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High court orders new look at Duke rate hike case

The N.C. Supreme Court on Friday told the state Utilities Commission to take another look at the 7 percent rate hike granted to Duke Energy Carolinas more than a year ago.

The court sided with Attorney General Roy Cooper, who argued the commission did not independently assess the increase’s impact on 1.9 million North Carolina customers.

Not since 1998 has the state’s highest court reversed a rate case on such grounds. But consumers shouldn’t assume they’ll get refund checks.

While rates rose about $7 a month for most residential customers last February, the court challenge turned on the profit margin, called a return on common equity or ROE, that Duke was granted.

The commission allowed Duke a 10.5 percent return. That’s the level the utility and the commission’s consumer advocates, its Public Staff, had agreed to during negotiations.

Cooper’s staff didn’t sign on, and later appealed.

The court ruled that no witnesses during a 2011 rate hearing specifically recommended a 10.5 percent return. Nor did the commission evaluate the effects on consumers, it said. Hundreds of customers had complained to the commission about higher rates as the economy struggled.

State law instructs the commission to balance customer and investor interests in setting rates.

The court ruled that “it is apparent that customer interests cannot be measured only indirectly or treated as mere afterthoughts” and that state statutes on returns on equity “cannot be read in isolation as only protecting public utilities and their shareholders.”

The case isn’t likely to alter the timing of new rate hikes – 5.7 percent sought by Progress Energy Carolinas and 9.7 percent by Duke Energy Carolinas – that are now before the commission. But it could affect how the panel considers them.

Cooper, in a statement, called the ruling “great news for consumers who spoke loudly and clearly on how hard this rate increase would hit their wallets. In a time of economic hardship, the effect on customers must be taken into consideration, not just profits.”

Cooper’s staff has not recommended a proper return for Duke.

The 1.1-million member AARP North Carolina, which filed a friend-of-the-court brief in the case, said the court ruling “shows that seniors have been wrongfully charged for over a year, and they deserve their money back.”

Seniors on fixed incomes are especially vulnerable to high utility costs, AARP says.

The decision “should serve as a wake-up call to utilities commissions around the country to pay closer attention to customers’ situations,” state director Doug Dickerson said. “There’s no reason for Duke to keep ratepayers’ money now that the Supreme Court has ruled that the case was flawed.”

Paul Newton, president of Duke Energy North Carolina, said the court order doesn’t require any changes to rates.

“The company continues to believe that the settlement agreement approved by the Commission authorizing a 10.5 percent ROE is fair and well-reasoned,” he said in a statement. “We have no reason to believe that it will not ultimately be upheld.”

In a February interview, Newton said a “healthy ROE” helps Duke compete for capital as it spends billions of dollars to build new power plants and upgrade infrastructure. It’s also a key factor in how much revenue the utility can bring in.

Robert Gruber, the Public Staff’s executive director, said his staff agreed to the 10.5 percent return in exchange for other concessions.

Duke took 40 percent less new revenue than it had first sought and applied the 7.2 percent rate increase to all customer classes. Residential customers often see proportionately higher hikes than industrial or commercial sectors.

Duke also agreed to postpone recovery of $50 million in costs for its new Cliffside power plant and to donate $11 million to low-income programs – a concession the commission could not have ordered.

1998 case

Following the 1998 court order, which involved a natural gas utility, the commission allowed parties to the case to offer new evidence and held an additional hearing.

Its new rate order, filed five months later, put the return on equity at the same level the commission had initially set.

A similar scenario could recur in the Duke case, Public Staff officials say, with the commission allowing legal briefs, proposed orders and perhaps oral arguments from all parties before issuing a new order.

“We’re evaluating the effective impacts and next steps to take to respond to the court’s remand,” said Sam Watson, the commission’s general counsel. News & Observer reporter John Murawski contributed to this story.

Henderson: 704-358-5051 Twitter: @bhender
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