N.C. Utilities Commission orders Duke Energy to cut its rates

N.C. Utilities Commission orders Duke Energy to cut its rates

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Duke Energy

Davin Eldridge – Staff Writer

A persistent mix of high temperatures and humidity produced back-to-back storms has hit the region hard in recent weeks. While thousands of homes throughout the state were hit hardest—after numerous utility shortages and road blockages abounded the Carolinas—finally, it appears there may be a cure for the summertime blues.

The North Carolina Utilities Commission (NCUC) issued an order on Friday that rejected Duke Energy Carolinas request to raise customers’ rates. Instead, the utilities giant was ordered to cut its rates—a rare occurrence, as Duke Energy has not been denied some measure of the rate hikes it has requested over the years. Its last request came before the state regulator in 2013.

Municipal governments throughout the mountains were especially on edge in anticipation of the decision.

“During, the budget process the Town of Franklin anticipated a rate increase and therefore budgeted a five percent utilities increase in each line item that reflects utilities. Street lights, water and sewer pump stations, facilities, etc.,” said Town Manager Summer Woodard.

It still remains unclear how customer bills will be affected by the announcement. Duke is expected to now submit a plan to the NCUC for how the rates will be impacted.

Duke must refund customers for four years of fees—$60 million annually of state excess deferred income taxes. The company had initially requested a rate increase of approximately $611 million in annual revenues, which increased to $700 million during the case. One of the primary drivers for the order to reduce rates is the passage of the Federal Tax Cuts and Jobs Act, which reduced the corporate income tax rate from 35% to 21%.

Duke and the Public Staff of the NCUC filed a settlement on Feb. 28, 2018, that resolved some, but not all, of the issues in the case. In the settlement, Duke agreed to an overall rate of return of 7.35%, which included a rate of return on common equity of 9.9% applied to a capital structure with 52% members’ equity.

The decision approves the return and capital structure that were agreed to by the NCUC and Duke, finding these to be “just and reasonable.” In Duke’s last general rate case order issued Sept. 24, 2013, the Commission approved a 10.2% rate of return on equity applied to a capital structure with 53 percent members’ equity.

The NCUC announced the day of the decision that it also imposed a $70 million management penalty against Duke in the form of a rate reduction, viewing the way the company handled its dumping of coal ash as unscrupulous. Commission documents affirm Duke “placed its consumers at risk of inadequate or unreasonably expensive service.”

In addition, the Commission found that Duke “admits to pervasive, system-wide shortcomings such as improper communication among those responsible for oversight of coal ash management.”

In essence, the penalty will be paid for by the company and not by its customers. The commission’s order also denies Duke’s request for the recovery in this rate case of its ongoing coal ash remediation costs. Instead, Duke is authorized to record these costs in a deferral account until its next general rate case, at which point the costs will be carefully scrutinized to determine the extent to which recovery from customers is appropriate.

Duke requested to recover $52 million a year for 12 years for canceling its Lee Nuclear Station project in Cherokee, S.C. The company asked to earn a return on the unrecovered balance of these costs. The commission found Duke’s development efforts in Cherokee to be “reasonable and prudent,” along with its decision to cancel the project. While the NCUC order allows Duke to recover its Lee Nuclear Station costs from customers, the commission denied the company’s request to earn a return on the project costs.

The commission also denied Duke’s request for special rate-making treatment to recover the company’s projected Power Forward Carolinas grid modernization program costs. Duke had requested to establish a cost-tracking rider (initially set at $35 million annually) to recover Power Forward spending or, alternatively, to allow deferral accounting of these costs. The Commission found that Duke “failed to show that exceptional circumstances exist to justify the establishment of the Grid Rider for recovery of its Power Forward costs.”

The order states that, with the limited exception of federally-mandated reliability standards, Duke “has complete control over the proposed spending, the rate of spending, and the timing of spending on Power Forward programs; it also has full control over its test year and the timing and frequency of when its applications for a general rate increase are filed. … Furthermore, there is no evidence in the record that without the Grid Rider Duke would not be able to remain a strong, financially viable company.”

Duke had requested to increase the basic customer charge for residential customers from $11.80 to $17.79. Instead, the Commission set this monthly charge at $14.00 for residential customers. This increase will be offset by decreases in the per kilowatt-hour charges for residential customers. In the order, the Commission endorsed Duke’s commitment to mitigate the impact of its rate request on low-income customers via shareholder-funded contributions to the Helping Home Fund program and the Share the Warmth energy assistance fund.

The Commission’s decision followed a 12-day-long hearing in which expert witness testimony was presented by many parties to the proceeding. In addition, the Commission conducted three hearings for public witness testimony that were held throughout Duke’s service area and at which 75 public witnesses testified.

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