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Duke Energy faces accusations of overcharging customers

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Duke Energy's new CEO Lynn Good (third from left). (Charlotte Huffman, WNCN) Duke Energy's new CEO Lynn Good (third from left). (Charlotte Huffman, WNCN)
Duke Energy President Paul Newton takes the stand. (Charlotte Huffman, WNCN) Duke Energy President Paul Newton takes the stand. (Charlotte Huffman, WNCN)
RALEIGH, N.C. -

Duke Energy Carolinas came under fire from critics claiming the company tried to overcharge North Carolinians by hundreds of millions of dollars annually.

Evidentiary hearings began Monday afternoon at the N.C. Utilities Commission, which heard evidence from supporters and opponents of Duke Energy's proposed $200 million rate increase.

Questioning in day two of the hearing has primarily focused on how much money Duke Energy Carolinas will earn with the company's proposed return on equity, a measure of profit. 

The nation's largest utility company has a settlement deal with state regulators that would allow a rate increase that includes a 10.2 percent return on equity.

Duke consultant, Robert Hevert testified for nearly five hours Tuesday on the energy company's recommended ROE.

Duke says they must have a good ROE in order to attract capital and ultimately, help pay for the $3.8 billion they've spent to upgrade plants and the $6.5 billion they plan to spend over the next few years.

"The return on equity is the profit component of our business. We are asking shareholders to invest in our business so we need to offer a competitive investment," said Parrish.

The company's current ROE is 10.5 percent and the settlement deal is requesting 10.2 percent.

Parrish said its not a guaranteed profit but an amount the company has an opportunity to earn if the company can manage its business effectively.

"Investors are a critical portion of the equation and an important way in which we access capital to support our business," said Parrish.

In the current settlement deal, Duke Energy Carolinas is requesting an extra $200 million in the form of commercial, residential and industrial rate hikes.

The average household in North Carolina would see about a $7 per month increase.

"The settlement agreement being discussed today includes a 10.2 percent return on equity. It's a balance. It balances the needs of the customers to receive affordable, reliable electricity with providing results to our shareholders and that's a balance that's had a good track record in North Carolina," Parrish said.

Outspoken critic of Duke Energy and opponent of the rate hike, Jim Warren of NC WARN, disagrees with Parrish.

"It's not balance when you've got dozens of people making huge salaries including multi-millionaires at Duke Energy. And they keep raising rates over and over on families and small businesses," Warren said. "We now know that they have  tried to overcharge customers by tens or hundreds of millions of dollars. So they simply cannot with a straight face say this is a balance."

Margaret Force, the AG's attorney, cross examined Ben Johnson, state regulator's expert witness. Force hinted at the fact that in previous negotiations, Johnson argued for a ROE that was about $130 million lower that the current recommendation.

"What has happened today has further discredited the backroom deal regulators cut with Duke Energy…  The regulator's own expert witness (Ben Johnson) made a very strong case that the ROE if far too high," said Warren.

In cross examination, Force asked Hevert if his recommended ROE considers the current economic hardships customers are facing in North Carolina.

"That's a judgement question," Hevert said.

Hevert said Duke does consider impact to customers in all rate hike cases.

The N.C. Utilities Commission hopes to wrap up the case Wednesday, but it will likely extend later into the week.  

After hearings conclude, the commission will review evidence presented during this week's hearings and is expected to decide by September whether or not to approve the deal.

During the hearing on Monday, NC WARN presented evidence against Duke Energy for what the environmental advocacy group calls "corporate fraud" or "gross incompetence."

The utilities commission's hearings are expected to run through Wednesday, with a decision on whether to allow the rate increase and under what conditions coming later.

NC WARN, a frequent critic of Duke Energy, contends there are another $30 million in stock-based compensation, trade association dues, and other costs being improperly passed on to consumers in the rate request. The company disputes the claims.

According to NC WARN, the overcharges include $13 million in costs from the Progress Energy–Duke Energy merger.

When the Commission approved the merger in July of last year, it ordered merger expenses should not be passed on to customers. Instead, the commission said, customers should see savings as a result of the deal.

