Case Name: STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PIEDMONT NATURAL GAS COMPANY, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-9, Sub 152; STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-5, Sub 116; STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and NORTH CAROLINA NATURAL GAS CORPORATION v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-21, Sub 147
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1978-04-17
Citations: 294 N.C. 598
Docket Number: No. 60
Parties: STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PIEDMONT NATURAL GAS COMPANY, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-9, Sub 152 STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-5, Sub 116 STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and NORTH CAROLINA NATURAL GAS CORPORATION v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-21, Sub 147
Judges: Justices BRANCH and EXUM join in this dissent.
Reporter: North Carolina Reports
Volume: 294
Pages: 598–622

Head Matter:
STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PIEDMONT NATURAL GAS COMPANY, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-9, Sub 152 STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC. v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-5, Sub 116 STATE OF NORTH CAROLINA ex rel. UTILITIES COMMISSION and NORTH CAROLINA NATURAL GAS CORPORATION v. RUFUS L. EDMISTEN, ATTORNEY GENERAL Docket No. G-21, Sub 147
No. 60
(Filed 17 April 1978)
1. Utilities Commission § 9— no appeal from Commission rule — res judicata inapplicable
Although no appeal was taken from orders of the Utilities Commission promulgating a rule establishing procedures by which natural gas companies could apply for rate adjustments to recover costs and account for revenues associated with gas exploration programs, the Attorney General was not prohibited by the principle of res judicata from challenging the validity of that rule in an appeal from an order approving surcharges pursuant to the rule, since rule making activities of the Commission are an exercise of the delegated legislative authority of the Commission and are not governed by the principle of res judicata, and they are reviewable by an appellate court in later appeals of closely related matters.
2. Gas § 1; Utilities Commission § 6— natural gas — rate increase for exploration costs — validity
The Utilities Commission acted within its authority to compel adequate and efficient utility service to the citizens of this State in establishing a rule permitting natural gas companies to adjust their rates to recover excess costs of approved gas exploration programs where the Commission found that, without additional gas supplies, the gas utilities would be unable to render adequate service to their customers, that exploration programs were the most feasible means for obtaining additional supplies, and that the utilities were unable, through traditional methods of financing, to fund sufficient exploration projects to obtain these supplies.
3. Gas § 1; Utilities Commission § 6— costs of gas exploration — operating expenses
The Utilities Commission did not err in ordering that excess costs of approved gas exploration programs be included as operating expenses of natural gas utilities in determining natural gas rates.
4. Gas § 1; Utilities Commission § 6— rate increases for gas exploration costs — failure to declare hearings as general rate case
The Utilities Commission did not err in failing to declare proceedings in which natural gas rate increases for exploration costs were approved to be general rate cases when exceptions to the Commission’s orders were heard pursuant to G.S. 62-90(c), since the scope of such hearings is limited by the statute to the exceptions on which the particular appeal of a final order or decision is based, and the Commission is without authority to declare such hearings to be a general rate case.
5. Gas § 1; Utilities Commission § 6— rate increases for gas exploration — absence of hearing
The Utilities Commission did not err in allowing natural gas utilities to increase their rates to recover excess exploration costs without a hearing since the Commission had authority under G.S. 62-134(a) to allow requested rate changes to go into effect for good cause shown, a Commission rule permitted the allowance of an exploration rate increase upon a finding that the increase would not raise the utility’s rate of return above the level most recently approved for it in a general rate case, and such finding by the Commission in each case constituted a finding of good cause. Furthermore, the Attorney General was not prejudiced by the Commission’s action allowing the increase in rates to go into effect without a hearing since the Commission may later order a refund pursuant to G.S. 62-132.
6. Gas § 1; Utilities Commission § 6— rate increase for gas exploration — freedom of contract
Even if a Utilities Commission rule permitting natural gas utilities to increase rates to recover excess costs of approved gas exploration programs constituted forced investments in risk capital by the public and thus violated the ratepayers’ freedom of contract, the rule was not unconstitutional since the severe adverse economic effects sought to be avoided by approval and funding of the gas exploration programs outweighed the infringement of the freedom to contract, if any, arising from the rate increases allowed by the rule.
