With two state investigations of its merger with Progress Energy resolved, Duke Energy will refocus in 2013 on the business of running the nation’s largest electric utility.
Duke serves 3.2 million customers in North Carolina, its largest customer base of the six states in which it operates. Duke’s North Carolina president, Brett Carter, talked recently with Observer reporter Bruce Henderson about the year ahead. Their conversation has been edited for clarity and space.
Q: What are Duke’s priorities in North Carolina for 2013?
The biggest thing that we have already been talking about are rate cases. We filed the (overall 11 percent) Progress Energy Carolinas rate case in October, and Duke Energy Carolinas will file in February. Coming out of the (N.C. Utilities Commission) investigation settlement, just ensuring that we have the kind of relationship that we felt that we had before with the commission is going to be a big priority. We’ll be pushing hard to be as transparent as we can with the commission.
Q: Duke announced several executive changes this month. Were those all the changes the settlement requires?
Some of those changes were not mandated in the settlement agreement, but whenever you have an executive leaving one post and you’re displacing an executive from another post, that causes a domino effect. What we’re doing right now is stabilizing our operation. We’ve got the revenues under (executive vice president for regulated utilities) Lloyd Yates, the cost model under (chief operating officer for regulated utilities) Keith Trent and our nuclear operations under Dhiaa Jamil.
Q: Did the Charlotte workforce have a net gain or loss after the merger?
We had announced we were going to do some downsizing through our voluntary severance plan, so the numbers have gone down a bit. We are hiring in key locations – we’re staffing up in customer service, in nuclear operations, and we have quite a few postings available. And we’ve had lot of movement to Charlotte from Raleigh, the Midwest and even Florida. (Company officials say the Charlotte workforce is essentially unchanged at 4,100 employees, with 5,700 total in Mecklenburg County.)
Q: What size rate hike will Duke Energy Carolinas ask for in Florida?
I’ve stated publicly that it won’t be as large as the second one (Duke sought a 15 percent hike but was granted a 7 percent increase in January). We’re trying to refine all the numbers, but we are not there yet.
Q: How do you expect consumers to come out next year, factoring in the fuel savings Duke has guaranteed customers? (Duke promised to pass $650 million in fuel savings to Carolinas customers over five to six years after its merger with Progress Energy, or about $1 a month for residential customers. Duke added $25 million to that guarantee in the merger-probe settlement.)
The net is a tough thing to calculate, since I can’t even tell you what the rate increase will be on the Progress Energy Carolinas side yet. What I can say is that customers will be better off … the same (capital costs) would have been in those rate cases whether we had a merger or not. What you really have to look at is the guaranteed savings that started flowing in July after the merger against future rate cases. Either way, the customers are going to be $675 million better off with these fuel savings than they otherwise would have been.
Q: What about future rate cases?
We’re always dependent on the outcome of a rate case for us to determine the need for another rate case. On the Duke Energy Carolinas side, we would have modernized the fleet, we’ve retired a lot of old coal- and old gas-fired plants and replaced them with much more efficient generation, so we will have completed three rate cases and that modernization with that (February) filing. We are anticipating we won’t have another filing for at least a few years. On the Progress Energy Carolinas side, we’re dependent on the outcome of this rate case, but, all things going well, we would hope again not to have any rate cases for a few years.
We’re still in a rebuild mode. Having siphoned off the value of these 60- to 70-year-old coal and natural gas plants, we’re still having to build to meet the needs of the growing population and the reductions due to (plant) retirements. So we’re in an escalating cost mode now.
Q: Were there any unexpected costs related to the merger, for example spending to upgrade former Progress nuclear plants?
When we were doing our due diligence, we knew we were going to have to do some investments in our nuclear plants. The surprise in the nuclear part of our business has been more from the Nuclear Regulatory Commission’s stance due to the effects of (the) Fukushima (nuclear disaster) and particularly in enhancements to cyber security. The majority of the “surprises” have come more from a federal perspective as they start to mandate new guidelines and additional capital will be needed to meet their new requirements.
Q: The merger settlement says your position will be based in Raleigh. Are you there now?
I’m sitting in Raleigh right now. I’ve obviously got some family shifts to make, but this is where I am through the week.
Q: Will you move to Raleigh?
That’s the plan. I wanted to get my kids through the school year. I’ve got a son that’s in high school playing junior varsity and varsity, and I’ll just say that his academics are very closely tied to his athletics. I’ve got a little guy in the fourth grade as well, so we’re trying to work through this school year to get them moved over at the appropriate time.
Q: You’ll be Charlotte Chamber chairman in 2013. How’s that going to work if you’re in Raleigh?
North Carolina is a big state, and I’m in different counties every day of the week, so for me it’s just another meeting in a different location. We’ve been working economic development across the state as a company for a very long time. Now that we serve 83 of the 100 counties, it just looks like a better opportunity for us to have more diverse assets to market. I’m not looking at it as a handicap. I can get from Raleigh to Charlotte very quickly with the vehicles that I have access to.
Q: Corporate CEOs gave a gloomy economic outlook at a Chamber event earlier this month. What’s your own outlook for Charlotte and North Carolina?
I’m probably more optimistic. It’s because of the meetings I have with people looking to locate in North Carolina. We are extremely competitive from a labor-force perspective and an energy-cost perspective, which are two of the three highest operating costs for major corporations.
Our legislature will have a lot to do with the competitive environment going forward. We’ve heard a lot about tax reform, and that will play a huge part in attractiveness. There’s a lot of conversation about incentives, and I think that also is a huge piece in terms of how competitive we look to third parties.
As some of other countries’ middle class grows, we look even more appealing. You’ve seen companies start to claw back some (offshore) operations because the arbitrage on labor costs is not as competitive. With the large base of assets we have positioned to go directly into manufacturing, I believe we’re going to be another force for China to compete with in the future on manufacturing.
I don’t think there’s another country out there that has energy rates as competitive as ours while offering the same level of reliability. We also have a lot of folks who are underemployed now who would be willing to jump into new opportunities very quickly. I think the prospects for North Carolina are huge.