WNCN obtained official N.C. Utilities Commission documents that show how accountants for the Commission's Public Staff caught and removed corporate expenses from Duke Energy's proposal for a rate increase.

The Public Staff is supposed to represent the public's best interest during rate cases and proceedings.

In documents filed last month, Public Staff accountants removed or reduced more than $200 million from Duke Energy's request. One accountant, Katherine Fernald referred to some of them as "errors" by Duke Energy. 

According to official filings and testimony obtained by WNCN, some of the expenses removed or reduced include the following:

∙  $1.17 million in corporate-related jet travel: "Based on the Public Staff's further review of the Company's flight logs and the purposes listed for the flights, an additional 24 percent of aviation expenses have been removed for flights deemed not directly related to Duke Energy Carolinas customer benefits," testified Fernald.

∙  $598,000 in corporate donations and sponsorships: "…related to advertising sponsorships, charitable donations, and contributions to political organizations that were charged to various accounts."

∙  $1.28 million in lobbying costs: "…federal and state lobbyists' salaries and lobbying expenses charged by outside lobbyists."

 ∙  $1.2 million in outside services: "…items that relate to the Duke-Progress merger and costs that do not relate to the provision of electric service for Duke Energy Carolinas customers."

"The Commission's Public Staff caught many of these deliberate attempts but then they gave millions back just to close the deal," alleges NC WARN's Jim Warren.

In a line item titled "other post test year expenses," the Public Staff increased their recommendation by $22.5 million. According to Fernald's testimony, that adjustment was made "for purposes of settlement."

Duke Energy spokeswoman Lisa Parrish said the rate case is about paying for the billions the company has spent to build new facilities. Specifically, expenses for modernizing four plants, including Dan River in Eden, N.C., Cliffside Steam Station in Mooresboro, N.C., Oconee Nuclear Station in Oconee County, S.C., and McGuire Nuclear Station in Mecklenburg County, N.C.

Parrish said Duke Energy upgraded those plants to be more efficient and environmentally friendly.

"Go into your kitchen. What appliances do you have in your kitchen that are more than 70 years old? Not your dishwasher, not your oven, not your stove," Parrish said. "We are replacing older, less efficient units that were built in the mid-1900s with new, state-of-the-art equipment.

"It's part of our modernization plan."

A proposed settlement with the state's official consumer advocate would allow Duke Energy Carolinas to raise rates by 4.5 percent overall, increasing to 5 percent after two years.

The cost to about 1.6 million residential customers is higher: 5 percent for two years and then 5.8 percent more after that. That represents an increase for the average household from about $103 a month to about $110 a month after the third year of the rate increases that could begin taking effect this fall.

About 250,000 North Carolina industrial customers will pay 4.7 percent in the first two years and then 5.3 percent. The company's nearly 5,000 commercial customers will pay 3.8 percent more for the first two years, and 4.4 percent in year three.

PROPOSED RATE HIKE

Duke Energy originally requested a $446 million annual rate increase in February, but is now willing to take $205 million per year, less than half the original amount.

Environmental advocacy groups say that by happily agreeing to settle for $211 million less than it had requested, Duke Energy has made clear that it had originally sought to overcharge customers by that much each year.

If the latest settlement is approved by the N.C. Utilities Commission, the residential customers would see rates increase five percent in the first two years and 5.8 percent in the third year. The average residential customer pays $103 per month. If approved, the average customer would pay an extra $7.60 per month or about $90 per year. 

This is the company's third rate increase request since 2009 and if approved would bring rates 30 percent above 2009 levels for residential customers.

By the third year, commercial rates would increase by 4.4 percent and industrial rates would increase by 5.33 percent.

The increase would impact customers in a service area ranging from Durham west to the Tennessee border.

Duke Energy is seeking the increase to help pay for the replacement of old, less efficient coal-burning plants.

Charlotte Huffman

An award-winning journalist with an investigative edge, Charlotte has driven legislative change with reports on workplace safety concerns and contaminated groundwater. Contact our Investigative Team anytime HERE. More>>

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