State regulators ruled that Duke Energy Corp. can't charge customers a special drought fee to cover the cost of outside power it might never need.
Duke signed a contract last year with Columbia Energy in South Carolina to have 520 megawatts of power at the ready in case drought forces Duke to throttle back power plants, as it did last summer.
The N.C. Utilities Commission ruled Monday that drought-related expenses are a normal business risk, not an extraordinary circumstance that would justify a special fee on utility bills. The commission said the utility can file later to recover the costs during the normal course of setting rates.
The contract has an estimated value of $20 million and the fee would have added about $5 a year to the average yearly residential bill of about $1,000.
At issue was whether the Charlotte-based utility could immediately pass on the cost of buying an option – a standing arrangement with an outside company to help meet high summer demand during the stress of drought.
Critics argued that Duke's state-approved rates provide for buying outside wholesale power as needed if a plant breaks down or if there's extremely high demand. The N.C. Attorney General's Office and consumer groups had objected to the request.
If it's a mild summer and Duke doesn't need the power, the utility plans to resell it on the open market. If that happens, the revenue and potential profit would be returned to consumers but also shared with Duke stockholders. It could amount to an investment underwritten by consumers with some of the potential returns enjoyed by shareholders.
But Duke said it expects the summer to be hot and for the drought to continue.
“Conservation is as important now as it has ever been,” said Duke spokeswoman Paige Sheehan. “We're still very much in a drought.”
During a drought, lower river and lake levels and rising temperatures can make water too hot for cooling coal-fired power plants. Duke had to pull back its Riverbend and Allen power plants for half a day last summer. It has already curtailed its hydroelectric power generation to conserve water.
The commission scheduled a hearing for Sept. 23 to determine if Duke will be allowed to recover the costs through higher rates.
The (Raleigh) News & Observer contributed.