The North Carolina Supreme Court last month upheld a Duke Energy Carolinas rate hike that consumer advocates say will cost customers an extra $129 million over three years — a decision clouded by potential conflicts of interest involving two of the justices who voted for it.

The extra cost traces to the first Duke Energy rate cases decided by the North Carolina Utilities Commission under the state’s 2021 law that allowed multi-year ratesetting. Under that process, the NCUC approves rate increases for several years at a time, limiting customers’ ability to seek relief in the interim.

In the Duke Energy Progress rate case decided in August 2023, the NCUC, all of whose members had been appointed by then-Gov. Roy Cooper, approved a 9.8% return on equity (ROE), the allowed profit rate for investors. Four months later — after the Republican-controlled legislature shrank the NCUC and took for itself two appointments that had previously belonged to the governor — commissioners approved a 10.1% ROE for Duke Energy Carolinas, even though the two utilities presented substantially similar evidence.

“The Commission apparently employed the exact same analysis to reach different results,” Supreme Court Justice Anita Earls wrote in her partial dissent. “By analogy, the Commission determined that 1+1=2 in the first order and 1+1=3 in the second.”

The May 22 high court ruling came amid ethics questions involving justices who took part in the ruling. Chief Justice Paul Newby’s wife holds substantial investments in Duke Energy, according to his latest financial disclosure. In addition, Associate Justice Phil Berger Jr.’s father is the state Senate president pro tempore and primary sponsor of the law that changed the NCUC’s structure and membership shortly before the Duke Energy Carolinas rate hike; Democrats have long called for his recusal from cases involving his father’s legislation.

The ruling also came as the remade NCUC is considering Duke Energy’s latest proposed rate hikes. This time, the company is seeking an even higher return — 10.95% for both utilities.

Different commission, different result

The August 2023 Duke Energy Progress rate decision was closely divided on what was then a seven-member NCUC.

Four commissioners — ToNola Brown-Bland, Daniel Clodfelter, Jeffrey Hughes, and Floyd McKissick — voted to approve a 9.8% ROE. Three commissioners — Chair Charlotte Mitchell and Commissioners Kimberly Duffley and Karen Kemerait — dissented, arguing that Duke Energy Progress should get a higher 10% ROE.

By the time the NCUC issued the Duke Energy Carolinas order on Dec. 15, 2023, the legislature had passed a bill over Cooper’s veto that shrank the Utilities Commission to five members and changed who picks them. It took away the governor’s exclusive appointment power and gave the GOP-led House and Senate each an appointment; they respectively chose former Republican state lawmakers William Brawley and Tommy Tucker.

The three Progress dissenters then became the Carolinas majority. Joined by Brawley, Tucker, and McKissick, they approved a 10.1% return on equity — higher than the Progress majority or dissenters had backed.

In his dissent, Commissioner Hughes said he concurred with most of the Carolinas order but disagreed with the ROE decision. “I feel strongly that a rate of return of common equity in the 9.8 to 9.9% range balances fairness to DEC with fairness to customers, while not negatively impacting DEC’s access to or cost of capital,” he wrote.

Duke Energy’s political spending in the period when the commission was being remade included a $6,400 direct contribution from its employee PAC to Sen. Berger’s campaign committee in November 2023. In the latter half of the year Duke also contributed $200,000 from its Duke Energy Carolinas subsidiary to a political nonprofit that later helped fund a super PAC backing Berger’s unsuccessful 2026 Senate primary campaign, as EPI recently reported.

In addition, Duke Energy had contributed to both Brawley and Tucker during their time in the legislature — at least $26,600 to Brawley and $11,000 to Tucker, according to FollowTheMoney.org.

Ethics questions for the court

The Supreme Court ruling on the Duke Energy Carolinas rate hike has renewed longstanding questions about state judicial ethics.

The North Carolina Code of Judicial Conduct says judges should disqualify themselves when a person “within the third degree of relationship” to either themselves or their spouse is a part of the proceeding. According to the Code of Conduct for United States Judges, parents are considered within the third degree of relationship.

But joining the Supreme Court majority approving the Duke Energy rate hike was Justice Phil Berger Jr., whose father — Senate President Pro Tem Phil Berger — was a primary sponsor of the legislation that changed the Utilities Commission and resulted in Brawley’s and Tucker’s appointments.

Meanwhile, Chief Justice Paul Newby joined the majority opinion even though he has disclosed that his spouse, Macon Newby, holds at least $10,000 in Duke Energy stock. A 2023 Center for Public Integrity investigation found that Newby participated in six previous Duke-related cases while he and/or his spouse owned stock in the company.

An EPI analysis of state ethics filings found no other justices with current holdings in Duke or Dominion Energy, the investor-owned electric utilities that serve North Carolina.

Justices Newby and Berger did not respond to a request for comment.

Supreme Court majority upholds higher return

Appealing the rate hike decision were the Carolina Industrial Group for Fair Utility Rates, electric cooperatives, and the North Carolina Attorney General — then Josh Stein, who’s now governor.

The plaintiffs argued that the commission had acted arbitrarily by approving a higher return for Duke Energy Carolinas based on evidence substantially similar to that presented in the Progress case.

The Supreme Court majority disagreed. Writing for the court, Justice Trey Allen concluded that the commissioners who had dissented in Progress were entitled to apply their reasoning when they later formed the Carolinas majority. The court held that setting ROE requires regulatory judgment and that the commission adequately explained its decision.

Justice Earls, joined by Justice Allison Riggs, dissented on the ROE. Earls argued that the higher return was unsupported by substantial evidence and failed to adequately account for customer interests. She noted that Duke Energy’s own expert witness acknowledged that a 9.8% return remained within a reasonable range, and that credit-rating agencies had reacted favorably to the Progress decision.

What’s next?

The Supreme Court ruling ends the legal fight over Duke Energy’s last round of multiyear rate cases. 

Duke Energy is again seeking rate increases for both Duke Energy Carolinas and Duke Energy Progress. Those cases are being heard by a five-member commission that now has a GOP-appointed majority following passage of a 2024 law that gave one of the governor’s remaining three picks to the Republican-led State Treasurer’s Office.

The 10.95% ROE Duke Energy is seeking for both utilities is over a full percentage point higher than the 9.8% return approved for Duke Energy Progress in 2023, and higher than the 10.1% return approved for Duke Energy Carolinas after the commission’s membership changed.

Once again, the North Carolina Attorney General’s office is opposing the proposed rate hikes. In its recent initial filing, it called for a substantially lower ROE for both utilities — 7.4% — which it says would save North Carolina families nearly $1.4 billion over the next two years. Stein also said he opposes the increase.

Public witness hearings for the rate cases wrapped up this month, though the NCUC is still accepting written comments. Expert witness hearings for the Duke Energy Carolinas case begin on July 7, and those for Duke Energy Progress begin on Aug. 11.