IN THE COURT OF APPEALS OF NORTH CAROLINA
2022-NCCOA-32
No. COA20-867
Filed 18 January 2022
North Carolina Utilities Commission, No. EMP-105, SUB 0
STATE OF NORTH CAROLINA EX. REL. UTILITIES COMMISSION; PUBLIC STAFF-NORTH CAROLINA UTILITIES COMMISSION, Appellees, v.
FRIESIAN HOLDINGS, LLC, Petitioner; NORTH CAROLINA SUSTAINABLE ENERGY ASSOCIATION, Intervenor; and NORTH CAROLINA CLEAN ENERGY BUSINESS ALLIANCE, Intervenor, Appellants, v.
DUKE ENERGY PROGRESS, LLC and NORTH CAROLINA ELECTRIC MEMBERSHIP CORPORATION, Intervenors.
Appeal by Petitioner and Intervenor-Appellants from order entered 11 June
2020 by the North Carolina Utilities Commission. Heard in the Court of Appeals 21
September 2021.
Fox Rothschild LLP, by Karen M. Kemerait, and Kilpatrick, Townsend & Stockton LLP, by Steven J. Levitas, Benjamin L. Snowden, and Adam H. Charnes, for Petitioner-Appellant.
Layla Cummings, Dianna W. Downey, and Robert B. Josey, Jr., for Appellee Public Staff-North Carolina Utilities Commission.
Benjamin W. Smith and Peter H. Ledford for Intervenor-Appellant North Carolina Sustainable Energy Association.
Adam Foodman and John D. Burns for Intervenor-Appellant North Carolina Clean Energy Business Alliance. STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
Opinion of the Court
Nexsen Pruet PLLC, by David P. Ferrell, and Richard M. Feathers and Michael D. Youth, for Intervenor-Appellee North Carolina Electric Membership Corporation.
Jack E. Jirak for Intervenor Duke Energy Progress, LLC.
INMAN, Judge.
¶1 North Carolina has made significant strides in generating and employing
alternatives to carbon-emitting fuels. We rank fourth in the nation in solar
installations, with solar making up nearly eight percent of our state’s electricity.1
Our legislature has enacted clean energy goals including a 70 percent reduction in
carbon emissions by the year 2030 and carbon neutrality by 2050.2 The southeastern
region of the state, in particular, has attracted several solar energy facilities.3 But
growing production has strained the region’s existing electric grid. A dispute over
the cost and timing of upgrading the grid gives rise to this appeal.
¶2 Unlike other industrial and commercial enterprises, energy generation
1 Solar Energy Industries Association (SEIA), State Solar Spotlight: North Carolina
Solar, (Sept. 24, 2021), https://www.seia.org/sites/default/files/2021-09/North Carolina.pdf. 2 See An Act to Authorize the Utilities Commission, S.L. 2021-951, § 1,
https://www.ncleg.gov/Sessions/2021/Bills/House/PDF/H951v5.pdf. 3 In its order, the North Carolina Utilities Commission concluded, “[N]o party disputes
that southeastern North Carolina exhibits many attributes favorable for the development of solar generating facilities and that those attributes have resulted in significant solar development in that region. As a result, however, the transmission infrastructure in that portion of the [Duke] system is approaching a tipping point where additional generation in certain portions of the system will require significant upgrades to the network.” STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
facilities can operate only as permitted by the North Carolina Utilities Commission
(“the Commission”). N.C. Gen. Stat. § 62-110.1(a) (2019). This system of regulation
is analogous to state law limiting medical facilities to providers who have obtained a
certificate of need from the Department of Health and Human Services. See N.C.
Gen. Stat. § 131E-175(7) (2019). Energy plants cannot spring up like many
restaurants, fitness centers, or dry cleaners, even if consumer demand would support
the increased supply. In this way, government regulation influences the energy
market.
¶3 Petitioner-Appellant Friesian Holdings, LLC (“Friesian”), an independent
energy company, seeks to generate additional solar energy in the southeast. Friesian
applied to the Commission for a certificate of public convenience and necessity
(“CPCN” or “certificate”) to build and operate a solar energy plant, which would sell
and distribute electricity through an existing electric grid. Citing the cost of
upgrading the region’s electric grid to accommodate additional transmission, the
Commission denied Friesian’s application. Friesian appeals, contending that the
Commission’s decision unfairly favors larger energy utilities and squelches
competition, to the detriment of consumers.
