The proposed rate increase reflects an investment of around $2.3 billion for plant modernization and other capital additions, including the facilities used to produce and deliver electricity to 1.3 million households in North Carolina. We are retiring older, less-efficient coal plants that do not have state-of-the-art emission controls, and replacing them with cleaner, natural gas-fueled plants.
Duke Energy Progress has invested more than $1.3 billion to complete natural gas-fueled units at the Smith Energy Complex in Richmond County, N.C., and in Wayne County, N.C., with an additional unit under construction at our Sutton Plant near Wilmington, N.C.
The replacement of older, less-efficient coal-fired plants with new natural gas-fueled units, coupled with emission controls already installed at our larger coal plants, results in decreased emissions. Since 2005, Duke Energy Progress has lowered its nitrogen oxide emissions by more than 62 percent and lowered its sulfur dioxide emissions by more than 50 percent.
And, we are making important investments in our nuclear plants to further enhance the multiple layers of safety, security and operational protection.
Approximately 84 percent of the requested rate increase reflects these investments made to modernize the system that serves our customers, as well as costs to ensure safe, reliable and increasingly clean electric service today, and for generations to come.
We know there is never a good time to seek a rate increase, and we have worked hard to maintain rate stability while providing excellent service to our customers. We aggressively manage costs by improving operational efficiency and by effectively managing operations and maintenance costs.
The last time the company sought an increase to base rates in N.C. was 1987. Other variable components in retail rates have changed during that period (including the cost of fuel used in electricity generation, and the costs of complying with the state’s policies on renewable energy and energy efficiency), but the base rate has not been raised.
The fuel component is reviewed annually by the N.C. Utilities Commission and adjusted to reflect changes in costs for various fuels. By law, Duke Energy Progress earns no profit from the fuel component in retail rates. Likewise, the NCUC also reviews annually and adjusts the portions of retail rates that pay for compliance with the state’s energy policy on renewable energy and efficiency.
On Sept. 1, 2012, customers received a slight overall rate decrease as a result of fuel and fuel-related savings associated with the merger between Duke Energy and Progress Energy. The rate decrease also reflects the removal of power plant capacity costs from customers’ base rates related to new wholesale sales. This is part of the company’s interim mitigation plan approved by the Federal Energy Regulatory Commission (FERC).
We know there is never a good time to seek a rate increase, and we have worked hard to maintain rate stability while providing excellent service to our customers.
The rate increase is primarily needed to pay for significant investments made to modernize our electric system. Our service area has grown significantly over the last quarter century. And that growth has helped to pay for many of the investments we have made in our system, including advanced emissions control technologies that make our largest coal-burning plants among the cleanest in the nation.
But customer growth has slowed in North Carolina in recent years, even as our cost of doing business continues to increase. Some of our older, coal-fired plants are now more than 50 years old and lack the emissions controls found on our larger plants. As such, these plants need to be replaced. Modernizing the power plant fleet is an important investment in North Carolina’s environment and its future.
While we work very hard to manage our business and keep rates as low as possible, there are times when it is necessary to raise customer rates to make the necessary investments it takes to ensure continued reliability of service, and to maintain the value of electricity that you have come to expect from us every day.
The merger is not driving the need for base rate increases. In fact, the savings produced by merging our operations and workforces are expected to reduce the impact of future price increases. The proposed increase reflects significant investments made to modernize the power system and helps cover the rising costs of producing and delivering electricity. Both Progress Energy Carolinas and Duke Energy Carolinas had previously scheduled rate increase requests, regardless of the proposed merger outcome.
No. Per the requirements of our merger agreement with the N.C. Utilities Commission, we cannot increase customer rates to recover severance costs associated with the merger. This includes executive severance costs as well as employees. All severance costs are paid for by our shareholders.
Prior to constructing a new generating plant in North Carolina, Duke Energy Progress must sufficiently demonstrate the need for a new plant and receive approval from the North Carolina Utilities Commission (NCUC). The Certificate of Public Convenience and Necessity (CPCN) that Duke Energy Progress files with the NCUC must contain detailed justification that the new plant is necessary for Duke Energy Progress to sufficiently maintain the generating capacity needed to reliably serve its customers. And, the filing must also demonstrate why the proposed option is the most robust choice for fulfilling this need, including justification that it is the most economic option under a variety of scenarios and that it is an environmentally responsible decision.
After the CPCN filing is submitted to the NCUC, the commission carefully evaluates the testimony and makes a decision whether to approve the request. If approved, the commission issues the utility the certificate of need required to begin construction. Once Duke Energy Progress gains approval to build a new plant, it must file annual updates with the NCUC to demonstrate continued adherence to the initial filing as well as updates on cost and performance. This process is not a guarantee of future cost recovery, but a utility can often expect cost recovery when it maintains transparency and compliance with the initial filing.
The new units at the Smith Energy Complex and Wayne County plant cost approximately $1.3 billion to build, and were authorized by the commission through the certificate of need process, as was the company’s Sutton natural gas plant now under construction .
Our goal is to design rates that are as equitable as possible and that promote economic growth without overburdening any single segment of customers. In the last rate case in 1987, industrial customers comprised a much larger percentage of total energy sales than they do today. At that time, the rate structure was designed to minimize the impact on residential customer bills, and, therefore, commercial and industrial customers bore more of the increase.
