Energy Legal Blog

North Carolina’s Highest Court Validates Local Regulator’s Assertion of Veto Over Proposed Wholesale Power Contracts

The North Carolina Supreme Court ruled July 1 that the North Carolina Utilities Commission ("NCUC") can exercise veto power over certain wholesale power contracts — contracts that would confer on wholesale customers a higher priority than accorded to a Tar Hill State utility’s retail native-load customers.  In so ruling, the court rejected the argument that FERC's exclusive jurisdiction over wholesale sales preempted the state commission’s assertion of this veto power.
 
The case arose out of a 1998 plan by Carolina Power & Light (since renamed Progress Energy Carolinas) to build two plants to meet its incremental need for power and to provide wholesale power to customers in the Carolinas.  The NCUC approved the plan, but then in an order approving the merger between Carolina Power & Light and Florida Progress, the NCUC imposed the condition that the NCUC be given a 20-day advance notice to review and possibly reject any proposed power wholesale sales that would provide the buyer with priority equal to native-load priority to ensure the deals would not affect retail customers.  A N.C. Appeals Court found that FERC’s Federal Power Act jurisdiction preempted NCUC's advance-notice condition.  The July 1 Supreme Court decision reversed, however.  It did so based on the dubious proposition that NCUC review was not preempted because it sought to review the contracts before they were filed with FERC and before FERC took any action on them.  Moreover, the NCUC was not seeking to set wholesale rates, inquire into the prudence of proposed contracts, or overrule a FERC action.  According to the court Congress intended states to oversee matters of local concern, such as generating facilities and local supply adequacy and reliability issues, just the type of matters that NCUC's proposed review would take into consideration.

The issue of federal vs. state jurisdiction over wholesale power contracts that impact resource adequacy issues has recently been on the forefront of electric power news, with tensions between federal and state regulators running high, and the decision comes just as FERC and state commissioners are attempting to establish an informal joint working group to discuss resource procurement and adequacy issues.  The impact of the N.C. high court’s decision on this debate remains to be seen.  Investor-owned utilities and competitive power suppliers argue that the decision can and should be overturned by the federal courts.  [State ex rel. Utils. Comm'n v. Carolina Power & Light Co., 359 N.C. 516  (July 1, 2005)] [NEW MATTER]