¶4 Friesian presents three arguments on appeal: (1) federal law aimed at fostering
free competition preempts the Commission’s decision; (2) the Commission’s cost
analysis was unsupported by the evidence and was arbitrary and capricious; and (3) STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
the Commission erred in concluding Friesian did not demonstrate a need for its
facility. After careful review of the record and our precedent, we affirm the
Commission.
I. FACTS & PROCEDURAL HISTORY
¶5 This appeal arises from Friesian’s second application to the Commission to
build and operate a solar energy plant. As explained below, Friesian’s first
application was successful, but Friesian amended its energy distribution plan,
leading to the application process we now review.
¶6 On 9 September 2016, Friesian filed its first application with the Commission
seeking a CPCN to construct a 70-MWAC solar photovoltaic electric generation
facility (“the facility”) in Scotland County. Pursuant to Commission Rule R8-64,
Friesian classified itself as a small power producer or “qualifying facility,” intending
to sell the energy produced by its facility to the public utility Duke Energy Progress
(“Duke”) which owns and operates the energy grid servicing Scotland County. At the
time of its application, Friesian had obtained most of the other federal and state
permits required of them and planned to begin construction in early 2023 with
commercial operation by December of the same year. The project did not generate
any opposition from local residents or other interested parties. On 7 November 2016,
the Commission granted Friesian a CPCN.
¶7 The Commission’s policies for state generator interconnections assign directly STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
to the qualifying facility––also known as the “interconnection customer,” here
Friesian––the cost of upgrades to the grid necessary to connect to the qualifying
facility. See Order Approving Revised Interconnection Standard, In the Matter of
Petition for Approval of Revisions to Generator Interconnection Standards, State of
North Carolina Utilities Commission, Docket No. E-100, Sub 101 (May 5, 2015).
¶8 On 2 August 2018, Friesian filed a request with the Commission to amend the
CPCN previously issued for its facility to file as a different type of energy facility so
that it could sell energy to a third-party energy distributor. Friesian’s proposed
facility would still have to interconnect with the electric grid owned and operated by
Duke. Because the amount of electricity already transmitted through the grid is
approaching its current maximum capacity, the grid must be upgraded to
accommodate Friesian’s additional energy supply.
¶9 On 15 May 2019, Friesian requested the Commission (1) allow Friesian to
withdraw the requested amendment and (2) consider a new application for a CPCN
as a “merchant plant” pursuant to Commission Rule R8-63 for the same facility. The
Commission treated Friesian’s filing as a request to cancel the previously issued
CPCN. The Commission allowed withdrawal of the requested amendment, cancelled
the previously issued CPCN, and closed the docket on 14 June 2019.
¶ 10 On 6 June 2019, Friesian and Duke entered into a large generator
interconnection agreement defining the parties’ respective obligations for STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
constructing and upgrading existing systems to accommodate the new facility. The
necessary upgrade is estimated to require reconstruction of roughly 73 miles of the
existing grid at a cost of $223.5 million plus $25 million in interest.4 The
interconnection agreement requires Friesian to bear sole responsibility for $100
million in estimated construction costs and another $4 million to interconnect the old
and new facilities. However, a crediting policy provided by the Federal Energy
Regulatory Commission (“FERC”) to level the playing field between large public
utility companies and independent energy producers requires Duke to reimburse
Friesian for the upgrade costs, in full, by passing along those costs in higher rates
charged to its wholesale and North Carolina retail customers.5
¶ 11 On 14 June 2019, eight days after entering into the agreement with Duke,
Friesian executed a purchase power agreement (“PPA”) with North Carolina Electric
Membership Corporation (“NCEMC”)6 providing that Friesian would sell all the
power and renewable energy credits generated by its facility to NCEMC. Duke would
4 The Commission described these costs as “far and away [ ] the single costliest transmission project in North Carolina in recent times, perhaps the most expensive ever.” 5 These costs were calculated by Duke pursuant to the Open Access Transmission
Tariff it filed with FERC. 6 NCEMC is “one of the largest generation and transmission electric cooperatives in
the nation, providing reliable, affordable electricity to its 25 member cooperatives. NCEMC owns power generation assets, purchases electricity through contracts, identifies innovative energy projects and coordinates transmission resources for its members.” N.C. Electric Cooperatives, Who We Are: About Us, (last visited Oct. 28, 2021) https://www.ncelectriccooperatives.com/who-we-are/#about-us. STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
distribute the energy produced by the facility to NCEMC on a wholesale basis. FERC
maintains jurisdiction over generating facilities’ wholesale distribution rates. See
Miss. Power & Light Co. v. Miss. ex rel. Moore, 487 U.S. 354, 374, 101 L. Ed. 2d 322,
340 (1988).
