of Distributed Energy Resources (Order, pp. 2-3). 

Issue 2: Further Proceedings 

  • On the topic of additional dockets related to PBR rules, the following is NCSEA’s position and the NCUC ruling: 
    • NCSEA’s position: In its initial comments, NCSEA advocated for a “pre-application” docket that would establish performance incentive mechanisms (PIM), policy goals, and tracking metrics before Duke filed a PBR application. In reply comments, NCSEA agreed that PIMs and tracking metrics could be set during a PBR rate case. 
    • NCUC ruling: The NCUC declined to include a policy goal docket in its PBR rule (Order, pp. 13-14). 
  • On the topic of staggering PBR cases: 
    • NCSEA’s position: NCSEA supported the Public Staff’s position that the PBR rule require the various utilities to stagger their PBR applications, so that there would not be two PBR applications before the NCUC at a single time.  
    • NCUC ruling: The Commission declined to require the staggering of PBR applications (Order, pp. 14). 
  • On the topic of an affordability collaborative:  
    • NCSEA’s position: NCSEA supported the North Carolina Justice Center and various partners’ position that the PBR rule should address the timing of Duke’s Low Income Affordability Collaborative. Per the NCUC’s order in Duke Energy's most recent rate cases, the Collaborative must complete its work before Duke files its next rate case. 
    • NCUC ruling: The NCUC declined to require the completion of the affordability collaborative’s work prior to the filing of a PBR application, but noted that “the Commission may choose to institute supplemental rulemaking proceedings to develop additional rules for PBR Applications after February 10, 2022. While a utility may file a PBR Application under the approved PBR Rule, as with all Commission rules the PBR Rule is open to revision as the Commission refines the PBR process and all parties to learn more of this process and how it should best be handled going forward.” (Order, pp. 14) 
  • On the topic of a Carbon Plan: 
    • NCSEA’s position: Given that the Carbon Plan will largely dictate Duke Energy’s multi-year spending plans, the utilities should not be allowed to file an application for a PBR rate case until after the NCUC adopts the first Carbon Plan by December 31, 2022. 
    • NCUC ruling: The NCUC declined to require the adoption of the first Carbon Plan prior to the filing of a PBR application, but the NCUC noted that “If an electric utility were to file its PBR Application prior to the resolution of a Commission docket applicable to that utility, it does so at its own risk.” The NCUC further noted that “It is unlikely that the Commission will approve a PBR Application that directly conflicts with a Commission order in another docket.” (Order, pp. 14) 

Issue 3: Technical Conference 

  • On the topic of the technical conference process, the following is NCSEA’s position and the NCUC ruling:  
    • NCSEA’s position: The technical conference process should allow intervenors, like NCSEA, equal opportunity to present to the NCUC on capital investments. Parties should be allowed the opportunity to conduct discovery to inform their presentations to the NCUC. 
    • NCUC ruling: The PBR rule allows one or more technical conference sessions, but declined to allow discovery to begin during the technical conference process (Order, p. 17). Interested parties will also be allowed to present (Rule R1-17B(c)(1)). Lastly, the utilities must file comprehensive information about their proposed investments (Rule R1-17B(c)(2)). 
  • On the topic of transparency:  
    • NCSEA’s position: All data supporting Tracking Metrics should be publicly available, in native format (i.e., Excel format), and reported monthly. NCSEA specifically suggested a data dashboard for this purpose. 
    • NCUC ruling: The NCUC declined to require the use of a Data Dashboard or require filings be made in native format (Order, p. 17). 

Issue 4: Performance Incentive Mechanisms 

  • NCSEA’s position: PIMs should not be set in rule. Rather, they should be established for each PBR period and specific to the circumstances at the time of a PBR application. NCSEA also advocated that PIMs need to set goals that are above and beyond what is already required of the utilities by other laws, rules, and regulations. 
  • NCUC ruling: The NCUC declined to set PIMs in rule and found that PIMs should be proposed within a PBR proceeding (Order, p. 24). 

