RALEIGH Duke Energy's North Carolina president, Brett Carter, defended his company's proposed 7.2 percent rate increase Tuesday as he was questioned about electricity sales to power-hungry data centers and Duke's aid to low-income customers.

Carter began the testimony of up to 14 Duke witnesses before the N.C. Utilities Commission. If approved, the rate increase affecting Duke's 1.8 million customers in the state would take effect in February.

Duke's experts faced a platoon of lawyers who questioned aspects of the case ranging from the size of investor profit margins to how the utility maintains power line rights of way.

Attorneys for the city of Durham and three advocacy groups questioned Carter about Duke's power sales to Google, Facebook and other data centers in its western North Carolina service territory. Critics contend that the data centers get low electric rates that are subsidized by higher rates residential customers pay.

Duke argues that the centers help make up for a 21 percent loss in industrial sales over the lost 20 years. Carter said the companies were attracted by Duke's low rates - the discounts for up to four years that the utility offers new or expanding industries - and Duke's ability to provide reliable service.

"It is something we're proud of and offsets the costs our customers would otherwise have to bear," Carter testified.

Duke said it needs new revenue to repay the $4.8 billion it has spent on transmission system upgrades, pollution controls and new power plants to replace those it will retire.

"I note that no one has filed testimony to challenge the prudency of any capital expenditures to be included in base rates," Carter testified.

Duke last increased its rates in 2009; the Utilities Commission reduced Duke's rates in 2007. Duke expects to spend an additional $4 billion on its plants over the next two years and plans to file for another rate increase next year.

Attorneys for commercial customers and the state's attorney general homed in on the 10.5 percent return on equity, or allowed profit for investors, that Duke agreed to in a settlement with the Utility Commission's Public Staff. The staff advocates for consumers.

That number is key because it has a strong influence on customer rates. Adjusting it downward - Duke had sought an 11.5 percent return - saved customers more than $100 million. Some customer groups say it should be lower still.

"In my view, 10.5 percent is at the very low end of what I would call a fair return," said Duke witness Robert Hevert, an energy consultant. A return of that level is needed to help maintain credit quality and attract investor money, Duke said.

Carolina Utility Customers Association, which represents manufacturers, said Tuesday that it will not fight the settlement Duke reached with the Public Staff. Duke said it was in discussions with other parties to the case.

An attorney representing the N.C. Justice Center and the N.C. Housing Coalition, as well as some utility commissioners, probed the one-time $11 million in shareholder money Duke says it will contribute to help low-income customers.

Carter said Duke derived the amount by calculating the households within its service area that live in poverty by federal standards: 12.3 percent. It then calculated the amount needed to offset the approximately $7 a month more those families would pay in a year.

Carter acknowledged that, according to Duke's surveys, low-income customers live in older, poorly insulated homes. They also more often live in apartments or small homes, he added, keeping their typical electricity use within the range of all residential customers. Low-income customers are also more likely to take advantage of energy-efficiency offerings, he said.

Asked whether Duke considered exempting low-income customers from a rate increase, Carter said the utility considered the idea. The N.C. Justice Center and others have suggested the commission adopt lower rate structures for struggling customers.

"That was a conversation that we had," Carter said, but added, "the administration of providing that would be outside the purview of what we could do."

On other topics, a Duke witness said Tuesday that the company would develop a "clear, comprehensive, consistent and publicly-available policy" on controlling trees that intrude into its power line rights of way. Tree trimming helps prevent line outages but is a frequent bone of contention with customers.

Duke also defended its decision to drop an experiment to build commercial-scale wind turbines in North Carolina's Pamlico Sound, saying escalating costs forced the move. Duke has agreed to reduce the portion of costs it will recover from customers from $3.7 million to about $1.4 million.

The Public Staff settled with Duke last week on the overall 7.2 percent rate increase. The commission must approve that agreement. Duke initially sought an increase of more than 15 percent.

With the 7.2 percent increase, Duke would have the lowest rates among investor-owned utilities in 16 southeastern states, Carter said.

"We did not get what we wanted, but I'm sure the Public Staff would say the same thing," Carter said. Witnesses will testify through Thursday.