Progress Energy rates could leap

Raleigh electricity provider asks state to OK a 16.2 percent increase, starting in December, to cover rising operating costs

Progress Energy asked state regulators Friday to approve a whopper of a rate increase.

The Raleigh electric utility wants to raise rates by 16.2 percent to pay for the soaring cost of fuel needed to operate power plants. It is the company's largest request for fuel costs in at least a quarter-century. The company is being hit by the same runup in worldwide energy costs that is driving up the cost of gasoline, diesel and natural gas.

The Progress Energy rate increase would raise the typical monthly residential bill from about $97 to nearly $113 for a household that uses 1,000 kilowatt hours of electricity.

In the past month, other utilities around the country have asked for similar rate increases to pay for coal, gas and oil. If approved by the N.C. Utilities Commission, Progress Energy's increase would go into effect Dec. 1, at the beginning of the winter heating season.

The effect on consumers would be compounded: In addition to paying more at the gasoline pump and on their utility bills, customers are paying more to cover the cost of fuel used to produce and transport groceries and other goods.

Most of the attention has been focused on nearly $4-a-gallon gasoline. But soon, households will see the effects of a 16 percent increase approved for PSNC Natural Gas, the Triangle gas utility. Piedmont Natural Gas raised rates 18 percent this month.

"We're dealing with a terrible burden in store for ratepayers," said Robert Gruber, the state's chief consumer advocate in utility-rate cases. "People are dealing with this during a recession, or what may be a recession."

It's almost inevitable that Progress will be required to spread out the rate increase over several years to ease "rate shock," Gruber said.

"We need to at least mitigate it by phasing it in," he said.

One reason the utility's request is so high, Gruber said, is because Progress is including under-collections from previous years that keep getting deferred to cushion the economic blow to customers.

As allowed by state law, Progress is including future projections for fuel costs. Also included are startup and development costs for energy-efficiency programs and alternative energy contracts required by a new state law, as well as limestone and other materials used to clean up power plants.

Most of the rate increase is caused by rising coal prices, which are being pushed up by growing worldwide energy demand, particularly in China. Progress depends on coal to generate about half of its electricity in the Carolinas.

Even though Progress has contracted for all of its coal through 2009, the utility's coal costs last year went from $73.09 per ton to $94.64 per ton of delivered coal, which includes rail transport costs. The market price for Appalachian coal today is about $126 a ton, and that doesn't include $30 per ton for freight rail delivery, Progress spokesman Mike Hughes said.

Gruber's agency, the Public Staff, will audit Progress Energy's fuel contracts and power plant operations to make sure the company complied with its legal obligation to get the best deals for customers.

Utilities are not permitted profit on fuel costs, and state regulators could cut the company's request if it doesn't meet prudency tests.

In recent years, the company has asked for 9 percent increases, but state regulators either reduced the amount or spread it out over several years.