7. Gas § 1.1; Utilities Commission § 6— rate increase for gas exploration — equal protection
A Utilities Commission rule permitting natural gas companies to increase rates to recover excess costs of approved gas exploration programs did not violate the Equal Protection Clauses of the North Carolina and United States Constitutions because no attempt was made to determine which customers would benefit from the programs or were responsible for the gas shortage, since it was within the authority of the Commission to determine that all North Carolina gas ratepayers would benefit from increased supplies of natural gas, both through assured availability and improvement in the State’s economy; nor does the rule violate equal protection on the ground that present ratepayers provide the funds and future ratepayers might be unjustly enriched, since the rule requires that funds received from rate increases for exploration expenses be segregated on each utility’s books and that the beneficial interest in any gas discovered or profits generated through exploration activities be preserved for customers paying such rate increases.
Justice Lake dissenting.
Justices Branch and Exum join in the dissenting opinion.
THIS matter came before us on petition for discretionary review of the decision of the Court of Appeals, 32 N.C. App. 787, 236 S.E. 2d 734 (1977), (Brock, C.J., concurred in by Parker and Arnold, JJ., reported under Rule 30(e)), affirming orders of the North Carolina Utilities Commission. This case was docketed and argued during Fall Term 1977 as No. 44.
On 17 January 1975, Piedmont Natural Gas Company filed an application with the Utilities Commission seeking authority to increase its rates by a surcharge on all rate schedules, the proceeds of which were to be used to fund an exploration program to discover new sources of natural gas independent of Piedmont’s principal pipeline supplier, Transcontinental Gas Pipe Line Corporation (Transco). In response to this application, the Utilities Commission, by order of 17 February 1975, established Docket No. G-100, Sub 22, for the purpose of conducting a rule making investigation into the feasibility of increasing the supplies of natural gas to North Carolina. This order also provided that all five North Carolina intrastate natural gas distributing utility companies, as well as the Attorney General, were to be parties to these proceedings. Similar applications for exploration and drilling surcharges were filed by the other four natural gas distributing companies in March, 1975 and notice of the proposed surcharge was given to each of the customers of the five utilities.
Hearings were conducted May 13-15, 1975, at which extensive testimony and exhibits were received in evidence concerning the proposed exploration surcharge, the probability of securing additional natural gas supplies for North Carolina consumers, alter native avenues for securing natural gas supplies, alternative methods of financing the proposed exploration programs, and the consequences to industrial, commercial and residential gas consumers of North Carolina if additional gas supplies were not obtained. On 26 June 1975, the Commission issued an order in which it adopted Commission Rule Rl-17(h). This order granted no specific increase in rates; rather, it established by rule certain procedures for participation by the utilities in exploration and drilling programs and for making applications for rate adjustments to recover costs and account for revenues associated with such programs.
During August of 1975, the Commission issued orders approving three exploration and drilling ventures. On 11 December 1975, the Commission provided in a further order that only 75°/o of the financing of participation in exploration projects was to come from customer funds, with the remaining 25% to be obtained from stockholder monies. No appeal appears to have been taken from any of these orders.
In November and December of 1975, three of the five North Carolina natural gas utilities filed for rate increases, pursuant to Rule Rl-17(h), to recover excess costs of the approved exploration ventures. The Commission approved these tracking rate increases in January, 1976, whereupon the Attorney General gave timely notice of appeal and filed exceptions to the approval orders. Upon motion of the applicants, a hearing on the Attorney General’s exceptions was held before the Commission on 16 March 1976. On 8 April 1976, the Commission issued supplemental orders approving the tracking increases and affirming its earlier rate increase orders.
The three rate dockets were consolidated for purposes of appeal and, as noted earlier, the orders of the Utilities Commission were affirmed by the Court of Appeals.
Additional facts relevant to the decision are set out in the opinion.
Attorney General Rufus L. Edmisten, by Special Deputy Attorney General Robert P. Gruber, and Assistant Attorney General Jesse C. Brake for Intervenor-Appellant.
