JACKSON, Justice.
In this case we consider whether the order of the North Carolina Utilities Commission ("the Commission") authorizing a 10.2% return on equity ("ROE") for Duke Energy Progress ("DEP") contained sufficient findings of fact to demonstrate that it was supported by competent, material, and substantial evidence in view of the entire record. See N.C.G.S. § 62-94 (2013). Because we conclude that the Commission made sufficient findings of fact regarding the impact of changing economic conditions upon customers, we affirm. See id. § 62-94(b).
On 12 October 2012, DEP filed an application with the Commission requesting authority to increase its North Carolina retail electric service rates to produce an additional $359,000,000, yielding a net increase of 11% in overall base revenues. The application requested that rates be established using an ROE of 11.25%. The ROE represents the return that a utility is allowed to earn on its capital investment by charging rates to its customers. As a result, the ROE approved by the Commission affects profits for shareholders and costs to consumers. State ex rel. Utils. Comm'n v. Cooper ("Cooper II"), ___ N.C. ___, ___, 758 S.E.2d 635, 636 (2014) (citations omitted). The ROE is one of the components used in determining a company's overall rate of return. Id. at ___, 758 S.E.2d at 636 (citation omitted).
On 5 November 2012, the Commission entered an order declaring this proceeding a general rate case and suspending the proposed new rates for up to 270 days. The Commission scheduled five hearings across the State to receive public witness testimony. The Commission also scheduled an evidentiary hearing for 18 March 2013 to receive expert witness testimony. The Attorney General of North Carolina and the Public Staff of the Commission intervened as allowed by law. See N.C.G.S. §§ 62-15, -20 (2013).
On 28 February 2013, DEP and the Public Staff filed an Agreement and Stipulation of Settlement with the Commission. The Stipulation provided for a net increase of $178,712,000 in annual revenues and an ROE of 10.2%. Among the parties contesting the Stipulation was the Attorney General.
By the time the evidentiary hearing began on 18 March 2013, the Commission already had heard testimony from 127 public witnesses. Many of these customers opposed the proposed rate increase, testifying about unemployment and poverty in their communities. Other customers expressed their view that DEP should be required to discontinue fossil fuel and nuclear generation in favor of energy efficiency and renewable energy, even if doing so would result in higher costs.
The Commission also heard from expert witnesses, who testified about the appropriate ROE and explained how current economic conditions affect consumers. Specifically, DEP presented the testimony of Robert B. Hevert, Managing Partner of Sussex Economic Advisers, LLC. Hevert recommended an ROE of 11.25%, which was above the midpoint of his recommended range of 10.50% to 11.50%. Hevert primarily used the Constant Growth Discounted Cash Flow model to compute his recommended ROE and considered the Capital Asset Pricing Model as a check on his results. Hevert also considered the effect of current economic conditions upon North Carolina customers. He testified that although North Carolina's unemployment rate was worse than the national average, the State's GDP growth and expected household income growth also were higher than the national average. Hevert noted that North Carolina's average residential electric prices were approximately 12.31% below the national average. He concluded that "the regional economic conditions in North Carolina were substantially similar to the United States, such that there is no direct effect of those conditions on the Company's cost of equity." As a result, Hevert determined that his ROE analysis did not need to be adjusted to account for the impact
The Public Staff presented the testimony of Ben Johnson, Consulting Economist and President of Ben Johnson Associates, Inc. Johnson estimated an ROE range utilizing two approaches: first, a comparable earnings approach, which arrived at a range of 9.75% to 10.75%; and second, a market approach, which arrived at a range of 7.72% to 8.95%. Johnson also addressed the prolonged period of economic weakness that began in 2007. Johnson stated that improvement in the economy has been both weak and slow, with firms still reluctant to either invest or expand. Nevertheless, Johnson concluded that the proposed ROE of 10.2% agreed upon in the Stipulation was reasonable and consistent with the public interest.
Other interested parties also presented evidence to the Commission. The Carolina Utility Customers Association, Inc. ("CUCA"), a coalition of industrial energy customers, presented the testimony of Kevin O'Donnell, President of Nova Energy 3 Consultants, Inc., who recommended a specific ROE of 9.25%. In addition, the Commercial Group, an ad hoc group of Duke's commercial energy customers, presented the testimony of Steve Chriss, Senior Manager for Energy Regulatory Analysis for Wal-Mart Stores, Inc., and Wayne Rosa, Energy and Maintenance Manager for Food Lion, LLC. Chriss and Rosa did not recommend a specific ROE, but noted that Hevert's recommendation of 11.25% exceeded the range of recently authorized ROEs across the country.
The Attorney General did not present any ROE evidence.
