When the North Carolina Utilities Commission orders a public utility to pay for an audit of itself, does the Commission have to follow the state's purchasing and consultant-contract procedures to pick the auditor?
Plain-English summary
Robert Bennink of the North Carolina Utilities Commission asked the AG whether the Commission could engage an auditor to investigate a public utility without first running the engagement through the state's general purchasing rules (Article 3 of Chapter 143) or consultant-services rules (Article 3C of Chapter 143).
Senior Deputy AG Reginald Watkins and Assistant AG Teresa White concluded that neither chapter applied in the specific circumstance the Commission described, because the audit was funded by the utility and ordered by the Commission rather than purchased by the state.
N.C.G.S. § 62-37(b) gives the Utilities Commission two paths for funding an audit of a public utility. Path one is to ask the Governor and Council of State to pay for the audit out of the State Contingency and Emergency Fund. If the Commission picks path one, state funds are spent, so Article 3's competitive bidding rules apply. Path two, which the Commission planned to use here, is for the Commission to issue an order requiring the utility itself to pay for the audit. Under path two, no state funds are involved; the utility pays the auditor directly after invoices have been reviewed by the Commission.
The AG addressed each potential procurement statute and explained why none applied:
Article 3 of Chapter 143 (general purchasing). Article 3 requires competitive bidding for "contracts for the purchase of supplies, materials, equipment, and contractual services" by state agencies (G.S. § 143-52). Without an expenditure of state funds to purchase contractual services, Article 3 has nothing to operate on. 1 N.C.A.C. 5B.0301 mirrors that limitation. So Article 3 did not require competitive bidding for an audit funded by the utility.
Article 3C of Chapter 143 (consultant services). Article 3C governs contracts to obtain services of a consultant (G.S. § 143-64.20(b)). The Commission was issuing an order, not entering into a contract. Quasi-judicial bodies acting through orders fall outside the contractual framework. Article 3C therefore did not apply.
The G.S. § 62-15(h) expert-witness provision. This statute authorizes the Commission's executive director to hire expert witnesses to assist the public staff (subject to State Budget Officer approval). The AG noted that the auditor here would assist the Commission rather than the public staff, so § 62-15(h) did not control either.
The AG offered the Commission practical guidance: even though Chapter 143 did not formally apply, the Commission could contact the purchaser for the Department of Commerce for any internal procedures and the Division of Purchase and Contract for assistance.
Currency note
This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The intersection of state procurement law and regulatory-body order procedures has continued to evolve. Anyone evaluating a current Utilities Commission audit engagement should consult current G.S. § 62-37, current Chapter 143 procurement rules, and any recent administrative-law guidance before relying on this analysis.
Background and statutory framework
The two-path audit funding structure. G.S. § 62-37(b) was drafted to handle the budget reality of utility regulation. State funds for audits are limited. By giving the Commission the option to order the utility itself to fund an audit, the legislature allowed regulatory investigation without dependence on general-fund appropriations. Path two also reduces the political pressure on the Commission to skip audits that would be useful but cannot fit into the state budget.
Article 3 vs Article 3C of Chapter 143. Article 3 is the general state purchasing statute requiring competitive bidding for state purchases over thresholds. Article 3C is the consultant services statute requiring justification, gubernatorial approval, and Department of Administration rule compliance for state consultant contracts. The 2001 opinion turned on whether either applied when the state itself is not the paying party.
The quasi-judicial order theory. The Utilities Commission, despite being an administrative body, has quasi-judicial functions: it conducts adversarial hearings, makes factual findings, issues orders binding on parties. The AG used this characterization to put the audit-procurement question outside the contractual framework of Article 3C. The Commission's order to the utility was an exercise of regulatory authority, not a contracting decision.
Why the expert-witness provision did not apply. § 62-15(h) is structured around the "public staff" of the Utilities Commission, a separate group from the Commission itself with its own statutory functions in utility regulation. An expert hired to assist the Commission (rather than the public staff) does not fit § 62-15(h)'s structure.
The practical implication. A Commission deciding which auditor to engage when the utility was paying could simply select an auditor based on professional judgment. There was no requirement to issue an RFP, hold a competitive bidding process, or get gubernatorial approval. The Commission did still have to ensure that the engagement was reasonable and not abusive (auditor selection that drained a utility could be challenged on regulatory-fairness grounds), but procurement law did not impose specific procedures.
Common questions
Q: Could a utility challenge the Commission's auditor selection?