Commission Attorney Edward B. Hipp and Associate Commission Attorney Antoinette R. Wike for Appellee, North Carolina Utilities Commission.
Brooks, Pierce, McLendon, Humphrey & Leonard, by Jerry W. Amos and James T. Williams, Jr., for Piedmont Natural Gas Company, Inc., appellee.
Boyce, Mitchell, Bums & Smith, by F. Kent Bums and James M. Day for Public Service Company of North Carolina, Inc., appellee.
McCoy, Weaver, Wiggins, Cleveland & Raper, by Donald W. McCoy for North Carolina Natural Gas Corporation, appellee.

Opinion:
COPELAND, Justice.
The appellees initially contend that, because no appeal was taken from the Commission order establishing Rule Rl-17(h), the Attorney General is bound by the principles of res judicata and may not now challenge the validity of that rule. For reasons which follow, we have determined that this contention is not well taken; thus, we have considered the Attorney General's arguments concerning the authority of the Commission to permit utilities to recover excess costs of exploration ventures through a tracking rate. It is our conclusion that these actions were within the power of the Commission; therefore, the decision of the Court of Appeals must be affirmed.
We first examine the appellees' contention that the Attorney General's failure to appeal the Commission order promulgating Rule Rl-17(h) should foreclose any review of the lawfulness of the procedure approved in that order. We have earlier held that, "Only specific questions actually heard and finally determined by the Commission in its judicial character are res judicata, and then only as to the parties to the hearing." Utilities Commission v. Area Development, Inc., 257 N.C. 560, 570, 126 S.E. 2d 325, 333 (1962) (emphasis added). It is argued that the actions of the Commission here were adjudicatory because G.S. 62-60 provides that, "For the purpose of conducting hearings, making decisions and is suing orders, and in formal investigations where a record is made of testimony under oath, the Commission shall be deemed to exercise functions judicial in nature and shall have all the powers and jurisdiction of a court of general jurisdiction as to all subjects over which the Commission has or may hereafter be given jurisdiction by law."
G.S. 62-23, however, states that, "In proceedings in which the Commission is exercising functions judicial in nature, it shall act in a judicial capacity as provided in G.S. 62-60. The Commission shall separate its administrative or executive functions, its rule making functions, and its functions judicial in nature to such extent as it deems practical and advisable in the public interest." The proceeding which led to the issuance of Rule Rl-17(h) was denominated by the Commission at the outset to be a rule making investigation. Indeed, the effect of the order was the promulgation of a rule of general application to all natural gas utilities subject to the jurisdiction of the Commission. The rate making activities of the Commission are a legislative function. Utilities Commission v. General Telephone Company, 281 N.C. 318, 189 S.E. 2d 705 (1972). Rule making is likewise an exercise of the delegated legislative authority of the Commission, under G.S. 62-30 and G.S. 62-31, to supervise and control the public utilities of this State and to make reasonable rules and regulations to accomplish that end. Actions of an administrative agency which involve the exercise of a legislative rather than a judicial function are not res judicata. 73 C.J.S., Public Utilities, § 59, pp. 1138-1139. Exercises of the Commission's rule making power, therefore, are not governed by the principles of res judicata and are reviewable by this court in later appeals of closely related matters. See also, 2 K. Davis, Administrative Law Treatise, § 18.08 (1958).
The Attorney General argues that, in approving these rate surcharges to fund gas exploration and drilling ventures, the Utilities Commission exceeded its statutory authority by permitting the utility companies to obtain forced investment capital from their ratepayers under the guise of recovering operating expenses. It is his assertion that the costs of these programs properly should have been borne by financing out of retained earnings or other methods and recouped through the rate base in a general rate making proceeding.
This contention in substance attacks the validity of Rule Rl-17(h), in which the Commission established procedures for participation by natural gas utilities in exploration and drilling programs and for applications for rate changes to recover costs and account for revenues associated with such programs. The rule directs the formation of a committee composed of representatives from the gas utilities, the Commission, and the utilities' wholesale municipal customers. This committee's function is to select exploration projects for presentation to the Commission for approval. Following such approval, the projects may be implemented by the utilities.
