Thu January 10, 2013
McCrory Could Re-shape NC Utilities Regulation
Governor Pat McCrory has been busy in recent weeks filling his cabinet and top staff positions. And in at least three cases he's appointed former colleagues from his 28 years working at Duke Energy. That's led some to worry McCrory will follow the same pattern when he turns his attention to four impending vacancies at the North Carolina Utilities Commission, which is Duke Energy's primary regulator in the state. WFAE's Julie Rose takes a look now at this regulatory body McCrory has the opportunity to radically reshape.
It's one thing to make a former Duke executive your top economic development aide or secretary of commerce – as Governor McCrory has done - but the seven members of the North Carolina Utilities Commission decide how much Duke Energy and other utilities can increase rates.
Such requests are increasingly common – and sizeable – as utilities replace aging power plants. Would the governor really consider appointing a Duke executive to that commission? His spokesman Chris Walker says, "Yes."
"I don't think he wants to limit any type of individual based on any type of pre-conceived notion," says Walker. "(Governor McCrory) wants to make sure we have the best possible people in all these positions to the best interests of North Carolina."
Walker says the governor wants a utilities commission that operates "efficiently and effectively," and any fear that he'll stack things in Duke's favor is "unfounded."
Even so, the AARP and the watchdog group NCWARN say McCrory's Duke career is a conflict of interest and they want him to recuse himself from the appointments.
"I don't think he can overcome that unless he sets up a process that involves a panel or something else that shows the people that this is a transparent process," says AARP NC State Director Doug Dickerson.
Governor's spokesman Chris Walker says McCrory will make the appointments voters elected him to make. That will include naming three new members to the North Carolina Utilities Commission before July. Commissioners traditionally have some background in utility regulation as a lawyer, lawmaker or advocate. But to have one come directly from a North Carolina utility would be unusual.
The seven commissioners are on six-year terms that stagger so every governor gets the chance to appoint a few. McCrory has three because one commissioner's term ended during the last year of Governor Perdue's administration and
she opted to let her successor fill it remained vacant.
So, what do these commissioners do?
"People have a pretty substantial misunderstanding about the role of the commission, but essentially, it's defined as a quasi-judicial body," says Judge Sam Ervin, IV. He was a utilities commissioner for about ten years, before resigning in 2008 to become an NC Court of Appeals judge.
The name "utilities commission" conjures, for many people, a county or town commission of elected leaders with wide ranging power to make policies, change ordinances and accept political donations.
But really, you should think of the utilities commission like a panel of judges, says Ervin. They hear arguments, assess the facts and rule according to their interpretation of state law.
Utilities commissioners are paid $124,000 a year – the same as a superior court judge. And they're held to the same code of conduct.
Commissioners can't take gifts from - or own stock in - the utility companies they regulate. And like judges, they're prohibited from having side conversations – called "ex parte communication" with anyone but their own staff about an ongoing case.
Duke got into some trouble in Indiana a few years ago when email exchanges came to light showing a cozy relationship between Duke executives and the chairman of the Indiana utilities commission. WFAE used public records law to see if North Carolina Utilities Commission Chairman Ed Finley had any private email or phone conversation with top Duke and Progress executives during the period the companies were merging. Our request turned up nothing.
That doesn't surprise John Runkle, an attorney for NCWARN, which criticizes many commission decisions.
"I feel that the personal integrity of our commissioners is pretty good," says Runkle.
None of the current commissions would agree to be interviewed for this story. Their attorney Sam Watson sent an email emphasizing the code of conduct to which commissioners are bound.
But Runkle says ethics aren't the problem - it's influence. He thinks the whole process favors utility companies that donate generously to the politicians who nominate and confirm commissioners, as well as spend lots of money on lawyers who make their case to the commission itself.
"The Duke lawyer's got his special chair (at commission meetings)," chuckles Runkle. "It's that kind of thing. Easily they have a much bigger presence than anyone else can afford."
Utilities commission meetings are public, so Runkle and his nonprofit clients are welcome, too. But they can't cross-examine witnesses (or call their own) during a hearing unless the commission gives them permission to participate in the case. That permission's not always granted.
Usually what happens is the commission approves a settlement that Duke Energy works out with the Public Staff of the Utilities Commission, which is the state agency responsible for advocating on behalf of utility customers. Runkle argues those settlements are often too easy on Duke and don't help the little guy enough.
"The issues that are important to ratepayers – the residential and small businesses and those kinds of things - are just not being heard," says Runkle.
It's the job of the executive director of the Public Staff to push back against utility requests and make sure customers get a good deal. But industrial giants like Nucor are customers. So are corporations like Wal-Mart. They have very different energy needs than you and me.
So Robert Gruber's in a tight spot as the Director of the Public Staff.
"We attempt to balance the interest of all the consumers," says Gruber. "But no matter what I do, I'm going to be criticized, there are going to be people that didn't like the outcome."
Most of the attorneys and former commissioners we spoke with say Gruber has a done a good job finding that balance in the 30 years governors have been re-appointing him to the post.
But now, Gruber's retiring. Many think his replacement is the most important utilities commission appointment Governor McCrory will make. His pick will be part of every negotiation about the cost of power in North Carolina for years to come.
And anyone he chooses - in light of the governor's own lengthy career at Duke – will be guaranteed to attract heightened scrutiny.
CORRECTION: During her final year in office, Governor Perdue nominated Industrial Commissioner Linda Cheatham to fill a vacancy on the Utilities Commission, but the Republican legislature declined to take up Cheatham's confirmation. The position remained vacant.
Duke Energy Agrees To 7.2 Percent Rate Hike; AG
Duke CEO Explains Surprise Ouster Of Progress
Blended Duke/Progress Fleets Bring Savings