A: The opinion did not address that. A utility ordered to pay for an audit could plausibly raise concerns about auditor independence, conflict of interest, or excessive cost through standard administrative-law challenges. But the procurement-law route was closed because Articles 3 and 3C did not apply.
Q: What if the Commission used a mix of state funds and utility funds?
A: The opinion did not address that scenario. A partially state-funded audit might trigger Article 3 for the state-funded portion. The cleanest path was either all-state-funded (with Chapter 143 requirements) or all-utility-funded (without).
Q: Did the Commission have to invoice review or pay the auditor directly?
A: Under the Commission's described approach, the utility paid the auditor directly after the Commission reviewed the invoices. The Commission did not handle the money. This arrangement reinforced the conclusion that no state funds were spent, so Article 3 did not apply.
Q: Why was Division of Purchase and Contract guidance available even though Chapter 143 did not apply?
A: The Division has expertise in contractual services and can offer non-binding guidance. The Commission could seek its assistance without triggering Chapter 143's formal requirements. The AG suggested this as a practical resource, not a legal mandate.
Citations
Statutes:
- N.C.G.S. § 62-15(h) (Utilities Commission expert witnesses for public staff)
- N.C.G.S. § 62-37(b) (Utilities Commission audit authority, two-path funding)
- N.C.G.S. § 143-52 (competitive bidding for state purchases)
- N.C.G.S. § 143-64.20(b) (Article 3C definition of consultant contract)
- N.C.G.S. Article 3 of Chapter 143 (Purchases and Contracts)
- N.C.G.S. Article 3C of Chapter 143 (Consultant Services)
- 1 N.C.A.C. 5B.0301 (procurement administrative rule)
Source
Original opinion text
Re: Advisory Opinion N.C.G.S. § 62-37(b); Exemption of Utilities Commission from Articles 3 and 3C of Chapter 143 for Certain Contracts
Dear Mr. Bennink:
We have received your letter of September 11, 2001, and offer the following response.
You have requested the assistance of this office in resolving an issue concerning the Commission's contracting with a firm to conduct an audit pursuant to N.C.G.S. § 62-37(b). Your specific question was whether or not the Commission may contract with the auditing firm without following the procedures outlined in either Articles 3 or 3C of Chapter 143. If the Commission is not required to follow these procedures, you ask whether any other procedures or approvals must be obtained prior to contracting with an auditing firm.
Pursuant to G.S. § 62-37(b), the Commission has one of two options when conducting audits of public utilities. The first option allows the Commission to request the Governor and Council of State to pay for the audit out of the State's Contingency and Emergency fund. If this option is chosen by the Commission, the purchasing provisions of Chapter 143 of the General Statutes would apply as there would be an expenditure of State funds. The second option allows the Commission to issue an order requiring an auditor to be hired at the public utility's expense. It is our understanding that the Commission intends to use this second option in this instance and that the public utility will make the payments directly to the auditing firm after the invoices are reviewed by the Commission. Neither Article 3 (Purchases and Contracts) of Chapter 143 nor the rule promulgated thereunder, 1 N.C.A.C. 5B.0301, applies in this case because there is no expenditure of State funds to purchase contractual services. See G.S. § 143-52 (requires competitive bids only for "contracts for the purchase of supplies" etc.) We have also reviewed Article 3C (Consultant Services) of Chapter 143 for its application in this instance. As noted above the Commission, as a quasi-judicial body, intends to order an audit to be undertaken by an auditing firm at the expense of the public utility. Since the Commission is acting in its quasi-judicial capacity, through the issuance of an order, and not through its contracting powers, the Commission need not comply with Article 3C. That Article applies to a "contract to obtain services of a consultant," G.S. § 143-64.20(b), not to orders issued by quasi-judicial bodies.
G.S. § 62-15(h) referenced in your inquiry, which reads in part, "… the executive director is authorized to employ, subject to approval by the State Budget Officer, expert witnesses … to assist the public staff …", does not appear to apply in this circumstance. It does not apply because the auditor to be hired will be assisting the Commission rather than the public staff. We are aware of no other approvals which might apply in this instance. We would suggest that you contact the purchaser for the Department of Commerce for any internal procedures which might exist. In addition, we are certain that the contractual services team within the Division of Purchase and Contract would be glad to provide the Commission assistance in this process.
We hope that this advisory opinion will be useful to you. Please let us know if you have additional questions concerning this matter.
Very truly yours,
Reginald L. Watkins
Senior Deputy Attorney General
Teresa L. White
Assistant Attorney General
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