Duke Energy begins defense of rate hike

Utility testifies at state hearing

bhenderson@charlotteobserver.comNovember 30, 2011 

— Duke Energy's North Carolina president, Brett Carter, defended his company's proposed 7.2 percent rate increase Tuesday as he was questioned about electricity sales to power-hungry data centers and Duke's aid to low-income customers.

Carter began the testimony of 14 Duke witnesses before the N.C. Utilities Commission. If approved, the rate increase affecting Duke's 1.8 million customers in the state - including about 170,000 in Durham, Chapel Hill and other parts of the western Triangle - would take effect in February. It will not affect customers of Raleigh-based Progress Energy, even though the two utilities are seeking to merge. The two utilities will operate independently, with separate rates, for years to come.

Attorneys for the city of Durham and three advocacy groups questioned Carter about Duke's power sales to Google, Facebook and other data centers in its Western North Carolina service territory. Critics contend that the data centers get low rates that are subsidized by higher rates for residential customers.

Duke argues that the centers help make up for a 21 percent loss in industrial sales over the past 20 years. Carter said the companies were attracted by Duke's low rates - the discounts for up to four years that the utility offers new or expanding industries - and Duke's ability to provide reliable service.

"It is something we're proud of and offsets the costs our customers would otherwise have to bear," Carter testified.

Duke said it needs new revenue to repay the $4.8 billion it has spent on transmission system upgrades, pollution controls and new power plants to replace those it will retire.

"I note that no one has filed testimony to challenge the prudency of any capital expenditures to be included in base rates," Carter testified.

Duke last increased its rates in 2009; the Utilities Commission reduced Duke's rates in 2007. Duke expects to spend an additional $4 billion on its plants over the next two years and plans to file for another rate increase next year.

Effect on poor

An attorney representing the N.C. Justice Center and the N.C. Housing Coalition, as well as some utility commissioners, probed the one-time $11 million in shareholder money Duke says it will contribute to help low-income customers.

Carter said Duke derived the amount by calculating the number of households within its service area that, by federal standards, live in poverty: 12.3 percent. It then calculated the amount needed to offset the approximately $7 a month more those families would pay in a year.

Carter acknowledged that, according to Duke's surveys, low-income customers live in older, poorly insulated homes. They also more often live in apartments or small homes, he added, keeping their typical electricity use within the range of all residential customers. Low-income customers are also more likely to take advantage of energy efficiency offerings, he said.

Asked whether Duke considered exempting low-income customers from a rate increase, Carter said the utility considered the idea. The N.C. Justice Center and others have suggested the commission adopt lower rate structures for struggling customers.

"That was a conversation that we had," Carter said, but "providing that would be outside the purview of what we could do."

The commission's Public Staff, which advocates for customers, settled its differences with Duke last week on an overall 7.2 percent rate hike. The commission must approve that agreement, which is less than half the 15 percent increase Duke initially sought.

With the 7.2 percent increase, Duke would have the lowest rates among investor-owned utilities in 16 southeastern states, Carter said.

"We did not get what we wanted, but I'm sure the Public Staff would say the same thing," Carter said.

Witnesses will testify through Thursday.

Henderson: 704-358-5051

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