Duke Energy's bid to compete against other power companies for some of the largest and most lucrative electricity customers has been set back by the N.C. Utilities Commission.
Duke, the state's biggest electric utility, had signed a 10-year contract last year to sell electricity to the city of Orangeburg, S.C., which lies outside of Duke's regulated service area. The South Carolina city has been buying power from S.C. Electric & Gas since 1919 and is that utility's single biggest customer.
The N.C. Utilities Commission said late Monday that Charlotte-based Duke can sell wholesale power to Orangeburg, a city with a population of 92,000. But under one condition: Duke will not be allowed to maintain cheap rates for Orangeburg, as the company had hoped, by raising costs for households, businesses and other retail customers Duke serves in North Carolina.
That means Duke would have to eat the cost if it had to meet its obligations to Orangeburg by using less efficient power plants, more expensive fuels or emergency power purchases. Of its 1.8 million customers in this state, Duke has more than 160,000 customers in Chapel Hill, Durham and other parts of the western Triangle.
“Obviously it wasn't the ruling that we were hoping for,” said Brett Carter, president of Duke Energy Carolinas. “For us it's maybe a step back, but it's something we'll bounce back from.”
Had Duke prevailed in this case, the extra cost for Duke's North Carolina customers would have been measured in mere pennies. But some worried that Orangeburg would be only the first such contract.
Duke's request was fought by the Public Staff, this state's consumer advocacy arm in utility rate cases. It warned that if Duke signed enough deals to sell retail power to cities outside its service area, Duke would have to build new power plants.
That would ultimately lead to higher rates, but Orangeburg could move on to another utility if it didn't want to pay more. Duke would be stuck with unneeded power plants, and its retail customers would be stuck with higher rates.
Duke's request was supported by the city of Fayetteville, which also has its own municipal utility serving 77,000 customer accounts. Fayetteville is the single largest wholesale customer for Progress Energy, but that contract runs out in 2012. If the utilities commission had ruled in Duke's favor, it would have opened the door for Fayetteville and other cities to shop around for a better deal, too.
Progress opposed Duke's request, as did a number of others, including Wal-Mart and the state attorney general.
Orangeburg is one of several dozen towns and cities in the Carolinas that have their own electric utility and their own distribution systems. Such cities typically don't operate their own power plants, however. Instead, they buy power from a major utility that serves their area.
Duke's contract with Orangeburg is scheduled to begin May 1. It's not clear if Duke and Orangeburg will scrap the pending $500 million deal, which would have saved Orangeburg $10 million a year. The deal has a clause making it contingent upon approval from the N.C. Utilities Commission.
Carter said Duke will need to discuss the matter with Orangeburg officials. Orangeburg's public utilities manager, Fred Boatwright, said he is reviewing the 56-page ruling.
“It comes down to what kind of financial risk are we willing to take with this,” Carter said.
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