Progress Energy execs grilled over price breaks for industrial customers

jmurawski@newsobserver.comMarch 18, 2013 

— Last year’s merger between Progress Energy and Duke Energy came back to haunt Progress on Monday as critic after critic grilled company executives on sweetheart deals designed to spare large utility customers a rate increase.

Progress, which promised its industrial customers price breaks worth millions of dollars in exchange for supporting its $32 billion merger with Duke, faced stinging criticism for those deals during the first day of rate hearings before the N.C. Utilities Commission.

The Raleigh utility is seeking its first base rate hike in a quarter century, but much of the discussion Monday was about the secret deals. If approved by the Utilities Commission, the requested discounts for industrial customers would come at the expense of other customers who would have to make up the difference.

The deals were never meant to be public because Duke and Progress considered them to contain “trade secrets.” But the N.C. Utilities Commission, in response to a request from media outlets and Durham advocacy group NC WARN, unsealed the files last year, erasing any tactical advantage Progress would have gained from their secrecy.

On Monday, lawyers for commercial businesses, the U.S. Department of Defense, the N.C. League of Municipalities and the N.C. Public Staff consumer protection agency took turns challenging the logic of unilateral price breaks for nearly 4,000 industrial customers. Many said their clients are likewise very large and important employers and also deserve a pass on any rate increase.

“You’re asking this commission to let ratepayers pay for it, but you’re not willing to put your own money behind it,” lawyer Alan Jenkins told Duke and Progress executives who spent three hours on the witness stand.

Jenkins represents a slew of businesses that would not benefit from the price break: Harris Teeter, Food Lion, Wal-Mart, Best Buy, J.C. Penney, Macy’s and others.

“Do you gentlemen think it’s fair for the Food Lion to subsidize a rate discount to the bakery across the street?” Jenkins asked. “Do you care more about the bakery across the street than the bakery within the Food Lion?”

The price breaks would result in a 0.4 percent rate decrease for industrial customers in the first year, and a 0.5 percent rate increase in subsequent years.

Meanwhile, Progress’ residential customers in North Carolina would see a 7.3 percent increase with the industrial price breaks approved, or about $7.88 a month for a household that uses 1,000 kilowatt hours of electricity. If the Utilities Commission rejects the industrial discounts, the residential increase would be 6.5 percent, or $6.93 a month.

The deals were defended Monday by two of Duke’s top executives – Lloyd Yates, executive vice president for regulated utilities, and Paul Newton, president of Duke Energy North Carolina. The officials described the industrial privileges as good social policy that would create jobs and elevate low-income workers into the middle class.

Occasional laughter

“What we’re doing here is attempting to retain jobs,” Newton told the commission. “I’m reminded of the proverb, ‘Don’t fail to do for one what you can’t do for all.’ ”

Yates and Newton’s responses at times produced laughter in the packed hearing room when the executives dodged questions or pleaded ignorance on technical matters.

Yates and Newton explained that any industrial customer could qualify for the price break – as long as the industrial company said it wasn’t planning layoffs.

But under questioning on the stand, the two executives revealed that layoffs would not be a disqualifying factor after all.

The reason: Progress has no mechanism in place to monitor whether the industrial customers are keeping their word or whether they’re cutting staff. Newton said he expected news of layoffs to get back to utility officials eventually, but he could not assure it.

“So you think you may come by that information,” Commissioner William Thomas Culpepper III questioned the utility officials.

The utility executives next revealed that if an industrial customer laid off workers, that company could simply reapply for the Progress discount rate. The industrial customer would simply have to assure – again – that it wasn’t planning more layoffs.

“Is there any limit to how many times a customer could do that?” an incredulous Commissioner Culpepper asked the utility executives seated on the witness stand.

Newton said Progress would be willing to discuss limiting customers, if that’s what it took to salvage the deals, to one grace layoff.

“We don’t want to smother the program with administrative burdens,” Newton explained on the stand. “Our bias is trying to make it accessible to our customers.”

The Progress Energy rate hearings continue Tuesday and could last all week. The commission is expected to issue a ruling this summer.

Murawski: 919-829-8932

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