¶ 12 Friesian’s arrangements with Duke and NCEMC changed the regulatory
classification of its facility to a “merchant plant,” so Friesian filed a second petition
with the Commission for a CPCN as a “merchant plant.” A “merchant plant” is “an
electric generating facility . . . the output of which will be sold exclusively at
wholesale[.]” Commission Rule R8-63(a)(2) (emphasis added). Duke, NCEMC, the
North Carolina Sustainable Energy Association (“NCSEA”), and the North Carolina
Clean Energy Business Alliance (“NCCEBA”) petitioned to intervene in Friesian’s
certificate application proceeding. The Commission allowed those petitions. The
Public Staff of the Commission (“Public Staff”), an independent agency charged with
representing the interests of consumers,7 also participated in the application process.
¶ 13 The Public Staff filed a motion asking the Commission to determine, among
other legal questions:
[w]hether the Commission has authority under state and federal law to consider as part of its review of the CPCN application the costs associated with the approximately
7 By its own account, the “[Public Staff] is an independent agency not subject to the
supervision, direction, or control of [the Commission]. The Public Staff represents the interests of the using and consuming public.” STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
$227 million dollars in transmission network upgrades and interconnection facilities necessary to accommodate the FERC-jurisdictional interconnection of the merchant generating facility, and the resulting impact of those network costs on retail rates in North Carolina[.]
Following briefing and arguments, the Commission entered an interlocutory order
determining it could consider the upgrade costs pursuant to our General Statutes and
its own rules. See § 62-110.1; Commission Rule R8-63.
¶ 14 In its second certificate application and before the Commission, Friesian
presented evidence of potential benefits that could stem from its facility and the
associated grid updates, including: (1) the interconnection of multiple gigawatts of
new renewable generation in North Carolina and South Carolina; (2) expansion of
the grid capacity so that other solar facilities in Duke’s queue could be added in the
future without additional upgrades; (3) the public would bear less of the upgrade costs
compared to an alterative cost allocation under one of Duke’s planned projects; and
(4) additional solar energy generation would help bring Duke closer to its target clean
energy goals.
¶ 15 The Public Staff challenged that evidence and argued against issuance of a
CPCN. Witnesses for the Public Staff testified, and one of Friesian’s witnesses
conceded, that the facility would do little to supplement Duke’s solar energy supply STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
during the peak winter season,8 and that Duke had not previously identified the
transmission lines in question as needing upgrades due to reliability issues.
¶ 16 On 11 June 2020, the Commission entered an order denying Friesian’s
application, based on extensive findings. The Commission concluded Friesian’s
generating facility project was not in the public convenience or need in part because
the network upgrade costs, to be passed on to the ratepayers under FERC’s crediting
policy, were unreasonably high. Before its decision denying Friesian’s application,
the Commission had never before denied a CPCN to an energy generator that had
entered into a PPA. Friesian timely appealed the Commission’s order.
II. ANALYSIS
¶ 17 We review Utility Commission decisions to determine:
if substantial rights of the appellants have been prejudiced because the Commission’s findings, inferences, conclusions or decisions are (1) In violation of constitutional provisions, or (2) In excess of statutory authority or jurisdiction of the Commission, or (3) Made up on unlawful proceedings, or (4) Affected by other errors of law, or (5) Unsupported by competent, material and substantial evidence in view of the entire record as submitted, or (6) Arbitrary or capricious.
8 While Duke’s energy resource plans demonstrate a need for additional capacity to
meet the grid’s winter peak loads, the addition of a solar facility, by its nature, could not provide the type of reliable or controlled additional power generation required during the winter season because of shorter days and less sunlight. STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
N.C. Gen. Stat. § 62-94(b) (2019). A decision by the Commission is arbitrary and
capricious if it “lack[s] fair and careful consideration or fail[s] to display a reasoned
judgment.” State ex rel. Utils. Comm’n v. Carolina Water Serv., Inc. of N.C., 225 N.C.
App. 120, 130, 738 S.E.2d 187, 195 (2013).
¶ 18 On appeal, “any rule, regulation, finding, determination, or order made by the
Commission . . . shall be prima facie just and reasonable.” § 62-94(e). “[W]here there
is substantial evidence supporting the Commission’s findings and conclusions, we will
not second guess the Commission’s determination.” In re Duke Energy Corp., 232
N.C. App. 573, 586, 755 S.E.2d 382, 390 (2014). We review the Commission’s
conclusions of law de novo. State ex rel. Utils. Comm’n v. Stein, 375 N.C. 870, 900,
851 S.E.2d 237, 256 (2020). When the issue on appeal concerns interpreting a statute,
the interpretation of a statute by an agency created to administer that statute is traditionally accorded some deference by appellate courts, [but] those interpretations are not binding. ‘The weight of such [an interpretation] in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.’
