Rapid Fire Remix: North Carolina Government Relations, Utilities, And Natural Disaster Recovery

Three Ward and Smith attorneys shared pitch-perfect insights on complex legal topics with crowd-moving implications, including the state budget and politics, utilities law, insurance readiness, and an overview of the national economy.

The rapid-fire session was featured in the firm's annual In-House Counsel Seminar. Attorneys took note of chart-topping issues with the potential to produce sweeping changes in the modern business scene.

Government Relations

Whitney Campbell Christensen, a government relations attorney who recently completed a term as President of the North Carolina Professional Lobbyists' Association, discussed key appropriations and legislative processes at play in the North Carolina General Assembly, bill-filing trends, and intra-party tension between the majority party in the State House and Senate.

Christensen explained that the North Carolina General Assembly operates on a two-year biennium schedule. The first year is the long session year, the main purpose of which is to enact a two-year comprehensive state budget.

"The long session is also open season for bill filing, meaning it's typically the least restrictive period," advised Christensen. "This makes it a stressful time for lawmakers and lobbyists, as many are rushing to get their legislation introduced while also reading through up to 80 bills filed each day by their colleagues."

Short session years are usually when adjustments are made to the state budget. "Over the 15 years I have been doing this, these adjustments have almost always been increases," noted Christensen. "This reflects the rapid revenue and population growth we have been experiencing in North Carolina."

The political dynamics in the North Carolina General Assembly show a supermajority in the Senate. "The Senate is precisely at the 60 percent threshold that is required to override a governor's veto," explained Christensen. "That is important because the leadership doesn't have to recruit any Democrat votes to override a veto."

In the House, Republicans are only one seat away from a supermajority. "They do have what the Speaker describes as a working supermajority there though, because House leadership has around three to five Democrats that they can depend on to vote with Republicans on a veto override," added Christensen.

Tension has been brewing between Republican leaders over the course of the last year. "The biggest disagreement is tax policy, and it reached a fever pitch this session," said Christensen.

Senate Republicans are in favor of continuing the statutory personal and corporate income tax cuts that were legislated in conjunction with the House a few years ago. House Republicans, along with Democrats from both chambers, feel the cuts should be paused while state revenue catches up.

"The reason is that the state's economist projected the government could not be funded at current levels if the cuts are allowed to proceed beyond 2027. He is nonpartisan and generally very reliable in his revenue projections, so his ideas have a lot of credibility," noted Christensen.

With ongoing disagreement over tax cuts, the leadership found it difficult to accurately forecast future revenue. "We've had years recently where there's no state budget, including this year," Christensen explained. "Both the House and Senate released proposals, but it was difficult to make progress in light of the tax policy disagreement."

Unlike the federal government, a lack of agreement does not trigger a shutdown. In the absence of a new budget agreement, the state government will simply continue to operate based on the 2023 state budget.

"This is the first time in modern history we've gone two consecutive years without a state budget, and it's obviously a unique situation to continue funding things at 2023 levels, when the state is growing so rapidly," said Christensen.

On a positive note, the House and Senate were able to reach two separate agreements in March and June on relief aid for those impacted by Hurricane Helene, totaling around $1.2 billion.

Although over 1,800 bills were introduced, only 97 new laws were enacted this year. Several mini budgets were enacted allowing for teacher and state employee raises, relief for Tropical Storm Chantal, and enrollment growth funding for the colleges and universities.

Regulatory reforms were passed and signed by the Governor in a show of bipartisanship. Iryna's Law, a significant criminal justice reform bill, was also enacted. It limits pretrial releases for violent offenders, requires additional mental health assessments, and directs studies on alternative execution methods.

A handful of bills that were vetoed by Governor Stein are currently awaiting veto override votes. "These could come up at any time, so stay tuned or reach out for more information," concluded Christensen.

Utilities Law

Peter Ledford, a North Carolina State Bar Board Certified Specialist in Utilities Law, delivered an electrifying presentation on the regulations that apply to utilities and how in-house attorneys can generate additional value for their organizations.

"The governmental body responsible for regulating investor-owned utilities is the North Carolina Utilities Commission. And considering they have power over essentials like electricity, water, natural gas and sewer, as well as household movers, buses and ferries, they're probably the most important agency you've never heard of," commented Ledford.

The Commission has jurisdiction over nearly 4,500 utilities, which have a total economic impact of approximately $14 billion each year. Established in 1891 as the Railroad Commission, it is based on the idea that a utility should be allowed to have a monopoly in a specific area in exchange for regulation.

"It wouldn't make sense to have two railroad lines operating right next to each other," noted Leford.

The purpose of the Commission is to ensure that consumers receive adequate service at reasonable rates and utilities investors earn a regulated return on their investments. It consists of five high-powered individuals tasked with regulating various utilities and hearing arguments from the Public Staff, which is a state agency of attorneys, accountants and engineers that represents residential ratepayers.

