Duke Agrees to Lower Rate Increase

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Duke Energy agreed to reduce its latest rate hike request by about half, lowering the number from $220 million to just over $118 million.

After “hours of negotiation,” in the words of a Duke spokesperson, the company reached an agreement with the Office of Regulatory Staff (ORS), which had calculated the proposed reduction. The Eastern division of Wal-Mart and Sam’s stores, the S.C. Energy Users Committee and the S.C. Small Business Chamber of Commerce were the other parties involved.

The request, filed in March, met with a flurry of protest from businesses.

The settlement follows a pattern of asking for more and settling for less that has occurred since 2009, when the utility sought its first rate hike in nearly two decades. The current settlement calls for increases to take place over two years, and the company would not ask for another before September 2015.

Businesses would see a significantly lower increase.

For small businesses that would mean an increase of 2.29 percent the first year and 1.13 percent the second year for a total of 3.42 percent, well below the proposed 14 percent. The increase for large industries would be 7.73 percent, down from the 14.4 percent that was originally proposed. That is, 5.24 percent the first year and 2.29 percent the second year.

Residential rates would increase about 8.16 percent. Duke has requested that the proposed increases go into effect in September.

Frank Knapp, president and CEO of the Small Business Chamber, said he was pleased with the changes. He had testified that the proposed increase has small businesses paying rates at 116 percent of the overall rate of return Duke had requested, while other classes of customers were within plus or minus 10 percent. Knapp said, “It was obvious from the word ‘go’ that [the requested return on equity] was excessive.” Worse yet, small business was subsidizing that excess, he said. Under the new settlement terms, small businesses will be paying less than a quarter of what was originally requested.

To offset the lower increase the first year, Duke agreed to use $45 million from its Cost of Removal Reserve, the funds set aside to remove assets once they have been retired.

The company has also agreed to use $1 million in shareholder contributions to support public education initiatives and senior outreach. An additional $2.5 million will fund assistance programs for low-income customers, as well as manufacturing competitiveness grants, economic development, education or workforce training programs. Details of how exactly the funds would be used were not available at press time.

Duke reached a similar agreement in its home state, North Carolina, last month. Under the terms of that deal, Western North Carolina customers will see a $235 million increase over two years. It will be contributing $10 million to assist low-income customers in that state. The return on equity allowed in that case was the same, 10.2 percent.

The deal awaits review and approval by the Public Service Commission of South Carolina (PSCSC), which has the final word on the settlement. The evidentiary hearing began Wednesday in Columbia.

The company said the agreement allows Duke to begin recovering the capital investments already made and maintain its strong financial position. Duke said the majority of the current request is due to capital investments made in the electrical system, including two new power plants, the Dan River natural gas plant in Eden, N.C., and the Cliffside Steam Station in Mooresboro, N.C.

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