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A North Carolina appellate panel has ruled that state regulators improperly allowed Duke Energy to recover more than $17 million in fuel expenses outside the statutory one-year review window, concluding that the governing law limits recovery to costs incurred during a defined 12-month test period.

In a pair of unpublished decisions, the North Carolina Court of Appeals reversed orders from the North Carolina Utilities Commission that had approved fuel rider adjustments for Duke Energy Progress LLC and Duke Energy Carolinas LLC. Those adjustments permitted the utilities to recoup fuel-related under-recoveries from 2022 through proceedings conducted in 2024.

At the center of the dispute is North Carolina General Statute Section 62-133.2, which governs how electric utilities account for fluctuations in fuel costs. Under the state’s regulatory framework, customer rates include a base rate and a separate fuel rider component. The fuel rider is recalculated annually using data from a historical 12-month “test period.” If actual fuel costs differ from projections, the gap is reconciled through what regulators call an experience modification factor, or EMF.

The commission had allowed Duke Energy to include fuel cost under-recoveries from 2022 in its 2024 fuel rider calculation, effectively reaching back beyond the most recent test period. The Public Staff — the state agency tasked with representing consumers before the commission — challenged that decision, arguing that the statute limits true-ups to costs incurred within the designated 12-month window.

The appellate panel agreed with the Public Staff’s interpretation. Writing for the court, Judge John Arrowood said the plain language of the statute restricts recovery to fuel costs incurred “during the test period.” According to the court, that phrase modifies when the costs must have been incurred — not when the under- or over-recovery was later identified.

The judges relied in part on established principles of statutory construction, including the doctrine of the last antecedent, to conclude that the law ties recoverable costs directly to the specified test period. In practical terms, that meant Duke Energy’s 2024 fuel rider proceeding could address discrepancies from 2023, but not from 2022.

The utilities had argued that the broader purpose of the statute — to smooth out over- and under-recoveries over time — supported a more flexible reading. They also pointed to legislative history and past regulatory practice. But the court rejected those arguments, emphasizing that policy considerations cannot override clear statutory language.

The panel further noted that, over decades of implementation and multiple amendments to the statute, lawmakers had not authorized regulators to reach beyond the one-year period when calculating fuel rider adjustments. While there had been at least one prior exception in commission practice, the court described it as an isolated instance that did not outweigh the statute’s consistent interpretation.

The decision also addressed a 2025 legislative amendment that removed the phrase “during the test period” from the statute and replaced it with language allowing recovery of fuel costs incurred “by the electric public utility.” The utilities contended that this change clarified existing law. The appellate court disagreed, characterizing the amendment as a substantive alteration rather than a clarification.

Because the amendment changed the statutory language, the court concluded it could not be applied retroactively to validate the commission’s earlier orders. At the same time, the panel declined to order refunds to customers. The judges reasoned that under the revised statute, utilities may now be able to incorporate older under-recoveries into future fuel rider proceedings. As a result, ordering a refund could simply lead to the same costs being recouped later.

The case was sent back to the North Carolina Utilities Commission for further action consistent with the appellate ruling.

The decision underscores the importance of strict adherence to statutory timelines in utility rate cases, even as lawmakers retain the authority to revise the framework going forward.