In re N.C. Sav. & Loan League v. N.C. Credit Union Comm’n, 302 N.C. 458, 466, 276
S.E.2d 404, 410 (1981) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140, 89 L. Ed.
124, 129 (1944)). STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
¶ 19 The Commission’s CPCN standard “is a relative or elastic theory rather than
an abstract or absolute rule. The facts in each case must be separately considered[.]”
State ex rel. N.C. Utils. Comm’n v. Casey, 245 N.C. 297, 302, 96 S.E.2d 8, 12 (1957)
(citations omitted).
A. The Commission’s Decision Is Not Preempted by Federal Law
¶ 20 Friesian contends the Commission’s denial of its CPCN was preempted by
federal law because the Commission based its decision, in large part, on the upgrade
costs that would be charged to ratepayers as required by FERC’s crediting policy.
After careful review, we disagree.
¶ 21 Federal law may preempt state law or action in three distinct ways. First,
Congress may expressly preempt state action through legislation. Pac. Gas & Elec.
Co. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 203, 75 L. Ed.
2d. 752, 765 (1983). In the absence of express preemption, “the scheme of federal
regulation may be so pervasive as to make reasonable the inference that Congress
left no room for the States to supplement it.” Rice v. Santa Fe Elevator Corp., 331
U.S. 218, 230, 91 L. Ed. 1447, 1459 (1947) (citations omitted). Third, state law or
action is preempted where it directly conflicts with federal law, such that it makes
compliance with both federal and state law impossible, or “stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of Congress.”
Pac. Gas & Elec. Co., 461 U.S. at 204, 75 L. Ed. 2d at 765 (citations omitted). Friesian STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
asserts that the Commission’s order is preempted because it stands in the way of
FERC’s policy of preventing discrimination by incumbent energy producers––like
Duke––against smaller, independent producers seeking to enter the energy market.
¶ 22 The Federal Power Act (“FPA”) assigns FERC exclusive jurisdiction over the
transmission of energy in interstate commerce and over the rates for wholesale
transactions. 16 U.S.C. § 824(b)(1) (2018); see also State ex rel. Utils. Comm’n v.
Carolina Power & Light Co., 161 N.C. App. 199, 203, 588 S.E.2d 77, 80 (2003), rev’d
on other grounds, 359 N.C. 516, 614 S.E.2d 281 (2005). FERC is responsible for
ensuring that the rates charged by utilities within its jurisdiction are “just and
reasonable.” § 824d(a); see also Hughes v. Talen Energy Mktg., LLC, 578 U.S. 150,
154, 194 L. Ed. 2d 414, 419 (2016).
¶ 23 On the other hand, the FPA “places beyond FERC’s power, and leaves to the
States alone, the regulation of ‘any other sale’—most notably, any retail sale—of
electricity.” Hughes, 578 U.S. at 154, 194 L. Ed. 2d at 420 (quoting FERC v. Elec.
Power Supply Assn., 577 U.S. 260, 265, 193 L.Ed.2d 661, 667 (2016) and § 824(b)).
For example, state utilities commissions, rather than FERC, determine the level of
consumer need for power and the siting of a necessary facility. Pac. Gas & Elec. Co.,
461 U.S. at 205-06, 75 L. Ed. 2d at 766 (“Need for new power facilities, their economic
feasibility, and rates and services, are areas that have been characteristically
governed by the States.”). STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
¶ 24 Friesian’s wholesale agreements with Duke and NCEMC trigger FERC
jurisdiction over the interconnection of the systems. As noted above, the FPA
provides: “All rates and charges made, demanded, or received by any public utility
for or in connection with the transmission or sale of electric energy subject to the
jurisdiction of [FERC], and all rules and regulations affecting or pertaining to such
rates or charges shall be just and reasonable[.]” § 824d(a). FERC must remedy rates,
charges, and other practices which are “unduly discriminatory or preferential.”
§ 824e(a).
¶ 25 Pursuant to this authority, FERC issued the “Crediting Policy” in Order No.