The rule further provides that:
"(6) On or before June 1 of each year, each natural gas utility shall file with this Commission a statement of all reasonable costs incurred and revenues received from Commission-approved exploration programs during the six months period ended the preceding March 31. On or before December 1 of each year, each natural gas utility shall file with this Commission a similar statement for the six months period ended the preceding September 30."
A utility may recover the costs of its Commission-approved projects for the previous six months reporting period by filing for an increase in its rates through a tracking charge. Such increases are limited, however, to the amount by which reasonable costs of the programs exceed revenues received from them. In the event revenues received should exceed reasonable costs, the utility must file to adjust its rates downward by an amount sufficient to amortize these excess revenues over the following six months period.
The Commission stated in its order issuing this rule, as well as in the rule itself, that, under the existing circumstances, exploration and development costs of new gas supply sources were ordinary and reasonable operating expenses of public utility gas distribution companies.
The Attorney General asserts that this rule contemplates a procedure which, in substance, merely collects risk capital from consumers and thereby shifts the enterprise risks of gas exploration from willing investors over to a captive consuming public. He strongly argues that this violates the basic tenets of free enterprise and assigns to the operating expense element of the rate making formula in G.S. 62-183 a function which it was not intended to bear, that of attraction of capital. We have earlier noted in a different context, however, that because a public utility is a legally regulated monopoly, "[M]any of the basic principles of the Free Enterprise System, which govern the operations of and the charges by industrial and commercial corporations and those of the corner grocery store, have no application to the regulation of the services or charges of a utility company." Utilities Commission v. General Telephone Company, supra, at 335, 189 S.E. 2d, at 716-717.
At the time of the promulgation of Rule Rl-17(h), it was the declared policy of the State of North Carolina in G.S. 62-2 of the Public Utilities Act to, among other things, ". . . promote adequate, economical and efficient utility services to all of the citizens and residents of the State." Since the issuance of this rule, and prior to the approval of the rate increases challenged here, G.S. 62-2 was amended to recognize that the availability of adequate and reliable supplies of electricity and natural gas are a matter of State public policy. G.S. 62431(b) requires every public utility to render adequate, efficient and reasonable service. In addition, under G.S. 62-32 and G.S. 62-42, the Utilities Commission is given the power and the duty to compel utility companies to render adequate service and to set reasonable rates for such service. Utilities Commission v. Morgan, 277 N.C. 255, 177 S.E. 2d 405 (1970), aff'd on rehearing, 278 N.C. 235, 179 S.E. 2d 419 (1971).
Following hearings on the proposed rule making, the Commission found as fact that: (1) an emergency gas shortage existed in North Carolina; (2) unless North Carolina gas utilities were able to obtain additional gas supplies, they would be unable to render adequate and efficient service to their customers; (3) without additional gas supplies, many industries in North Carolina would be unable to continue operations, resulting in layoffs and consequent losses of payrolls, production, sales and profits, which would produce adverse effects on the economy of the State; (4) unless additional gas supplies were found for North Carolina gas utilities, substantial increases in rates to gas customers in this State would be necessary in order to meet increases imposed by the utilities' sole pipeline supplier, as well as to cover the spreading of fixed costs over a smaller sales volume; (5) the most feasible method for increasing gas supplies to the State at lowest cost was through programs of exploration and development by each North Carolina gas utility; (6) the gas utilities were unable to fund exploration and drilling programs of sufficient size to obtain additional gas supplies for the State through traditional methods of debt and equity financing and retained earnings; and (7) prudent expenditures of funds for exploration purposes during periods of severe and deepening curtailment of pipeline supplies of gas were ordinary and reasonable operating expenses of intrastate natural gas distribution companies. Since the evidence on which these findings of fact were based was not brought forward in the record on appeal, they are deemed supported by competent, material and substantial evidence and are binding on this Court. Utilities Commission v. Woodstock Electric Membership Corporation, 276 N.C. 108, 171 S.E. 2d 406 (1970).
