May 2, 2007

NC Power vs. KDH The grudge match

The Sentinel includes a brief story noting that the NC Utilities Commission (NCUC) will hearing a complaint by NC Power against the town of Kill Devil Hills today. The article hints at the long and expensive history of the dispute but avoids any mention of the complexity of the legal issues involved.
The issue has roots that go back to the early 1980's. NC Power (then called VEPCO) needed to install bigger power lines for the Outer Banks. In particular lines that served parts of Nags Head and extended across Oregon Inlet to Hatteras Island needed to be enlarged. The power company got involved in a dispute with Kill Devil Hills that the town eventually lost. The utility wanted a corridor along the sound and the Town didn't. The NC Utilities Commission sided with the power company. You can see the result as you drive along Bay Dr. in Kill Devil Hills. The tall transmission lines are not popular in Kill Devil Hills.
Jump ahead to 2003, NC Power is planning to construct an additional transmission line to augment the line built in the 1980's. They want to install the line along Rte 158 from Kitty Hawk, through Kill Devil Hills and into Nags Head where it will meet the existing line as it comes over from the sound (just south of the YMCA). Kitty Hawk seems amenable and Nags Head has no input because NC Power does not need any easements from NH, the line will run in easements granted by the state or existing easements from the Town.
Kill Devil Hills however does have both objections and some leverage. The KDH Board of Commissioners is not at all interested in seeing a second transmission line becoming a major feature of its visual landscape, especially when they already have one on the soundside. NC Power also needs an easement from KDH in order to access a substation located on the KDH west side. It quickly becomes apparent that the Town's price for the easement is too high for NC Power. The town proposes either that the new transmission lines be put underground or colocated with the existing lines on the sound. Further the town wants a plan to put distribution lines underground town wide. NC Power says no way. The message was: It's too expensive to go underground and we don't have enough right of way on the sound. Looks like a stand off until NC Power comes up with a plan that bypasses the KDH substation and stays entirely in state owned rights of way. This puts Kill Devil Hills in much the same boat as Nags Head - no leverage.
By this point the Kill Devil Hills board had already taken the bit in a big way. They hired consulting engineers to help them understand all the NC Power engineering claims and plans. They became increasingly convinced that underground lines or colocation were viable options even if they couldn't compel NC Power to go this route.
Let me digress for just a little and take about how utilities are regulated in North Carolina. Generally, uilities are regulated by the North Carolina Utilities Commission. The Commission's job is to make sure that the monopolies granted by the state to the utilities are not abused. That the companies operate in a manner that provides good service to the entire state and allows some return on investment (profit) for the company. It is a system that has been in place for many years and is used by many, if not all, other states. Municipalities can enter into franchise agreements with utilities to allow the utility general access to the Town's rights of way. The towns receive a franchise tax collected by the state each year in return for not having broad power to regulate utility operations. Town's have the power to regulate construction generally within their limits and the job to ensure the "health, safety and welfare" of their citizens. This duty takes the form of ordinances, most commonly zoning ordinances, with lay out what can be built where and what standards must be used. Generally towns have little say over what utilities do in within their limits except for control of town rights of way. A good recent example was the struggle between the beach towns and the new natural gas franchise. The towns wanted some guarantees about the appearance of utility facilities and some help with training for fire departments dealing with emergencies related to gas mains. The utility wanted franchise agreements from the towns but wouldn't budge on zoning issues etc. Eventually the towns simply caved in because they had no leverage. The Utility had the easements they needed from the state and just went ahead without any agreement with the towns. The towns were powerless to stop it.
This is the position KDH found themselves in last spring. However they were not ready to give in. They decided to try a different route to impact the power company plans. After a series of public hearings and meetings the Town adopted a zoning ordinance that established a single aboveground corridor for power lines. Citing the traditional zoning values the Town made the installation of overhead power lines a conditional use. In other words NC Power couldn't proceed without a permit from the Town. In passing the ordinance the Town wrote
...the Town confronts peculiar challenges with respect to the use of land. One such challenge is balancing the need to transmit electricity the entire length of the town against the recreational, historical and esthetic values of this barrier island community. The Kill Devil HIlls Board of Commissioners find that establishing a single corridor for all above ground electrical transmission lines within the Town accommodates these competing factors.

