The N.C. Utilities Commission this week approved a special discount on electric bills for industrial power users, a price break Duke Energy has been seeking for favored customers for at least four years.
The corporate subsidy, known as a “job retention tariff,” is designed to keep employers from laying off workers or moving out of state by offering industries a financial incentive to stay in North Carolina. For a utility company, the loss of an industrial customer could be equivalent to disconnecting several large neighborhoods and shopping areas.
“A saved job is as important, if not more important, than a new job,” said Adam Olls, a Raleigh lawyer who represents industrial clients before the Utilities Commission.
The concept was opposed by some large power users – including the Kroger grocery store chain and the U.S. Department of Defense – amid concerns that it would be a freebie to one customer class, subsidized by everyone else.
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But the Utilities Commission agreed that the industrial power discount would benefit the entire state. North Carolina has lost more than 200,000 manufacturing jobs in the last decade, and in the past 15 years, Duke Energy Progress’ industrial power sales fell 28 percent, while Duke Energy Carolinas’ fell 33 percent.
A number of states offer special discounts, up to 25 percent off, for industrial power users on the premise that retaining those industries in-state is essential to a healthy economy, said James McLawhorn, who heads the electric division of the Public Staff, the state agency that advocates for ratepayers. The Public Staff supported the industrial rate discount, but only when it would prevent loss of jobs, along with other restrictions.
One sticking point remains: how a company would qualify. The Utilities Commission said that applicants won’t have to prove economic distress to qualify for the discount, reasoning that such a disclosure would tip off competitors and could further harm the local company.
McLawhorn said that companies seeking the discount should be required to demonstrate a need to prevent abuse of the program.
“We wanted people who truly needed the discount to get it and not have a lot of free riders on it,” McLawhorn said. “Some states don’t require a lot, based on what we found. The company may just assert they’re having difficulties, and they get the tariff.”
The qualifications won’t be spelled out until Duke proposes a discounted rate and related details, possibly next year. Such a proposal would need to be approved by the Utilities Commission, and would likely allow for the public to comment.
The program would incrementally increase rates for other utility customers if the utilities recover the subsidy from other customers, as is currently done with subsidies for solar farms and other renewables.
The Utilities Commission also said the discount would be temporary but could be renewed. If a company reduces jobs or power use below an agreed minimum, the discount would be canceled. The Public Staff will audit the program every year and ensure the discounted rates cover the costs of service as well as some of the utility company’s overall costs.
The state’s largest electric utility, Duke Energy, praised the commission’s decision, but spokesman Jeff Brooks said the company hasn’t decided whether it will offer the discount.
The industrial discount was devised when Charlotte-based Duke was seeking support for its merger with Raleigh-based Progress Energy. Industrial customers agreed not to fight the merger in exchange for a promise from Duke that it would seek a special discount for the industrial power users.
After the merger was approved in 2012, Duke Energy Carolinas and Duke Energy Progress did request an industrial discount rate, but the Utilities Commission rejected the Progress proposal, and Duke withdrew its request. The commission’s general guidelines, issued Tuesday, set the ground rules for any industrial discount Duke will propose.
Roy Cordato, vice president of research at the conservative John Locke Foundation, said that the program seems reasonable “on its face” but that “the devil is always in the details.” The Foundation staunchly opposes subsidies for renewables.
“It’s better to have (a company’s) revenue at a reduced rate than to not have it at all,” Cordato said. “You would definitely need safeguards for companies gaming the system to get lower utility rates. Otherwise, it actually could save ratepayers money.”
The concept was strongly condemned by some Duke customers.
“While one group of customers will benefit from subsidized rates, the subsidy-paying group will obviously be harmed,” Kroger wrote to the commission. “Rather than picking winners and losers among North Carolina’s customers, the commission should ... encourage the efficient use of utility resources.”
“A utility could not lawfully grant a discount only to red-haired customers and it likewise could not lawfully grant a discount only to customers simply classified as industrials,” a coalition of commercial customers wrote. “All aspects of the North Carolina economy are important and all jobs are needed.”