State Balks As Duke Asks to Raise Rates

Duke Energy’s bid for a rate increase to cover drought-related operating expenses is running into opposition from state regulators, who say customers should not be charged extra for electricity because of the weather.

The Charlotte utility wants to raise customer rates for one year, starting July 1, with an option to extend the rate increase if the drought continues this summer and fall. The drought last year led Duke to limit electricity production at hydroelectric plants and also reduce output at coal-burning power plants.

The rate increase would amount to 36 cents a month for the typical residential user, but it would bring in about $20 million to pay for wholesale power that would be purchased during a heat wave. Duke in December entered into a purchase option agreement with Columbia Energy in South Carolina for 520 megawatts that could be harnessed if the drought continues and leads Duke to curtail power production this summer.

The N.C. Utilities Commission has set a Tuesday deadline for arguments and filings in the case and is expected to rule on Duke’s request within 45 days of the deadline. Duke has about 1.6 million customers in North Carolina, including much of the Western Triangle.

Duke describes the purchase option as drought insurance for North Carolina customers. The company hasn’t publicly released the contract price, but the state Attorney General’s Office has estimated the cost at $20 million.

By locking in a contract price, Duke will be spared paying premium prices for wholesale power when a heat wave hits and demand from customers rises. Whatever Duke pays for the purchase of wholesale power, it would not be able to pass the cost to customers.

"Duke Energy has a legal obligation to provide electricity to our customers, and we are committed to doing that in the most reliable, cost-effective manner possible," Duke spokeswoman Marilyn Lineberger said.

The company characterizes the drought, the state’s worst in more than a century, as an extraordinary event comparable with a hurricane.

Utility rates are set by the state Utilities Commission to include normal operating expenses, but exemptions are allowed for utilities to recover extraordinary expenses.

The state attorney general and the Public Staff, the state’s consumer advocacy agency in utility rate cases, contend that drought-associated costs are a normal part of doing business and already built into the company’s rates.

"Costs go up and costs go down in between rate cases," said James McLawhorn, director of the Public Staff’s electric division. "We feel that to pick out a line item and say, ‘Oh, this went up,’ is not appropriate."

No plans at Progress

Progress Energy is not planning to file a similar request for drought costs, spokesman Mike Hughes said. Unlike Duke, whose sources of cooling water also double as public reservoirs of drinking water, Progress primarily relies on lakes that don’t provide potable water. The Raleigh utility also draws on ocean water to cool power plants.

Last year, Duke scaled back power generation at hydroelectric plants because of reduced water levels in rivers that feed the power plants. And the company reduced power output at coal-burning power plants in Belmont and Mount Holly in Gaston County for about a half-day in August, when temperatures soared above 100 degrees, to prevent the release into the Catawba River of cooling water that would have exceeded allowed temperature limits.

The Public Staff argues that the amount of money Duke wants to recover from customers is too meager to compel the Utilities Commission to make an exception to its policies on setting utility rates. To keep rates stable, rates are set in complex rate proceedings with a thorough analysis of a utility’s financial operations. Few additional charges are permitted to be tacked onto rates, the most common being the annual fuel cost that electric utilities pass through to their customers to pay for coal, natural gas and uranium used to generate electricity at power plants.

john.murawski@newsobserver.com or (919) 829-8932

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