Court Opinion

ID: 9348818
Source: CourtListenerOpinion
Date Created: 2022-12-20 14:17:25.263139+00
Date Added: 2024-06-11T16:43:53.407436
License: Public Domain

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.
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            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.”
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     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)
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     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
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       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
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       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.
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       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.”
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                    $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
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       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.

              8While 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.
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       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)).
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¶ 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
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       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.”).
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¶ 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-
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       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
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       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
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       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
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       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
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       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
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       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.”
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       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
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                                         Opinion of the Court

       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.
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       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
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       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
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                                          Opinion of the Court

       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).
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       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.