On 30 May 2013, the Commission entered an order granting a $178,712,000 annual retail revenue increase and approving an ROE of 10.2% as agreed to in the Stipulation. In support of its conclusions, the Commission summarized the testimony of Hevert, Johnson, O'Donnell, Chriss, and Rosa. The Commission also recognized that it must consider whether the ROE is reasonable and fair to customers stating:
(Second alteration in original.) The Commission concluded that the 10.2% ROE set forth in the Stipulation is "just and reasonable to all parties in light of all the evidence presented." The Attorney General appealed the Commission's order to this Court as of right pursuant to N.C.G.S. §§ 7A-29(b) and 62-90. The North Carolina Waste Awareness and Reduction Network filed a separate appeal supporting the Attorney General's position.
Subsection 62-79(a) of the North Carolina General Statutes "sets forth the standard for Commission orders against which they will be analyzed upon appeal." State ex rel. Utils. Comm'n v. Carolina Util. Customers Ass'n ("CUCA I"), 348 N.C. 452, 461, 500 S.E.2d 693, 700 (1998). Subsection 62-79(a) provides:
N.C.G.S. § 62-79(a) (2013). When reviewing an order of the Commission, this Court may, inter alia,
Id. § 62-94(b) (2013). Pursuant to subsection 62-94(b) this Court must determine whether the Commission's findings of fact are supported by competent, material, and substantial evidence in view of the entire record. Id.; CUCA I, 348 N.C. at 460, 500 S.E.2d at 699 (citation omitted). "Substantial evidence [is] defined as more than a scintilla or a permissible inference. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." CUCA I, 348 N.C. at 460, 500 S.E.2d at 700 (alteration in original) (citations and quotation marks omitted). The Commission must include all necessary findings of fact, and failure to do so constitutes an error of law. Id. (citation omitted).
The Attorney General argues that the Commission's order is legally deficient because it is not supported by competent, material, and substantial evidence and does not include sufficient findings, reasoning, and conclusions. Specifically, the Attorney General contends that the Commission failed to make findings of fact showing in "meaningful detail" that it considered the impact of changing economic conditions upon customers when determining ROE. The Attorney General asserts that the Commission must "quantify" the extent to which it adjusted the final ROE to account for consumer interests. We disagree.
Pursuant to subdivision 62-133(b)(4) of the North Carolina General Statutes, the Commission must fix a rate of return that
N.C.G.S. § 62-133(b)(4). Recently, we observed that this provision, along with Chapter 62 as a whole, requires the Commission to treat consumer interests fairly, not indirectly or as "mere afterthoughts." State ex rel. Utils. Comm'n v. Cooper ("Cooper I"), 366 N.C. 484, 495, 739 S.E.2d 541, 548 (2013). In Cooper I the Commission's order stated:
(Ellipsis in original.) We explained that "the Commission must consider all evidence presented by interested parties, which necessarily includes customers.... [I]n retail electric service rate cases the Commission must make findings of fact regarding the impact of changing economic conditions on customers when determining the proper ROE for a public utility." Id. We concluded that the order did not contain sufficient findings addressing the impact of changing economic conditions upon customers. 366 N.C. at 494, 739 S.E.2d at 547. But contrary to the Attorney General's suggestion, we did not state in Cooper I that the Commission must "quantify" the influence of this factor upon the final ROE determination. See id.; State ex rel. Utils. Comm'n v. Pub. Staff, 323 N.C. 481, 498, 374 S.E.2d 361, 370 (1988) ("Given th[e] subjectivity ordinarily inherent in the determination of a proper rate of return on common equity, there are inevitably pertinent factors which are properly taken into account but which cannot be quantified with the kind of specificity here demanded by [the appellant].").
Here the Commission's order contains several findings of fact that address this factor:
The Commission also stated that it gave "great weight" to Hevert's testimony that, although North Carolina's unemployment rate was higher than the national average, the State enjoyed lower average electric rates, higher expected household income growth, and superior GDP growth as compared to the nation as a whole. The Commission noted that Johnson testified that improvement in the economy has been slow and that the state of the economy affects both investors and consumers. The Commission explained that in addition to submitting recommended ROE ranges, Johnson concluded that a 10.2% ROE was reasonable and consistent with the public interest in combination with other provisions in the Stipulation. Furthermore, the Commission found that 58 of the 127 public witnesses who testified at the hearings stated that "the rate increase was not affordable to many customers," including the elderly, the unemployed or underemployed, the poor, and persons with disabilities. Nevertheless, the Commission explained that "[a]nother significant group of customers" wanted DEP to invest more in renewable energy, even if doing so would increase consumer costs.
In addition, the Commission found that specific provisions in the Stipulation serve customer interests. The Commission noted
Accordingly, the order of the Commission is affirmed.
AFFIRMED.