2003 to establish standard procedures and pro forma agreements for the
interconnection of generating facilities to transmission grids. Standardization of
Generator Interconnection Agreements and Procedures, 68 Fed. Reg. 49,846 (Aug. 19,
2003) (codified at 18 C.F.R. 35). Order No. 2003 found that utilities owning or
controlling transmission grids have strong incentives to preclude independent
generators from accessing the grid and have engaged in discriminatory practices in
the past. Id. ¶ 19. The crediting policy was intended to serve the following goals: (1)
limit opportunities for transmission providers to favor their own generation; (2)
facilitate market entry for generation competitors; (3) encourage “needed investment
in generator and transmission infrastructure;” (4) ensure interconnection customers’
interconnections are treated comparably to the interconnections that a non- STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
independent transmission provider makes with its own generating facilities; and (5)
“enhance competition in bulk power markets by promoting the construction of new
generation, particularly in areas where entry barriers due to unduly discriminatory
transmission practices may still be significant.” Id. ¶¶ 12, 694.
¶ 26 Our General Statutes provide:
[N]o public utility or other person shall begin the construction of any steam, water, or other facility for the generation of electricity to be directly or indirectly used for the furnishing of public utility service . . . without first obtaining from the Commission a certificate that public convenience and necessity requires, or will require, such construction.
§ 62-110.1(a). Along with concerns like benefit to the public and the life of the
facilities, the Commission may also consider the total costs of construction including
those to construct the generating facility, to interconnect facilities, and to upgrade
the existing network. § 62-110.1(e); Commission Rule R8-63.
¶ 27 Because the Commission has the sole authority to determine the need for new
energy generation in North Carolina pursuant to Section 62-110.1, a power reserved
for the states by Congress under the FPA, we hold the Commission’s decision to deny
Friesian’s CPCN is not preempted by federal law. See State ex rel. Utils. Comm’n v.
Carolina Power & Light Co., 359 N.C. 516, 529, 614 S.E.2d 281, 289 (2005) (holding
the Commission’s decision was not preempted because the Commission “[wa]s not
claiming . . . the authority to overrule or second-guess an agreement filed with or STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
approved by FERC and subject to FERC’s jurisdiction” and it was not “attempting to
set rates in a wholesale agreement”). Further, our review of the record reveals that
the Commission’s decision to deny Friesian’s application does not “stand[ ] as an
obstacle” to FERC’s crediting policy goals. See Pac. Gas & Elec. Co., 461 U.S. at 204,
75 L. Ed. 2d. at 765 (outlining that state law is preempted by federal law when it
“stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress”) (citations omitted)). Friesian has failed to cite, and we cannot
find, any precedent precluding a state from considering the cost of required network
upgrades in a siting determination.
¶ 28 The United States Supreme Court has made clear that states may not interfere
with FERC-regulated interstate wholesale rates. See Nantahala Power & Light Co.
v. Thornburg, 476 U.S. 953, 966, 90 L. Ed. 2d 943, 954 (1986) (“Once FERC sets such
a rate, a State may not conclude in setting retail rates that the FERC-approved
wholesale rates are unreasonable. A State must rather give effect to Congress’ desire
to give FERC plenary authority over interstate wholesale rates, and to ensure that
the States do not interfere with this authority.”); Miss. Power & Light Co., 487 U.S.
at 374, 101 L. Ed. 2d at 340 (“Congress has drawn a bright line between state and
federal authority in the setting of wholesale rates and in the regulation of agreements
that affect wholesale rates. States may not regulate in areas where FERC has
properly exercised its jurisdiction to determine just and reasonable wholesale rates STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
or to insure that agreements affecting wholesale rates are reasonable.”). Yet nothing
in the FPA precludes states from considering the cost of network upgrades in the
preliminary determination of the most cost-effective location for a generating facility
or whether energy generation is in the public convenience and need for its residents.
¶ 29 In this case, FERC has not yet allocated costs related to energy to be generated
by Friesian’s proposed facility. FERC has no authority to order, directly or otherwise,
that Friesian’s facility be constructed, that it be sited in a particular part of the state,
or that its energy be sold to a certain purchaser. The Commission is empowered to
make the siting decision of whether and where an energy generating facility can be
constructed. FERC then has control over wholesale rates. The Commission’s
authority to make siting decisions is unaffected by FERC’s jurisdiction. Surely, the
Commission would be preempted from attempting to alter the cost allocation set by
FERC after it approved a site and after parties had incurred costs. But that was not
the sequence of events in this case.