In view of these findings of fact, we hold that the Commission, in ordering that the reasonable costs of approved exploration projects were to be recoverable through tracking rate increases, acted within its acknowledged duty and authority to compel adequate and efficient utility service to the citizens of this State. It is clear from the Commission's findings that, without additional gas supplies, the gas utilities would be unable to render adequate service to their customers, that exploration programs were the most feasible means for obtaining these additional supplies, and that the utilities were unable, through traditional methods of financing, to fund sufficient exploration projects to obtain these supplies. Under these circumstances, the Commission was well within its authority in approving the exploration concept and including the excess costs in the price of gas to customers, since these expenses were incurred for their benefit and the excess profits, under the Commission's order, were preserved for the customers paying the rate increase.
Nonetheless, the Attorney General argues that the tracking rate was impermissible since the Commission erred in ordering that these costs were to be included as operating expenses. When a narrow construction of the operating expense element of a regulatory act would frustrate the purposes of the act, however, the term should be liberally interpreted and applied. Bourland v. City of Fort Smith, 190 Ark. 289, 78 S.W. 2d 383 (1935). Moreover, the purpose of the Public Utilities Act is to put the policies enumerated in G.S. 62-2 into effect. Utilities Commission v. Morgan, supra. As was indicated earlier, one of the primary policies set out in G.S. 62-2 is to promote adequate utility services to all the citizens of the State and, more recently, to promote the availability of reliable supplies of natural gas. A restrictive interpretation here of the operating expense element of the rate making formula would severely limit the ability of the Commission to act in the best interest of the consuming public in emergency situations. We decline to interpret the meaning of operating expense so narrowly. According to the Commission's findings, if no new supply source were obtained, the utilities would be unable to supply adequate service to their customers and severe repercussions to the economy of the State would ensue. In such a situation, the costs of these projects, handled as outlined above, must be said to be operating expenses if practical effect is to be given the Act. See, Bourland v. City of Fort Smith, supra.
It is also worthy of note that, two days before the order issuing Rule Rl-17(h) was handed down, the legislature enacted an amendment to G.S. 105-116 exempting exploration and drilling surcharges collected by North Carolina gas utilities from the franchise tax provided for in that section. While our holding is not based on this amendment, we do view it as indicative of the intended scope of the Commission's legislative authority in this area.
We have determined, therefore, that the acts of the Commission were within its statutory authority and the Attorney General's assignments of error to the contrary are overruled.
The Attorney General next assigns as error the failure of the Commission to declare the proceedings in which these rate increases for exploration costs were approved to be general rate cases under G.S. 62-133. Under Rule Rl-17(h), the Commission may permit exploration tracking rate increases to become effective if, after reviewing the data required to be filed with a gas utility's semi-annual exploration program reports, it concludes that the requested rate increases will not result in increasing the applicant company's rate of return over the rate of return most recently approved for that company in a general rate case. These rate increases, as noted earlier, were initially approved by the Commission in orders issued in January, 1976. The Attorney General filed notice of appeal and exceptions to each of these three orders. In response to motions filed by the applicant companies pursuant to G.S. 62-90(c), the Commission set hearings on these exceptions for 16 March 1976. At these hearings the Commission, upon inquiry by the Attorney General, declared that the proceedings were not general rate cases. On 8 April 1976, supplemental orders were issued by the Commission affirming its earlier orders approving the rate increases.
G.S. 62-137 provides that:
"In setting a hearing on rates upon its own motion, upon complaint, or upon application of a public utility, the Commission shall declare the scope of the hearing by determining whether it is to be a general rate case, under G.S. 62-133, or whether it is to be a case confined to the reasonableness of a specific single rate, a small part of the rate structure, or some classification of users involving questions which do not require a determination of the entire rate structure and overall rate return."
Relying primarily on his characterization of the exploration costs as capital accumulation, the Attorney General asserts that the Commission erred in declaring that these proceedings were not general rate cases. He also contends that he was prejudiced here in that if the Commission had declared these proceedings to be general rate cases, he would have been entitled to the special procedure for hearings in general rate cases outlined in G.S. 62-81.