"For anyone else though, you'll need to retain an attorney to participate in the proceedings," explained Ledford. "Our team represents commercial clients, independent power producers and sometimes the utilities themselves, in proceedings before the Commission."

Understanding that electricity represents a significant portion of operating costs for most businesses, there is a strong financial incentive to become involved with Commission proceedings related to rates and regulations. Service quality is another motivator.

"We've helped clients whose assembly lines were shut down because of a power quality issue, resulting in millions of lost revenue," added Ledford.

Organizations interested in on-site power generation or the procurement of zero-carbon energy should also consider Ward and Smith for assistance negotiating contracts with utilities. "There may be a way for you to deliver significant value by helping your company find a lower rate or a higher level of service," said Ledford.

With major proceedings on the docket for the Commission next year, in-house attorneys should pay close attention to this segment of the law. Significantly, Duke Energy has filed requests for rate increases, seeking to merge two entities, and filing a proposal for how it will reach carbon neutrality by 2050. Dominion Energy has filed a15-year plan to meet power generation needs for Virginia and North Carolina.

Best Practices for Natural Disaster Recovery

Allen N. Trask III, who co-leads the firm's Insurance Counseling and Recovery practice, noted that in property loss events, attorneys are often relied upon to be the bridge between operations, contracts and insurance coverage. "Because of the nuances of these contracts and relationships, loss situations often end up in the laps of in-house attorneys," mentioned Trask.

Similar to a rotten pier shoring up a coastal home in Buxton, a reactive approach to insurance policy management can be catastrophic. "Natural disasters create a lot of panic and the only way to effectively handle them is to be proactive," said Trask.

Instead of being viewed as an off-the-shelf product, insurance requires a significant amount of thought, active management and strategy. "Our goal with this presentation is to better position everyone who has to deal with the impacts of these disasters. This year was relatively quiet except for Tropical Storm Chantal, but it's only a matter of time before we're facing another major storm," advised Trask.

Inaccurate property valuations can produce a variety of headaches. "When construction costs and market values are rapidly increasing, the true replacement cost quickly outpaces the coverage limit," said Trask. To be proactive, organizations should update property values annually to align with inflation and rising construction/replacement costs. The coverage structure, limits, sub-limits, deductibles, and coinsurance requirements should also be reviewed with the broker regularly.

Trask advised the room to maintain a full, updated copy of the insurance policies. "Reviewing the policy is critical...you can't just set it and forget it, or you will regret it," advised Trask, "so be proactive with your broker and make them do their job." It is vital to keep a digital copy of the full policy off-site. "Many clients just don't understand how hard it can be to get a copy of the policy when things start to go wrong," noted Trask.

A recommendation that also applies to residential customers is to document the condition and internal contents of a property through pictures and/or video. "This establishes a timeline and helps to serve as proof of your assets. Taking note of the performance of the business is also essential if you're arguing for business loss," explained Trask.

The risk of undervaluing a property is that the replacement costs can exceed the limit of coverage. "The carriers will actually penalize you if the coverage relative to the value of the item dips too low, because they don't want people undervaluing their property to chase a lower premium," added Trask.

The definition of terms within a policy can have substantial implications. Some policies cover negative impacts related to storm surges but not from floods, for example. "We all remember how awful it was when the victims of Hurricane Helene met with denials of their claims because they didn't have flood insurance," commented Trask.

Having a vendor readiness plan is paramount. Scrambling to find a vendor and/or contractor at the last minute brings trouble in the form of delays and low-quality work. "You don't want to be stuck with the lowest tier provider. Similarly, unorganized files can result in delays because it will move you down the priority list," explained Trask.

"The first 48 hours are critical and the outcome of these hours are decided long before a storm even happens," Trask said. "Forming relationships with vendors and having them ready to help when things go wrong is really important."

Master service agreements with priority response times, indemnity and insurance provisions, and pre-negotiated rate sheets are ideal. "Building relationships with restoration experts, mitigation and engineering vendors can safeguard the future of your business. You want to be first in line, not fiftieth," explained Trask.

Common sense often flies out the window when facing a disaster. With the idea that stress combined with urgency can result in poor decision making, it is important to remember to protect people and property, document everything, and notify insurance carriers as quickly as possible.

"Administering a major claim with an insurance company creates a storm of paperwork, akin to litigation itself," adds Trask. "Having a binder or a centralized folder on something like Dropbox that everyone can access is essential because it will simplify the process moving forward. You'll want to have proof of loss, emails, notes from phone calls, names...everything."

Doing so adds credibility and assists in the filing/negotiating of claims. "Insurance companies aren't evil but their financial interests are different from yours, so you need to advocate for yourself," notes Trask.

The Insurance Counseling and Recovery group at Ward and Smith is comprised of approximately 15 attorneys with a variety of professional backgrounds, all of whom are focused on the nuances of the insurance arena, from coverage terms to claims administration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.