¶ 30 We agree with Friesian that if Duke itself generates additional energy in the
southeast that requires upgrading the grid, the Commission could not prohibit Duke
from passing 100 percent of grid update costs to its ratepayers pursuant to FERC’s
crediting policy, costing consumers more than if they purchased energy generated by
Friesian. See Nantahala Power & Light Co., 476 U.S. at 964-67, 970, 90 L. Ed. 2d at
952-55, 957. However, the Commission’s order reflects that it did not deny Friesian’s STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
second application merely because upgrade costs would be passed along to the public.
Instead, the Commission compared the unprecedented magnitude of upgrade costs to
be borne by ratepayers to accommodate Friesian’s proposed facility with the facility’s
expected output, and concluded they were too burdensome to be in the public
convenience. So, we hold that in denying Friesian’s application, the Commission did
not usurp or alter FERC’s crediting policy.
¶ 31 We acknowledge, as Friesian asserts, that the interconnection and upgrade
process is ripe for discrimination by incumbents like Duke because of the economic
incentive to favor its own generating facilities and disadvantage independent power
producers. However, Friesian’s generating plant was not the target of FERC’s
crediting policy in this circumstance and the Commission’s denial of Friesian’s
application does not threaten FERC’s comprehensive federal regulatory scheme. See
Pac. Gas & Elec. Co., 461 U.S. at 204, 75 L. Ed. 2d. at 765. Cf. Nat’l Ass’n of
Regulatory Util. Comm’rs v. FERC, 964 F.3d 1177, 1188 (D.C. Cir. 2020) (“A State’s
regulations aimed directly at matters in FERC’s jurisdiction cannot be sustained
when they threaten the achievement of the comprehensive scheme of federal
regulation.”) (cleaned up)). That is because Friesian’s entry into the energy market
did not depend upon FERC’s crediting policy.
¶ 32 Friesian was already a participant in the energy market, prepared to pay
construction and upgrade costs as a qualifying facility. It then sought to take STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
advantage of the cost allocation required under FERC’s crediting policy by
contracting with NCEMC. Under this arrangement, Duke would distribute the
energy generated by Friesian’s facility wholesale to NCEMC. As a result of the
wholesale contract, Friesian re-classified itself as a merchant plant with the
Commission. Absent this change in classification, Friesian already had a CPCN in
hand and was permitted to build and operate its facility. For this reason, we conclude
the Commission’s denial of Friesian’s second application does not frustrate FERC’s
policy goal to prevent discrimination in competition by an incumbent against a new
provider.
¶ 33 We hold federal law does not preempt the Commission’s denial of Friesian’s
application because it did not “interfere with FERC’s authority by disregarding
interstate wholesale rates.” Hughes, 578 U.S. at 165, 194 L. Ed. 2d at 427 (emphasis
added).
B. The Commission’s Cost Analysis
¶ 34 Second, Friesian argues the Commission’s denial of its CPCN was arbitrary
and capricious and unsupported by substantial evidence because the Commission did
not consider “additional generation resources that the upgrades would facilitate.”
¶ 35 As part of its need determination, the Commission adopted the levelized cost
of transmission (“LCOT”) test to evaluate “the reasonableness of the network upgrade STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
costs associated with interconnecting a new generating facility.”9 The LCOT is
“calculated by dividing the annualized cost of the required new transmission assets
over the typical transmission asset lifetime by the expected annual generator output
in [megawatt hour].”
¶ 36 At the hearing on its application, Friesian introduced evidence that the
network upgrades would “facilitate the interconnection of 1,500 megawatts of
additional generation in the Carolinas.” Duke introduced evidence that the network
upgrades would allow for greater interconnection in its southeastern service territory,
alleviate any “queue paralysis” and delays in future interconnection, and minimize
challenges in its own interconnection study process.
¶ 37 In its cost analysis, the Commission accounted only for the planned output
from Friesian’s facility, not the potential output from future electricity generation by
other facilities that would use the upgraded grid. Based on the narrowed
consideration, Friesian’s upgrades were assigned an LCOT value of $62.94 per
megawatt hour (“MWh”) as opposed to between $1.56/MWh and $3.22/MWh for
comparable nationwide solar network upgrades. Friesian’s LCOT value was
significantly higher than the LCOT values for two other generators in the state, both
9 We note that Friesian challenged the propriety of this test before the Commission
but “would accept an appropriate LCOT test for the purpose of evaluating the public convenience of the Friesian Facility in light of the Network Upgrade costs.” STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
of which have received CPCNs from the Commission, at $0.33/MWh and $0.92/MWh.
