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Duke Energy critic disputes rate charges

By Bruce Henderson
bhenderson@charlotteobserver.com

RALEIGH Errors and omissions in charges Duke Energy Carolinas included in its rate case now before state regulators point to poor company oversight, a consultant for a Durham advocacy group testified Wednesday.

California economist William Marcus, testifying for N.C. WARN, identified an additional $549,000 in charges that he said Duke should not ask customers to pay. Those expenses included flowers, gifts and membership dues that Marcus said had nothing to do with making electricity, and $48,000 in meals and entertainment with no listed purpose.

Marcus has previously identified $30 million in Duke charges, about three-fourths of which would apply to the North Carolina case, that he said should be disallowed. Most of those charges were for stock-based compensation of executives.

“There may be a few errors in here, and some differences of judgment, but I’m very concerned,” he told the North Carolina Utilities Commission.

Marcus said the commission should deduct 10 basis points from Duke’s allowed return on equity, a profit margin for investors. If the commission accepts the 10.2 percent return Duke has agreed to in settlement talks, those penalties would reduce it to 10.1 percent, costing Duke millions of dollars in revenue.

Duke officials were expected to respond to Marcus’ findings in testimony later this week.

The company has been contrite about accounting errors in its filings but insists Duke is a good steward of customers’ money. It says the customer benefits of a settlement with the commission’s Public Staff, which cut its new-revenue request by nearly half, far outweigh those errors.

Before this week’s hearings, the Public Staff had already flagged $941,000 in improper political contributions and sponsorships that Marcus also noted. Duke voluntarily removed an additional $326,000 in political contributions Friday.

In the settlement with Duke, the Public Staff cut $189 million from Duke’s request for $446 million in new revenue. The commission would have to approve the settlement terms for them to take effect.

“The rate case is voluminous and comprehensive, and we make every effort to make sure we get it right,” said Duke spokeswoman Lisa Parrish. “There is always going to be the possibility of inaccuracies and differences of opinion. Overall, the settlement is a fair one and is significantly reduced from what we asked for in February.”

Duke officials began testifying late Wednesday. More officials of the company and of the Public Staff are expected to take the stand Thursday. They will be questioned in more detail about the settlement and Duke’s disputed charges.

Marcus also testified against Duke’s use of the single hottest hour of summer to determine the cost of providing service to its various customer classes, a key component of ratemaking.

Basing costs on that peak hour results in unfairly higher rates for residential customers who may turn up the air conditioning, WARN and Greenpeace argue, compared to industries whose energy use is more likely to remain steady.

The Public Staff has also opposed the summer-peak methodology, but the commission endorsed it during a Duke Energy Progress rate case in May.

Changing the method, which is used in both Carolinas, could result in customers being charged for too many or too few costs, Duke official Phillip Stillman testified. It would also remove the incentive for residential customers to use less energy on hot days, he said.

Henderson: 704-358-5051
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