NC Supreme Court hears Duke Energy rate case

AG wants approved 7.2 percent rate increase thrown out

jmurawski@newsobserver.comNovember 13, 2012 

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Duke Energy CEO Jim Rogers

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  • Rogers makes Charlotte no promises Duke Energy CEO Jim Rogers is an avowed booster of Charlotte as a national energy hub. But on Tuesday, Rogers hinted that there is no guarantee that Charlotte will remain the 28,000-employee company’s headquarters forever. Charlotte’s fate rests in the hands of the N.C. Utilities Commission, Rogers suggested. Rogers issued his warning at a financial conference in Arizona attended by analysts, investors and utility executives. Duke expects to file for a rate increase in North Carolina in the coming months, with public hearings likely next summer. Progress, now a Duke subsidiary, has already filed for one. Analysts, worried that Duke won’t get the increase it wants from the commission, asked Rogers what he was doing to repair his relationship with regulators upset over Duke’s handling of its merger with Progress. “I believe this commission will do the right thing with respect to us,” Rogers said, referring to the rate cases. “If they do the wrong thing to us, we may not be headquartered in North Carolina in the future because that puts us in a weakened position. And that consequence could translate to a transaction that takes us out of the state.” Duke spokesman Tom Williams later emphasized that Rogers was not threatening to uproot Duke Energy if the commission holds down rates. Rather, Williams said, low rates would render Duke vulnerable. “If the company is weakened, it would be a takeover target,” Williams said. “When these things happen, sometimes company headquarters are at risk.”

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.

Murawski: 919-829-8932

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