¶ 38 Friesian asserts that if the Commission had weighed the potential future
electricity generation created by the network upgrades, its upgrade figures would be
much more comparable to benchmark LCOT numbers. But the record reflects that
the Commission did, in fact, carefully consider and weigh the potential for additional
energy generation. Rather than disregard that consideration outright, the
Commission determined it was too speculative to support the approval of Friesian’s
CPCN. The Commission explained that the LCOT analysis provides a benchmark of
reasonableness of the upgrades relative to other similar transmission investments,
but it is not a determinative test upon which the Commission could solely base its
CPCN decision. In its discretion, the Commission concluded that the potential
additional generation was subject to many variables and “there is nothing in the
record to conclude that any of the proposed generating facilities, much less all of
them, will actually be constructed and placed into service.” Friesian cites no
authority supporting its argument that the Commission was required to consider
potential future generation. Nor does Friesian offer any reason for this Court to
deviate from the deferential standard of review applicable to any discretionary
decision by the Commission. See § 62-94(e) (“[A] rule, regulation, finding,
determination, or order made by the Commission . . . shall be prima facie just and
reasonable.”); N.C. Sav. & Loan League, 302 N.C. at 466, 276 S.E.2d at 410 (“[T]he STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
interpretation of a statute by an agency created to administer that statute is
traditionally accorded some deference by appellate courts[.]”).
¶ 39 Considering the record and the Commission’s exercise of its discretion in a fact-
specific analysis, we cannot conclude the Commission’s cost calculation was arbitrary
and capricious, lacked “fair and careful consideration,” or “failed to display reasoned
judgment.” State ex rel. Utils. Comm’n, 225 N.C. App. at 130, 738 S.E.2d at 194.
¶ 40 NCSEA and NCCEBA, as intervenors, further contend that the Commission
could not implement this LCOT analysis for the first time in its consideration of
Friesian’s application without conducting rulemaking procedures including public
notice and request for public comment. The LCOT analysis is not mandated by
statute or Commission Rule for a CPCN application. See § 62-110.1; Commission R8-
63. However, NCSEA and NCCEBA concede that the Commission is exempt from
North Carolina’s Administrative Procedures Act, N.C. Gen. Stat. § 150B-1(c)(3)
(2019), so formal notice-and-comment rulemaking requirements do not generally
apply to Commission policies. These intervenors have not cited, and we have not
found, authority prohibiting the Commission from employing the LCOT analysis to
the CPCN application process absent a rulemaking procedure.
¶ 41 For these reasons, we hold the Commission did not err by employing the LCOT
analysis in its need determination. STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
C. The Commission Did Not Err in Concluding Friesian Did Not Demonstrate Public Need
¶ 42 Friesian contends the Commission’s conclusion that Friesian failed to
demonstrate a need for the solar electric plant was arbitrary and capricious because
Friesian presented evidence of an executed PPA with NCEMC and the Commission
has never before denied a certificate application where a PPA existed to demonstrate
need. Friesian also asserts that the Commission inappropriately imposed the more
stringent need standard for public utilities when it considered Friesian’s application
as a merchant plant.
¶ 43 There is no indication in the record that the Commission applied the wrong
need standard. The Commission considered Friesian’s application as a merchant
plant pursuant to R8-63, applying the correlating need requirement for that facility
classification. Compare Commission Rule R8-61(b) (public utilities) with Commission
Rule R8-63(b)(3) (merchant plants).
¶ 44 In 1992, the Commission established a rule (the “Empire Power Requirement,”
Docket No. SP-91, Sub 0), requiring a written output contract to demonstrate need
for a facility. However, in 2001, the Commission adopted Rule R8-63(b)(3) (No. E-
100, Sub 85), requiring that a merchant plant applying for a CPCN provide a
“description of the need for the facility in the state and/or region, with supporting
documentation.” In adopting the current rule, the Commission expressly overruled STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
its “Empire Power Requirement” that an applicant must submit a written contract
for purchase of energy. Friesian contends that because it met the original, more
stringent requirement to demonstrate need, it necessarily established need for its
facility in this case.
