Progress Energy Carolinas is asking state regulators for a rate increase that would boost the average household electricity bill of its North Carolina customers by nearly $180 a year.
The Raleigh-based utility’s request for higher rates, submitted Friday afternoon, immediately drew opposition from consumer advocacy and environmental groups.
“We have thousands of families whose power is disconnected in North Carolina every year” because they can’t pay their bills, said Al Ripley, director of consumer and housing affairs at the N.C. Justice Center. “We simply cannot afford to increase rates dramatically.”
Progress stated in its filing that it needs to pay for investments in cleaner energy and modernizing its power plants. Over the past 16 months, the company said, it has invested more than $1.3 billion to bring two gas-fueled plants online and it’s constructing a third in Wilmington. It’s also retiring a dozen coal-fired plants.
“We know it isn’t popular,” Progress spokesman Mike Hughes said. “It’s not something we wanted to do. We have put it off as long as we can.”
It’s the first rate increase Progress has sought in a quarter-century, although the utility’s customers haven’t been insulated from higher bills during that span. Fluctuations in fuel-related costs, which Progress can’t control, has added about $20 a month to the typical residential bill in the past decade.
Even if the rate increase request is approved, Progress maintains, its customers will still pay electric rates that are well below the national average.
The 14.2 percent increase in the base rate the utility is seeking for residential customers is higher than the increase it’s seeking for business and industrial customers. Progress is seeking rate increases of 9.9 percent to 11.6 percent for business customers, and 5.9 percent for industrial customers.
Hughes said that difference reflects the costs of serving the different types of customers. The industrial rates were set 25 years ago based on those customers accounting for 40 percent of electricity use. But with the decline of the state’s manufacturing sector, industry accounts for only 24 percent of electricity consumption today.
“That means the rates industrial customers pay are out of synch with other providers in the Southeast,” Hughes said. A lower rate increase for industry, he added, “supports businesses that create and sustain jobs.”
Today the average residential customer pays about $105 a month. If Progress gets what it wants, the average household would pay about $120. Overall, its annual revenue from residential, business and industrial customers would increase by about $359 million a year.
Jim Warren, director of N.C. Waste Awareness and Reduction Network, asked whether Progress can justify imposing a larger rate increase on consumers. His organization plans to pore over the utility’s filing to see whether it’s seeking to cover expenses that by law shouldn’t be borne by customers.
“We and a lot of other people, I am sure, are going to vigorously protest this,” Warren said. “There is a game going on. They ask for higher (rates) than they know they’ll have to settle for.”
Progress is requesting that the new rates go into effect in mid-2013. The Utilities Commission is expected to schedule public hearings on the utility’s request.
Progress was acquired by Charlotte-based Duke Energy in July but maintains that the blockbuster $32 billion deal, which created the nation’s largest utility, didn’t trigger the rate increase request.
“We started talking (publicly) about the need for a general rate case more than two years ago,” Hughes said.
The savings anticipated from the merger should enable the company to request smaller increases in the future than it otherwise would, Hughes said.
Progress seeks a return on equity – essentially, its maximum profit margin – of 11.25 percent, down from its current state-approved 12.75 percent return. The 12.75 percent is a legacy of the higher returns that utilities justified a quarter-century ago, when interest rates were higher.
A return of 11.25 percent would still be “pretty generous,” Ripley said. “Tell me where I can invest my money and get that kind of return.”
Earlier this year, Dominion North Carolina Power, which has 120,000 customers in the northeastern part of the state, asked for a 19 percent rate increase based on a return of up to 11.75 percent. But the state consumer advocacy agency known as the Public Staff has asked the Utilities Commission to cut the return to 9.37 percent, which would reduce the size of the rate increase to 7 percent.
Public Staff Executive Director Robert P. Gruber said it’s likely that a return in the vicinity of 9.4 percent would be about right for Progress as well.
“I expect we will be recommending the commission cut the increase significantly,” he said.
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