The state Attorney General put on its public case Tuesday charging that a 7.2 percent rate increase approved for Duke Energy should be thrown out on the grounds that it’s causing a public hardship in the midst of a prolonged economic downturn.
The Attorney General’s office, arguing for the state’s residents, was at times scoffed by the legal team of Charlotte-based Duke. In arguments before the N.C. Supreme Court, which lasted about an hour, Duke lawyer Kiran Mehta dismissed the AG’s arguments as meritless.
The power company claims that the rate increase that the N.C. Utilities Commission approved in January was legally sound and necessary to fund the power company’s operations.
The case may not be decided for months, as the state’s highest court is not bound by a deadline. If the Supreme Court were to agree with the AG, the rate case could be sent back to the commission.
At least one justice made it clear that the jurists are reluctant to second-guess the commission, which has experience setting utility rates.
“How do we address the slippery slope of micromanaging the commission?” Justice Mark Martin asked. “We exhibit institutional deference on factual-type determinations.”
Senior Deputy Attorney General Kevin Anderson, who heads the AG’s Consumer Protection Division, told the seven justices, “Blind deference is not due to the commission.”
The typical household that buys power from Duke has been paying an extra $7 a month as a result of the rate increase. Duke has about 1.9 million customers in the state, including 180,000 in Durham, Chapel Hill and the western Triangle.
Duke’s ally in the case was the Public Staff, the state’s agency that represents customers in utility rate matters. The Public Staff typically opposes electric utilities on rate increases, but had negotiated a compromise with Duke, resulting in the rate increase the commission adopted.
Duke originally had sought a 15.2 percent overall rate increase in June 2011, but later agreed to a 7.2 percent increase.
Anderson alleged that the commission rubber-stamped the private deal between Duke and the Public Staff without sufficiently analyzing the harm it would do to the public. Supreme Court justices repeatedly asked what kind of “magic language” would be enough to satisfy the AG that the commission did its job.
The AG had minimal involvement in the rate case before the commission. The AG did not enter the case until about six weeks before public hearings started a year ago. The AG put on no testimony and no witnesses to challenge the negotiated settlement between Duke and the Public Staff.
Looming in the background of the AG’s challenge are additional rate increases in North Carolina. Duke has said it will file for another rate increase next year, while Progress Energy, a Duke subsidiary, also has a rate case pending. Duke’s rates and Progress’ rates are independent of each other.
The commission in January approved Duke’s rate increase as part of a 10.5 percent “return on equity,” or profit margin. Anderson said most businesses in hard times are earning smaller profits.
Mehta noted that Duke is not guaranteed a 10.5 percent profit margin, but only allowed to make that much if it manages its costs.
“It’s the commission, not the courts, that is authorized to determine what is the fair rate of return,” Mehta said.