House Finance green-lights Duke Energy ratemaking bill; would allow utility to increase annual profits

A controversial bill that would allow Duke Energy to increase its annual profits through alternative methods of ratemaking cleared another hurdle today, despite opponents’ objections.

The House Finance Committee introduced an amended version of Senate Bill 559 to ostensibly appease the state’s industrial and retail customers, such as Walmart. But the bill still sounded several alarms among lawmakers who view part of it as a gift to the energy industry.

Rep. David Lewis, a Harnett County Republican who is running the bill in the House, said this section of the bill “has been misunderstood from the get-go. Modern needs and modern challenges require modern tools. … We need to start talking about what our power situation is going to look like in 2025, ’30 and ’50.”

The measure would allow utilities, primarily Duke, to apply for “multi-year” rate plans that the would provide flexibility for the utility. Under these plans, a variation of which are used in 35 other states, the Utilities Commission could — but is not required to — grant periodic rate changes for as long as three years without holding traditional base-rate hearings. Those hearings are lengthy quasi-judicial proceedings during which the utility, the public staff and ratepayers testify under oath about the effects of a proposed rate increase. The bill language would allow Duke to sidestep that process in lieu of a 120-day public comment period. The company would have to file a public annual report. Base-rate cases would still provide for traditional public testimony.

The Utilities Commission also would have more time to rule on Duke’s ratemaking plan. The original bill set a nine-month limit; the new version extends it to a year.

The banding portion of a multi-rate plan would allow the Utilities Commission to establish a return on investment — a profit — for the utility that acts as a midpoint; from there, the commission also would set a low- and high-end range — a band — for profitability. This provision would require Duke Energy to refund to customers any profits above 1.25 percent on its rate of return.

But Rep. Graig Meyer, an Orange County Democrat, noted if that provision were law today, Duke Energy could earn an extra $425 million over three years before issuing such a refund. If Duke earned below 1.25 percent, the Utilities Commission would hold a rate case to allow Duke Energy to recover its losses.

Peter Ledford, general counsel for NC Sustainable Energy Association, told the committee that his organization is concerned with the multi-year plan and the rate-banding. “If a new tax collected $140 million a year, it would draw extreme scrutiny.”

John Burnett, deputy general counsel for Duke Energy said he’s never known the commission to call in the utility “for over-earning.” He dismissed the suggestion that a utility can “manipulate” its rate of return.  The Utilities Commission bases the profitability rates on variations beyond the utility’s control, like weather, taxes and the number of customers. Burnett said customers would benefit from the bill, in part to “avoid expensive utility commission hearings.” (Duke often deploys an armada of paid attorneys to these hearings.)

There are no environmental performance goals associated with the multi-year plans or the rate-banding. Rep. Deb Butler, a Democrat from New Hanover County, said other states incorporated such standards into these alternatives. “There are no increases in renewable energy, energy efficiencies or clean ups of environmental contamination,” Butler said. “The bill seems unilateral.”

Another contentious provision remained from the original Senate version. Duke Energy could file for alternative ratemaking and a traditional base-rate case at the same time. If the Utilities Commission rejects Duke’s proposal for the alternative version, the utility could withdraw it and merely settle for a base rate.

“We feel like the utilities have a guardrail,” said Sharon Miller, executive director of the Carolina Utility Customers Association, which represents the state’s manufacturers. “If you trust and acknowledge the Commission experts, why do the utilities need this” — the ability to withdraw their alternative plans.

Martin asked lawmakers to split the bill between the benign Section 1, which allows for bonds to pay for storm recovery costs and the second section, which she suggested should be sent to a study committee. “Part 2 cherry-picks a rate mechanism that benefits utilities,” Martin said. “There are no quantifiable customer benefits.”

The House Finance Committee voted 16-12 to send the bill with a favorable report to the Public Utilities Committee.

The Senate version of the bill was sponsored by Sens. Dan Blue, a Wake County Democrat, and Republicans Bill Rabon and Ralph Hise, who represent several coastal and mountain counties, respectively. It passed that chamber on May 2.

Note: The original version of this story incorrectly identified Sharon Miller of the Carolina Utility Customers Association as “Sharon Martin.” We regret the error.