We have determined, however, that the Commission acted within its authority in finding expenditures for exploration and drilling programs to be operating expenses. Moreover, G.S. 62-90(c), pursuant to which these hearings were held, states, "The Commission may on motion of any party to the proceeding or on its own motion set the exceptions to the final order upon which such appeal is based for further hearings before the Commission." G.S. 62-137, therefore, is inapplicable to proceedings conducted under G.S. 62-90(c), since their scope is limited by statute to the exceptions on which the particular appeal of a final order or decision is based, leaving the Commission without authority to declare the hearings a general rate case or complaint proceeding. The Commission may consider only the grounds upon which the applicant asserts that the Commission's order or decision is unlawful, unjust, unreasonable or unwarranted, including alleged errors committed by the Commission. G.S. 62-90(a). Should the Commission determine that any of the exceptions are well-taken, it may set the case for further hearing under the authority in G.S. 62-80 to rescind, alter or amend its decisions or orders. See Utilities Commission and Nantahala Power and Light Co. v. Edmisten, 291 N.C. 575, 232 S.E. 2d 177 (1977). At that time a declaration of the scope of the proceedings would be proper if, as here, the prior order had been issued without hearing, see, Utilities Commission and Carolina Power and Light Co. v. Edmisten, 291 N.C. 327, 230 S.E. 2d 651 (1976) (outlining three methods by which rate increases may become effective without hearing), since this would be the first opportunity for a finding by the Commission, in setting hearings, as to whether the case involved questions requiring a determination of the entire rate structure and overall rate of return.
It is also maintained that the Commission's failure to conduct a hearing prior to approval and implementation of the rate increases invalidates the original rate orders. We have recently held, however, that, in addition to other methods, the Commission may by an affirmative order under G.S. 62-134(a) allow requested rate changes to go into effect, either conditionally or unconditionally, for good cause shown. Utilities Commission and Carolina Power and Light Co. v. Edmisten, supra.
In Rule Rl-17(h), the Commission provided that it could allow an exploration tracking rate increase to go into effect on a finding that the requested increase would not raise the utility's rate of return above the level most recently approved for it in a general rate case. The Commission made such findings in these intitial orders; therefore, good cause was shown to allow the rate increases to become effective.
In addition, rates which are merely permitted or allowed to go into effect without hearing are to be distinguished from those which are established after full hearing, findings, conclusions and formal order because the latter are deemed just and reasonable, " '. . . and any rate charged by any public utility different from those so established shall be deemed unjust and unreasonable.' G.S. 62-132. Rates which the Commission simply allow to go into effect by any of the three methods described are subject to being challenged by interested parties or the Commission itself and after a 'hearing thereon, if the Commission shall find the rates or charges collected to be other than the rates established by the Commission, and to be unjust, unreasonable, discriminatory or preferential, the Commission may" order refund pursuant to the provisions of G.S. 62-132." Id., at 352, 230 S.E. 2d, at 666. Such refund may be ordered even absent a utility's agreement to provide one. Id. The Attorney General, consequently, was in no way prejudiced by the action of the Commission in approving these rate increases without hearing and may not secure reversal on such grounds. G.S. 62-94(c). This assignment of error is without merit and overruled.
In his next assignment of error, the Attorney General argues that the actions of the Commission here violated Due Process and resulted in a denial of Equal Protection of the laws to the ratepaying public under the North Carolina and United States Constitutions. He initially contends that the orders here violated substantive Due Process under our Law of the Land Clause, N.C. Const, art. 1 § 19, and the federal Due Process Clause, U.S. Const, amend. XIV § 1, in that they were an attempt to collect risk capital from the public to finance new private enterprises.
It has been clearly stated, however, that substantive Due Process will no longer be used in federal constitutional law to review the wisdom of state economic regulations. Ferguson v. Skrupa, 372 U.S. 726, 10 L.Ed. 2d 93, 83 S.Ct. 1028 (1963). Still, decisions of the United States Supreme Court construing the federal Due Process Clause, while persuasive, are not binding upon this Court in interpreting the North Carolina Constitution's Law of the Land Clause. Horton v. Gulledge, 277 N.C. 353, 177 S.E. 2d 885 (1970).
