Mythbusters: Duke Energy Progress rate case edition
FACT: The rate case generally reimburses the company for investments already made. Under North Carolina law, the N.C. Utilities Commission (NCUC) first grants a Certificate of Public Need and Necessity to allow Duke Energy Progress to build any new generation. In that process, the company must submit the plans for the new facility and demonstrate that it is both needed to meet customer demand and is the lowest-cost option for meeting that demand. In North Carolina, the utility can have customers pay for ongoing construction through a provision called CWIP, or construction work in progress. However, CWIP only applies to baseload plants. The 2012 rate case seeks to recover costs associated with the construction of two natural gas plants in Richmond and Wayne counties. The rate case does include CWIP for the Sutton Plant in Wilmington, N.C., which will become operational later this year.
FACT: Duke Energy Progress constantly invests in our electric system to ensure that we can provide reliable service to our customers every day. Under the current regulations, which have been in place for decades, we make these investments at our own financial risk. We then seek approval from the N.C. Utilities Commission to recover those investments from our customers. While our regulatory structure has stayed the same, the ways we generate and deliver electricity have evolved. Just as people have changed the ways they watch TV or listen to music, we have had to adapt the ways we generate electricity – in cleaner, more efficient ways designed to meet tougher federal and state requirements. Some states have explored models in which certain common and prudent investments can be recovered through an established formula, as opposed to the typical rate case, which can take more than six months. We support ways to make the rate-making process more efficient, and we believe such steps could result in benefits for our customers. Ultimately, we will operate under any approach the legislature and NCUC determines to be prudent. In order for the current regulations to change, the North Carolina legislature would have to vote for a change and implement formula rate-making. There is no such bill pending at this time.
FACT: Not necessarily. A tiered rate structure is designed to have the people who use the most energy pay the highest rates. Many low-income customers in North Carolina live in mobile homes or older, substandard housing. Because these homes are not well insulated, they often use much more energy than larger, newer houses. In addition, newer ENERGY STAR® appliances also use dramatically less electricity to operate. Duke Energy Progress is committed to developing energy-efficiency programs that can help all types of customers lower their usage and their bills. We will also be committing an additional $20 million per the terms of the settlement with the North Carolina Public Staff to assist customers who need help paying their utility bills, and to assist in workforce development efforts.
FACT: The original proposal was an 11 percent increase, and the settlement with the Public Staff represents a 5.7 percent increase over all customer classes, with a 4.7 percent increase in year one and an additional 1 percent increase in year two. Some organizations have used the proposed change in the basic customer charge to indicate that bills will rise 45 percent. Duke Energy Progress had asked for an increase in the flat rate charged to all customers – from $6.75 to $13.50 per month. The base customer charge reflects the various costs associated with serving a customer, from meters, to wires to billing. The actual costs to the company are more than $20 per customer, so the increase is designed to move closer to the true cost. In the settlement between the Public Staff and Duke Energy Progress, that charge for customers on the residential rate will only increase to $11.50, if approved by the NCUC.
FACT: Rates are set using an authorized rate of return, and costs from a historic test year. As higher costs are incurred to serve load growth, the utility is challenged to control cost increases and typically earns below their authorized return. The rate of return used in setting customer rates represents only the return that the company has an opportunity to earn – it is by no means guaranteed.
FACT: 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. 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.
FACT: The merger was promoted as a way to save customers money over the long term. The companies guaranteed a savings of $675 million in fuel and fuel-related costs over the next few years. These savings are already being realized in the fuel portion of customer bills. In September 2012, Duke Energy Progress implemented an $0.85 reduction per 1,000 kilowatt-hours of usage in residential fuel charges related to the merger. These savings are different from the base rate increase now under discussion. The base rate increase would have been necessary with or without the merger because it goes to pay for power plants and other investments that have been made to modernize and improve the Duke Energy system. The increase in rates requested by Duke Energy Progress were somewhat offset by some additional merger savings. Without the merger, both Duke Energy and Duke Energy Progress would be requesting larger rate increases.