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Duke Energy defends rate charges, settlement

By Bruce Henderson
bhenderson@charlotteobserver.com

RALEIGH Duke Energy Carolinas defended its handling of disputed charges in its North Carolina rate case Thursday, saying most of them were justified even as it made further concessions.

Duke officials testifying before the North Carolina Utilities Commission again acknowledged accounting errors but said the approximately $200 million of revenue Duke gave up in reaching a proposed settlement of the case more than made up for them.

Duke sliced more charges out of the case Thursday, for a total of about $474,000 since striking the settlement with the commission’s Public Staff. In the agreement, the staff took $189 million out of the $446 million Duke initially sought from ratepayers.

John Runkle, an attorney for N.C. WARN, which claims Duke attempted to overcharge customers, asked Duke official Carol Shrum if the settlement simply “makes everything OK.”

“The settlement is a process of negotiation and the company has made significant concessions in that process,” said Shrum, Duke’s director of rates and regulatory strategy. “We believe that settlement is firmly in the best interest of customers.”

The settlement removes most of the $871,000 in political contributions, sponsorships and charitable donations that WARN challenged. Shrum testified that Duke is willing to remove the remaining $40,000 “in the spirit of compromise.”

Duke also agreed Thursday to delete a $156,000 charge for an engineering report on the crippled Crystal River nuclear plant in Florida. Duke had considered the bill part of its due diligence in assessing its merger with Progress Energy, which had owned the plant.

“What are we going to do to make sure this doesn’t happen again?” commission Chairman Edward Finley asked Shrum and Danny Wiles, Duke’s director of regulated accounting, referring to the accounting errors.

Wiles said Duke will review its account-coding procedures, preventive controls and methods to catch future mistakes.

“Please look into that. The commission’s concerned,” Finley replied.

Duke put in place new accounting control procedures in 2009, after its merger with Cincinnati-based Cinergy, said spokeswoman Lisa Parrish.

But Durham Assistant City Attorney Sherri Zann Rosenthal cited accounting errors the commission noted in Duke Carolinas’ 2009 rate case, including incorrectly coded expenses.

In Duke’s 2011 rate case, the commission ordered Duke to review whether costs for outside services had been improperly charged to North Carolina customers. Duke subsequently proposed reducing charges to those customers by $1 million.

“It’s not unusual to have a settlement that has action items for the company,” Parrish said of the review. “It’s all part of the checks and balances of the system to leave with homework for the company to do.”

WARN director Jim Warren blamed the Public Staff, which represents consumers, for “cutting a deal” with Duke despite finding improper charges. In its settlement, the Public Staff removed $9.2 million in expenses that it said Duke should not have included.

“They caught (Duke) in stuff and then gave it back,” Warren said. “That’s just wrong.”

WARN’s consulting economist listed $30 million in improper charges by Duke, largely for stock-based compensation of executives that Duke says is routine for utilities. This week economist William Marcus challenged an additional $549,000 in charges.

Led by a Duke lawyer, Shrum and Wiles explained those charges.

Nearly $1,300 for lunch with Chinese bankers? Related to a $6 billion credit facility that includes Chinese banks.

A $135,000 donation to the Foundation for the Carolinas? Part of a campaign to save customers money through electronic billing.

Nearly $1,900 for pecan processors? Gifts for economic development contacts.

Of that list, Duke agreed to remove $50 for Cincinnati Reds tickets, $419 for an Augusta, Ga., golf tournament, a $400 donation to the Foundation for the Carolinas and $9,882 in dues to the Southeast Energy Efficiency Alliance.

Wiles testified that Duke didn’t intentionally omit charges from data WARN had requested.

Duke’s accounting categories don’t allow for broad searches, such as for “sponsorships,” he said, and manual searches for some requests would have taken weeks. Some expenses showed no clear connection to the rate case because they were for in-house labor or didn’t involve third-party vendors, he said.

Henderson: 704-358-5051 Twitter: @bhender
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