North Carolina regulators approved a 7.5 percent rate increase for residential customers of Duke Energy Progress in the Raleigh-based electric utility’s first major rate case in 25 years.
The N.C. Utilities Commission issued the 120-page decision late Thursday, after the close of the stock market. The state commissioners took care to spell out their justification for raising a typical household Progress power bill by about $100 a year in the prolonged wake of a crippling economic downturn.
The rate increase for Progress’ 1.3 million North Carolina customers goes into effect Saturday. It will be phased in, with the full 7.5 percent increase in place in 2014.
“The Commission recognizes the financial difficulty that the increase in Duke Energy Progress’ rates will create for some of DEP customers, especially low-income customers,” the Utilities Commission wrote in its order.
Hundreds of state residents had written to the commission and publicly testified in an attempt to persuade the commissioners to reject, or scale back, the company’s rate request. Progress had originally sought a 14.2 percent rate hike for households but later agreed to cut the request by about half.
The ruling does not affect the 1.9 million customers of Duke Energy, which had a rate increase approved last year and now has a separate rate request before the Utilities Commission.
But the commission’s approval of a 7.2 percent rate increase for Duke last year shaped Thursday’s ruling, which acknowledged the economic struggles of the state’s residents.
Utility customers took center stage last year after the state attorney general successfully challenged the Duke rate increase in the N.C. Supreme Court. The court agreed that the Utilities Commission had failed to take the economic effect on Duke’s customers into consideration.
As a result, the commission will have to rewrite the Duke order and, more importantly, it will have to write all future orders in such a way as to meet the Supreme Court’s demands. Sections of Thursday’s order in the Progress case seemed written as a rejoinder to the AG and the state justices on this very point.
“There is no clear numerical basis for quantifying the impact of economic conditions on customers in determining an appropriate Rate of Return for setting rates in this case,” the commissioners wrote.
The rate of return refers to the upper limit of the profitability a utility monopoly is allowed to earn in a regulated market.
The Utilities Commission also warned of the risks of setting rates too low.
“Safe, adequate and reliable electric service is essential to the support of businesses, jobs, hospitals, government services and the maintenance of a healthy environment,” the commission wrote. “Should regulatory ratemaking decisions swing too far toward low consumer rates in a given case, the long term result may likely be higher rates in the future, irrespective of the now unknown economic conditions that will exist at such future time.”
Much of the commission’s order minutely analyzes the voluminous filings and expert testimony in the case. The ruling also requires the company to contribute $20 million to low-income assistance and work force development programs.
Price break request rejected
The commission did reject one of the most controversial aspects of Progress’ rate case: the utility’s request for a five-year price break for large, industrial customers that would have practically canceled out the rate increase for chemical and manufacturing operations.
Progress had promised its big-ticket customers last year it would make the request in exchange for those companies supporting Progress’ $32 billion corporate merger with Duke Energy.
The industrial customers sought the price break on the grounds that their future financial health required it. Progress’ sales to industrial customers have dropped by 28 percent since 1997. In the past 10 years, Progress has lost nearly 500 megawatts of power demand from industrial customers.
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