The ordinance goes on to site
  • Preserving senic views
  • Preventing the proliferation of unsighlty overhead transmission lines
  • Encouraging the co-location of overhead transmission lines
  • Protecting the environment,
  • Safeguarding property values and protecting public and private investments
  • Preserving and protecting the unique identity of the Town and the Town's economic base
  • Ensuring a clearly defined procedure for utilities to follow when locating and relocating overhead transmission lines.

NC Power's response was twofold, they filed suit in District Court seeking to strike down the oridinance or have the case decided solely by the NCUC and they petitioned the Utilities Commission for relief. NC Power ask the NCUC for 3 findings.
  1. A "Certificate of Environmental Compatiblity and Public Convenience and Necessity
  2. That the NCUC set aside the KDH zoning ordinance and
  3. The NCUC provide a method to NC Power's KDH customers for the costs of complying with the KDH zoning ordinance.

The power company cited a host of reasons for their request. They claimed that the ordinance interfered with their ability to provide "reliable service at reasonable rates, not just in Kill Devil Hills but elsewhere on the Outer Banks". Further they claimed the ordinance was an unlawful usurpation of the NCUC authority to control the utility and that the ordinance would "Impose on the Company and its customers unnecessary and excessive costs..."
Kill Devil Hills; lawyers answered the complaint saying the zoning ordinance was lawful and NC Powers claims were not valid. At this point the NCUC made its first finding in the case. It declined to provide NC Power with the certification the company had requested. They stated that a certification was not required for this size project because it was not large enough to meet statutory threshold for such certificates. Further they stated that NC Power wanted the certification fo use as evidence in the rest of their case against KDH and that the NCUC would decide that case on its legal merits without any findings about the proposed project. A very nice piece of footwork by the Commission.
This leaves the two parties with their basic arguments intact, KDH saying they passed a valid zoning ordinance and NC Power saying they overstepped their bounds. Both sides have filed extensive legal briefs and motions and provided sworn testimony . You can find all the filings at the NCUC website under docket number E-22 Sub 437 . Some of it actually makes interesting reading. Kill Devil Hills Mayor Ray Sturza offered testimony about the importance of the ordinance and the Town's consulting engineers point fingers at NC Power for not planning far enough ahead and not considering all their options. NC Power basically says hogwash, we did what we needed to do and you don't know what you are talking about.
I guess the big question is who is going to win? Usually, the utility has a huge leg up in battles like this. They are more familiar with the law and the Commission. The commission deals with engineering issues not zoning law and should tend to discount those issues. Finally state boards and commissions tend to guard their turf. KDH is competing with or at least impinging on their authority to regulate the power company and state boards usually don't stand for that type of competition.
KDH is not without its advantages as well. First and foremost the ordinance is very well crafted. It was drafted by the best municipal attorney in the county, Bobby Outten, no doubt with help from utility law specialists from the firm representing KDH before the Commission. The ordinance is comprehensive in intent, simple to understand and doesn't prevent the power company from installing additional overhead lines. All elements that are going to be necessary for the Town to prevail. The Town has at least 2 commission members who are very familiar with the Town in Bobby Owens and Bill Culpepper. I don't expect that either Owens or Culpepper will hear the case for just that reason nor do I think they would decide it favor of KDH unless that was the correct decision but those relationships help in dealing with staff and in general discussions about the course the town chose. NOTE: All this is speculation on my part based on my experience. I have no knowledge of any discussions between the Town and the Commission and I am confident that all parties would act ethically and in the state's best interest.
Perhaps the most interesting part of the case is NC Power's request to impose extra costs on their KDH customers if the ordinance is allowed to stand. You have to think that this is the last thing NC Power really wants to do. It would require substantial additional processing for bills, rate setting etc. It just isn't really practical. They have to ask for it both as a lever with the Town and to protect themselves in the event they lose. Expect the Commission to deny that request if they uphold the ordinance. All NC Power really wants is the ability to tell the rest of its customers the Commission made us raise your rates.
As tough as it is to predict a winner, its equally tough for me to pick a side. I like the look of the transmission lines in Nags Head. They are tall, almost out of sight when you are driving and they have done away with the clutter of the lower distribution lines. On the other hand, I respect the Town's right to zone their town the way they want and it doesn't seem too much to ask that NC Power pick one site or the other to run its transmission lines. Final answer, good luck Kill Devil Hills. Final prediction NC Power will prevail.

Links to documents at NCUC website


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