But since that time, many of the traditional industrial staples, such as textile manufacturing, have dwindled dramatically. While demand for electricity in the residential and commercial sectors has increased more than 75 percent since the last rate case was fully implemented, industrial energy sales have declined by more than 14 percent.
Today, industrial energy sales comprise about 25 percent of total sales (compared to 41 percent in 1990), and industrial customers are struggling for survival. While our residential rates remain below the national average, our industrial rates are now among the highest in our region. The revised rate structure is intended to support the businesses and industries that create and sustain jobs. Retaining industry and jobs also generates growth, which in turn can help to lessen the long-term impact of rate increases on residential customers.
The net increase in customer rates more accurately reflects the actual cost increase customers would see on their bill if our rate increase is approved. Your electric bill includes several components that make up the total cost that you pay each month. One of those components is the Demand Side Management/Energy Efficiency (DSM/EE) clause, which includes costs to implement the many energy-efficiency programs we offer to customers. These programs have helped customers save more than $357 million since 2009.
One of the initiatives currently included in that clause is our Distribution System Demand Response (DSDR) program. DSDR is a multi-year initiative that is helping to make our distribution system operate more efficiently, freeing up additional megawatts of electricity that can be used across the system during periods of high customer demand.
As part of our rate case, we have proposed moving DSDR from the DSM/EE clause into base rates. This is an accounting change that would result in a decrease in the DSM/EE charge equal to the subsequent increase in base rate charges for this initiative. The difference that results from moving this initiative is the difference between the total rate increase and the net rate increase. Customers will not pay any more for this program as a result of the accounting move.
More than 70 percent of the proposed rate increase reflects significant investments made to modernize our power system, including the facilities used to produce and deliver electricity to 1.3 million households and businesses in North Carolina. We have invested about $2.3 billion for plant modernization and other capital additions, including upgrading the generating capacity of our existing unit at the Harris Nuclear Plant and making investments to enhance the safety and performance of all of our nuclear plants.
No. We are retiring older, less-efficient coal plants that do not have the state-of-the-art emissions control technologies of our larger coal-fired plants, and replacing them with cleaner, natural gas-fueled plants.
Compensation of employees is part of the total cost of serving customers. Maintaining effective company leadership is an important part of ensuring a culture of safety, high performance, innovation and discretionary effort – company and employee attributes that help keep the quality of service high and costs stable for the 1.3 million North Carolina households and businesses that depend on us. Executive compensation comprises a very small portion of the total employee compensation expense.
Following the completion of the merger, the Duke Energy Progress legacy pension plan was re-formulated using Duke Energy’s existing benefits methodology. This new accounting treatment required adjustments to the funding levels of the pension to bring it in line with the existing Duke Energy plan model. No additional incentives will be provided to employees as a result of this accounting adjustment.
In recent years, customer growth in North Carolina has slowed dramatically, while costs of operating the business have continued to rise. The adjustment reflects the shift in our long-term growth forecasts and the ongoing costs associated with providing reliable service to our customers.
These expenses reflect the net savings achieved for our customers by the combination of operations in the merger, as well as changes in the cost of doing business over time since our last rate case.
Duke Energy Progress is obligated by law to serve every customer in its service area with reliable electricity at rates approved by the N.C. Utilities Commission. In exchange, the utility is allowed the opportunity to earn a fair return for investors who bear the financial risk of capital investment.
Duke Energy Progress files a request with the NCUC to increase base rate revenues. The application includes the total costs to serve customers and why current rates are no longer sufficient.
The NCUC will hold public hearings to hear directly from customers on the utilities request to increase electric rates. The NCUC will then hold an evidentiary hearing to review the case. Then the commissioners will make the final decision on our request.
Yes. As part of the evaluation process, the N.C. Utilities Commission will hold public hearings to hear directly from customers on the request to increase rates. The public hearings are an important part of the rate case process.
We believe that our proposed rate increase is reasonable and fairly reflects the significant investments we have made in our electric system, as well as the costs required to continue to provide reliable service to all of our customers in North Carolina. Ultimately, the NCUC will make the final decision on our request.
The N.C. Utilities Commission sets the schedule for evaluating and ruling on our rate request, which will ultimately determine when the new rates would go into effect. We are requesting a rate effective date of June 1, 2013, although the Commission is not bound to rule by that time.
We are committed to minimizing the impact of increased costs on our customers through energy-efficiency programs and assistance for low-income customers. Our Equal Payment Plan helps customers avoid high seasonal bills by spreading annual energy costs over 12 equal monthly payments.
We’ve launched more than a dozen energy-efficiency programs that have helped our customers save more than 357 million kWh of electricity since 2009. That’s the equivalent of removing an entire town from the electric grid. We’ve also provided more than $21 million since 1982 to help pay energy costs for families in crisis across North Carolina.
We recognize that you want to make the best use of every dollar you spend on energy. We offer a variety of tips, programs and incentives to help you take control of your energy use, and to save energy and money. Visit www.progress-energy.com/save for more information.
We are committed to helping customers who struggle to pay for their basic needs with programs and tools to reduce their energy costs and keep their power on. We are working to educate low-income customers on ways to save energy through our Neighborhood Energy Saver Program, which provides energy assessments and installations of energy-saving measures in neighborhoods across the state at no charge to the customer.
Our customer service center is committed to working with customers during times of financial hardship, through payment plans and options to help customers get back on track with their bill. And our Energy Neighbor Fund has provided more than $21 million since 1982 to help low-income families across the state cover home energy bills, regardless of heating source.