High court to hear appeal of Duke Energy rate hike

Cooper cites effect of rate hike on consumers hurt by struggling economy

bhenderson@charlotteobserver.comNovember 9, 2012 

The N.C. Supreme Court on Tuesday will hear Attorney General Roy Cooper’s claim that economic pain to customers wasn’t fully considered in Duke Energy Carolinas’ latest rate hike.

It’s an argument the N.C. Utilities Commission heard loudly before approving the 7.2 percent increase in January. Hundreds of customers, irate about higher power bills in a struggling economy, spoke at hearings or sent written comments.

Cooper is challenging a key factor in utility rates: Called the rate of return on equity, or ROE, it’s the profit margin utilities are allowed to earn on capital investments.

Duke asked for higher rates to cover $4.8 billion in costs for new power plants and pollution controls.

The Utilities Commission allowed Duke a 10.5 percent return after hearing from several rate experts. The attorney general says that’s too high, but he doesn’t say by how much.

The commission, Cooper’s argument goes, didn’t independently assess the slumping economy and effects on consumers before raising Duke’s rates.

Cooper said the commission should have to analyze effects on consumers when setting returns on equity. He said that could influence future rate cases, including the one Progress Energy Carolinas is now seeking and the request Duke Carolinas expects to file early next year.

“If the Utilities Commission is required to analyze specifically the impact on consumers when considering the profit margin, then I think you will see lower rates long-term,” he said. “Double-digit profit margins ought to be outlawed when many consumers are struggling to keep the lights on.”

The Supreme Court can reverse or modify the commission’s ROE decision if it determines that the decision wasn’t supported by substantial evidence. It has done so in past cases.

Duke and the utilities commission’s Public Staff, which advocates for consumers, say the commission clearly considered the economic sting of higher rates for Duke.

Duke had sought a 15.2 percent overall increase, including an 18.6 percent hike for residential customers. In an agreement with the Public Staff that was largely adopted by the commission, the utility settled for a 7.2 percent hike for all customer classes.

Typical residential bills went up $7 a month. Duke has 1.8 million North Carolina customers.

“The commission is very cognizant of the fact that many people continue to suffer from the effects of the recession and that a rate increase will be difficult for customers to absorb,” said the order approving higher rates.

The agreement with the Public Staff trimmed $51 million linked to Duke’s new Cliffside power plant, among other provisions. It also included an $11 million Duke shareholder-paid donation to programs for low-income customers.

“The commission is acutely aware of a consumer interest,” said Robert Gruber, the Public Staff’s executive director. Gruber said the commission tries to balance shareholder profits with customer costs in setting returns on equity.

In the rate hearing late last year, economic experts offered varying prescriptions for Duke’s return. A witness for Duke put it at 11.25 percent. The Public Staff’s expert recommended 9.25 percent. Manufacturing customers said 9.5 percent.

Cooper’s lawyers questioned those experts but put on no witness of their own.

“Far from being an afterthought, the commission received and considered vast quantities of evidence from actual consumers, who described in detail what a rate increase of any magnitude would mean to them,” Duke wrote in a response to Cooper’s appeal.

Duke said the analysis of “changing economic conditions” and their “impact upon consumers” that Cooper seeks does not appear in statutes spelling out how rates are to be set.

North Carolina’s 9.6 percent unemployment rate in September was fifth-highest in the country.

High utility costs punish retirees on fixed incomes, the advocacy group AARP says, sometimes threatening their ability to live on their own.

Duke’s rate is “unreasonable under current economic conditions and will significantly harm older and low-income rate-paying customers,” the group said in a legal brief in support of Cooper.

Henderson: 704-358-5051 Twitter: @bhender

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