Duke Energy asks for rate hike but NC agency says customers should get substantial cut

Duke Energy is seeking state approval for a 6% rate hike for Charlotte-area customers, but consumer advocates who advise the North Carolina Utilities Commission have instead recommended a substantial cut in rates.

The commission’s Public Staff, an independent agency that represents consumers, also opposes Duke’s request to bill customers hundreds of millions of dollars in costs to clean up coal ash.

Duke Energy Carolinas, which serves central and western North Carolina, asked the commission’s approval to collect from customers $445 million a year in new revenue through rates. Federal and state tax savings that Duke has to refund to customers, by adjusting rates, effectively reduces the request to $291 million.

If approved, Duke says, the request would raise typical residential bills by about $8 a month.

The Public Staff says the commission should grant a revenue increase of only $66 million, partly because it thinks Duke’s profits margin should be smaller than the utility wants.

The agency also applies different accounting treatment to the tax refunds to Duke’s customers. By its calculations, Duke should collect $334 million less revenue in the first year after commission approval, and $173 million less in the following four years.

Utilities rarely expect their initial rate requests to be granted. They and the Public Staff often reach negotiated settlements that they submit to the Utilities Commission for approval. So far, that hasn’t happened in the Duke Energy Carolinas case.

The commission will start hearing evidence in the case on March 23. A decision would likely come months later.

Duke spokeswoman Meredith Archie called the Public Staff’s positions “an expected and normal part of the public ratemaking process.” She called Duke’s proposal a balanced approach in which customers would benefit from the tax refunds and Duke would maintain its financial health.

Duke coal ash costs

The rate hike would pay for accelerated shutdown of coal-fired power plants, grid improvements and storm damage repairs. It would also bill Duke Energy Carolinas customers $480 million, over five years, for coal ash cleanups at seven sites.

Duke maintains that customers should pay the ash costs because they were incurred to comply with environmental laws. The Utilities Commission agreed, with two members voting against, in two 2018 Duke Energy rate cases.

“Our position on coal ash costs remains the same,” Archie said. “We’ve properly managed coal ash for decades, in full compliance with environmental laws under the strong oversight of regulators, and are relying on the state’s well-established system to recover these costs in rates.”

N.C. Attorney General Josh Stein appealed the commission’s 2018 rulings to the state Supreme Court, arguing that shareholders should pay cleanup costs that Duke has estimated will reach $8 billion to $9 billion over 15 years. The court has not ruled on the appeal.

Duke agreed to dig up nearly 80 million tons of coal ash at six sites in North Carolina in a legal agreement with the state Department of Environmental Protection in January.

The Public Staff recommends in the current rate case, as it unsuccessfully did in 2018, that shareholders and customers split the costs of coal ash cleanup.

The agency reasons that Duke has a long history of “significant environmental violations” related to ash that contaminated groundwater. It notes that the commission has agreed to split some costs in the past, such as when construction of new nuclear power plants was called off.

The Public Staff recommends denying Duke’s request to bill customers for $161 million in ash-related costs at its power plants. The agency also recommends collecting remaining expenses over 26 years instead of the five years that Duke proposes. Those steps, the agency says, would have the effect of evenly splitting the costs between shareholders and customers.

Duke “had a duty to comply with long-standing North Carolina environmental regulations, and it failed that duty many times over many years at every coal-fired power plant it owns in North Carolina,” a Public Staff official said in written testimony.

“The company should not be able to claim that, in order to generate electricity, it had to create groundwater contamination. It would be manifestly unjust to require ratepayers to bear all the deferred coal ash costs where those costs include corrective actions to remedy the company’s environmental violations.”

The attorney general’s staff has again intervened in the rate case, saying Duke knew about the potential for contamination in the 1980s but failed to act even after tainted groundwater was detected years later. Duke didn’t act to close leaking basins until tons of ash spilled into the Dan River in 2014, the attorney general’s office said.

In a similar rate case decided in January, the Utilities Commission allowed Dominion Energy North Carolina to recover its ash cleanup costs from customers. Dominion serves northeastern North Carolina.

Duke Energy Progress, which serves eastern North Carolina, filed a rate hike request last October that asked for a net increase of $464 million a year in revenue. That case, which is pending, also seeks customer repayments of millions of dollars in ash cleanup costs.

This story was originally published March 2, 2020 at 11:08 AM with the headline "Duke Energy asks for rate hike but NC agency says customers should get substantial cut."