Stimulation of the economy is an essential public and governmental purpose and the manner in which this purpose is to be accomplished is, within constitutional limits, exclusively a legislative decision. Mitchell v. North Carolina Industrial Development Financing Authority, 273 N.C. 137, 159 S.E. 2d 745 (1968). The authority to set rates to be charged by a public utility for its services rests in the Legislature and is delegated by it to the Utilities Commission under sufficient rules and standards to guide the Commission in exercising this power. Utilities Commission v. State, 239 N.C. 333, 80 S.E. 2d 133 (1954).
The Attorney General relies on our decision in Bulova Watch Company v. Brand Distributors of North Wilkesboro, Inc., 285 N.C. 467, 206 S.E. 2d 141 (1974), to support his contention that the rate increases here were forced investments and thus violative of the ratepayers' freedom of contract. In that case we acknowledged that we may not declare a statute unconstitutional merely because we deem it economically unwise; however, we stated that where an individual's freedom of contract is infringed by a statute, it must be declared invalid unless the law's benefit to the public outweighs the infringement. We further determined there that protection of producers of trademarked articles against price-cutting or unfair use of the trademark were insufficient benefits to offset the substantial infringement the non-signer clause of the North Carolina Fair Trade Act imposed.
We hold here, however, that the severe adverse economic effects sought to be avoided by approval and funding of these exploration projects present a sufficient public concern to outweigh the infringement, if any there be, arising from the rate increases ordered by the Commission. This argument, therefore, is without merit.
Regarding his Equal Protection claim, the Attorney General contends that the rates approved here were determined arbitrarily and capriciously, in that no attempt was made to determine which customers would benefit from the programs or were responsible for the gas shortage and, further, that discrimination might arise between present ratepayers who were providing the funds and future ratepayers who might be unjustly enriched. We have earlier noted, however, that rate making is not an exact process. Utilities Commission v. Morgan, 278 N.C. 235, 179 S.E. 2d 419 (1971). Moreover, state economic regulatory classifications need bear only a rational relationship to a legitimate governmental objective in order to withstand an equal protection challenge. New Orleans v. Dukes, 427 U.S. 297, 49 L.Ed. 2d 511, 96 S.Ct. 2513 (1976); Duggins v. North Carolina State Board of Certified Public Accountant Examiners, 294 N.C. 120, 240 S.E. 2d 406 (1978).
It was certainly within the authority of the Commission to determine that all North Carolina gas ratepayers would benefit from increased supplies of natural gas, both through assured availability and improvement in the State's economy. While finer distinctions arguably could have been drawn in terms of breaking down the rate schedules so as to match likely rewards from the programs to specific classes of ratepayers, a State is not required to solve all aspects of an economic dilemma at once and may proceed one step at a time to overcome such problems. Williamson v. Lee Optical, 348 U.S. 483, 99 L.Ed. 563, 75 S.Ct. 461 (1955). In addition, the Commission provided in subsection (7) of Rule Rl-17(h) that funds received from rate increases for exploration expenses are to be kept segregated on the utilities' books and the beneficial interest in any gas discovered or profits generated through exploration activities funded by such increases are to be preserved for customers paying such increases. Thus, any discrimination between present and future ratepayers would appear to have been avoided, since any rewards accruing from these increases must be preserved for the customers actually supplying the funds.
The Attorney General also maintains that procedural Due Process was denied the ratepaying public here in that allegedly insufficient notice was provided the public before these rate increases were put into effect. As we noted earlier, however, these rate increases were not rates made, fixed or established by the Commission, since no rate hearing was held prior to their being put into effect; thus, any interested party may challenge these rates and, even absent a utility's undertaking to do so, obtain a refund should the Commission find the increases to be erroneous. Utilities Commission and Carolina Power and Light Co. v. Edmisten, supra. Any Due Process rights which interested parties may have are fully protected by this procedure. Id. This assignment of error, therefore, is overruled in its entirety.
We have reviewed the Attorney General's remaining assignments of error and find them to be without merit; thus, they are overruled. For the reasons given, we have determined that the actions of the Utilities Commission here were within its statutory authority, free of procedural error and violative of no constitutional provisions; therefore, the decision of the Court of Appeals affirming the orders of the Commission is
Affirmed.