Issue 5: Filing Requirements 

  • NCSEA’s position: NCSEA requested that additional information regarding capital expenditures proposed to be recovered through PBR should be included in the PBR application. In addition, NCSEA supported the Public Staff’s request that a PBR application include a recent depreciation study. 
  • NCUC ruling: The NCUC’s PBR rule will require the utilities to file additional information with their PBR application, including a recent depreciation study, but will not require additional testimony and exhibits (Order, p. 30). 

Issue 6: Deferrals 

  • NCSEA’s position: In its initial comments, Duke requested deferral accounting treatment for expenditures if a PBR application is not approved within 300 days. In reply comments, NCSEA opposed Duke’s proposal. 
  • NCUC ruling: The NCUC agreed with NCSEA and other intervenors and declined to authorize automatic deferral accounting treatment (Order, p. 32). 

Issue 7: Capital Investments 

  • NCSEA’s position: The language of the PBR law requires that capital investments be approved by the NCUC prior to a PBR application. 
  • NCUC ruling: The NCUC did not agree with NCSEA and allowed the approval of capital investments to happen in the PBR case (Order, pp. 40-41). 

Issue 8: Annual Review 

  • NCSEA’s position: Annual true-up proceedings should allow intervenors the opportunity to participate, perform discovery, and present to the NCUC. 
  • NCUC ruling: The NCUC largely adopted Duke’s proposal, but will allow intervenor participation via scheduling orders (Order, pp. 49-50). 

Issue 9: Rejection of PBR 

  • NCSEA’s position: In their initial comments, Carolina Industrial Group for Fair Utility Rates (CIGFUR) contended that a re-filed PBR application would re-start the 300-day PBR case process. In reply comments, NCSEA supported CIGFUR’s position.  
  • NCUC ruling: The NCUC’s PBR rules allows the Commission to set a specified period of time for the utility to cure any deficiencies in a PBR application (Order, pp. 53-54). 

Issue 10: Reporting Requirements 

  • NCSEA’s position: NCSEA requested the NCUC’s rule include monthly reporting of tracking metrics, customer class data, and surveillance reports.   
  • NCUC ruling: The NCUC’s PBR rule will require quarterly reporting (Order, p. 55). 

Issue 11: Rates After Plan Period 

  • NCSEA’s position: Given that PIMs and earnings sharing mechanisms are statutorily required to expire after the 3-year PBR plan period, utility rates should reset to the general rate case rates that are set as a part of the PBR proceeding. 
  • NCUC ruling: The rates from year 3 of the PBR plan period will remain in effect until further order of the NCUC, but if the utility is found to be overearning, parties may file a petition for the NCUC to investigate rates (Order, pp. 62-63). 

Moving forward, the NCUC requested further comments on (1) whether they may approve cost recovery within a multi-year rate plan for capital projects that have not been granted a certificate of public convenience and necessity (CPCN). (2) If so, will the approval in a PBR application be considered in the CPCN approval process? (3) Whether a PBR application could request cost recovery for capital projects that are not yet owned by the utility for which another party would be filing the application for the CPCN (i.e. build-own-transfer solar). 

Further comments are due by March 16 and reply comments are due by April 13. Additionally, the NCUC also directed Duke, Dominion, and the Public Staff to file a proposed template for public notice of a PBR application by March 16, which other parties may comment on by April 13.  

Overall, NCSEA is disappointed in the direction of the ruling made this week, given the opportunity that was afforded to fully embrace the authority granted by the NC General Assembly. Stronger PBR rules would have ensured transparency, provided additional opportunities for low- and moderate-income customers, and charted a path forward that more closely aligns customer and utility interests. “While we commend the NC Utilities Commission for the due diligence in issuing a ruling by the required deadline, we’re disheartened that they did not include stronger ratepayer protections in the PBR rule,” according to Peter Ledford, General Counsel & Director of Policy.  

NCSEA will continue to provide updates on this docket and how it proceeds at the Commission, along with the numerous other proceedings taking place associated with HB951. For the latest updates, visit NCSEA’s blog. 

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