¶ 45 We do not agree that the original requirement was necessarily more stringent
than the current requirement. Rather, under the Commission’s current rule, the
presence or absence of an existing contract is simply not dispositive of the need for a
facility. Our General Statutes provide that before the Commission can award a
CPCN it must consider the “applicant’s arrangement with other electric utilities for
exchange of power, pooling of plant, purchase of power and other methods for
providing reliable, efficient, and economical electric service.” § 62-110.1(d). By its
own rules, the Commission may consider other factors in its need determination,
including compliance with state or federal laws.10 That the Commission has yet to
10 See Order Granting Certificate and Accepting Registration of New Renewable Facility, In the Matter of Application of Atlantic Wind, LLC, for a Certificate of Public Convenience and Necessity Construct a 300-Megawatt Wind Facility in Pasquotank and Perquimans Counties and Registration as a New Renewable Energy Facility, State of North Carolina Utilities Commission, Docket No. EMP-49, Sub 0 (May 3, 2011); Order Issuing Certificate of Public Convenience and Necessity with Conditions, In the Matter of Application of Duke Energy Carolinas, LLC, for a Certificate of Public Convenience and Necessity to Construct a 402-MW Natural Gas-Fired Combustion Turbine Generating Facility in Lincoln County, North Carolina, State of North Carolina Utilities Commission, Docket No. E-7, Sub 1134 (Dec. 7, 2017); Order Granting Certificate with Conditions, In the Matter of Application of Duke Energy Progress, LLC, for a Certificate of Public Convenience and Necessity to Construct a Microgrid Solar and Battery Storage Facility in Haywood County, North STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
deny an application supported by an executed PPA makes this a case of first
impression, but it does not establish an outright prohibition.
¶ 46 Here, relying on its past orders, the Commission applied the correct merchant
plant need standard, affording “some weight to the existence of the PPA as a
demonstration of need.” However, it agreed with the Public Staff that while the PPA
demonstrates potential financial or economic viability of the project, “it is not in and
of itself a sufficient criterion on which to base a recommendation for approval or
disapproval of a CPCN.”
¶ 47 The record reveals the Commission considered and weighed the benefits of
Friesian’s contract with NCEMC and Duke. Nonetheless, the Commission concluded
the project was not in the public interest: “the cost of the Network Upgrades dwarfs
the costs of the generating plant” and “the scale of the costs associated with the
Facility relative to the size and projected revenue from the Facility raises concerns
regarding economic viability of the project.” While reasonable minds may disagree
about the Commission’s judgment call, the applicable standard of review does not
afford this Court the authority to “second guess the Commission’s determination” in
this regard. In re Duke Energy Corp., 232 N.C. App. at 586, 755 S.E.2d at 390.
¶ 48 NCEMC argues, in the alternative to its request for reversal, that we remand
Carolina, State of North Carolina Utilities Commission, Docket No. E-2, Sub 1127 (Apr. 6, 2017). STATE EX. REL. UTILS. COMM’N V. FRIESIAN HOLDINGS, LLC
this matter to the Commission with instructions that it consider developments which
might have occurred with the passage of time since its denial of Friesian’s application
or that might occur in the service life of Friesian’s facility, such as the completion of
Duke’s integrated resource plan, proposed queue reform, and additional generating
capacity. Our review is limited to whether substantial evidence in the record before
us supports the Commission’s decision, see § 62-94(b)(5), so we cannot consider later
occurring developments.
III. CONCLUSION
¶ 49 For the above reasons, we affirm the order of the Commission.
AFFIRMED.
Judge HAMPSON concurs.
Judge MURPHY concurs by separate opinion. No. COA20-867 – State ex. rel. Utils. Comm’n v. Friesian Holdings, LLC
MURPHY, Judge, concurring in result only.
¶ 50 Based merely upon the arguments made by Petitioner-Appellant and
Intervenor-Appellant, I agree with the Majority’s analysis. While I have surmised
potential winning arguments for Appellants, such arguments were not made by them
and have not been made a part of this adversarial proceeding. This case does not
present an issue of statutory interpretation that would necessitate our deviation from
the basic tenet that “it is not the role of this Court to create an appeal for an appellant
or to supplement an appellant’s brief with legal authority or arguments not contained
therein.” Thompson v. Bass, 261 N.C. App. 285, 292, 819 S.E.2d 621, 627 (2018); disc.
rev. denied, 822 S.E.2d 617 (2019); Wells Fargo Bank, N.A. v. Am. Nat'l Bank & Tr.
Co., 250 N.C. App. 280, 286, 791 S.E.2d 906, 911 (2016) (“When this Court is called
upon to interpret a statute, we must examine the text, consult the canons of statutory
construction, and consider any relevant legislative history, regardless of whether the
parties adequately referenced these sources of statutory construction in their briefs.
To do otherwise would permit the parties, through omission in their briefs, to steer
our interpretation of the law in violation of the axiomatic rule that while litigants can
stipulate to the facts in a case, no party can stipulate to what the law is. That is for
the court to decide.”). As a result, I would not consider our opinion today to foreclose
future litigants from making additional or refined arguments on the issues presented
by this case and concur in result only.