Duke seeking major changes in regulations

CAROLINAS - Duke Energy Corp. is taking its effort to remake utility regulation in the Carolinas to the general assemblies of both states this year.

The company plans to push bills on a range of fronts. Most ultimately will affect the way Duke recovers costs for everything from plant development to energy-efficiency programs. The result could cut the time it takes for those costs to hit customers’ power bills.

Duke feels the traditional rate-case procedures in the Carolinas create too long a lag between spending and cost recovery. The proceedings that allow utilities to raise rates — for anything other than fuel costs — are lengthy, and utilities frequently seek to avoid them.

That weakens utility balance sheets, says Brett Carter, Duke Energy Carolinas new president. But it also causes “rate shocks” when the companies finally seek increases.

“Legislatively, that’s where we are going to focus our efforts,” Carter says.

No bills have been filed with either legislature.

N.C. Rep. Pricey Harrison (D-Guilford) and Dukes Scott, head of the Office of Regulatory Staff for the S.C. Public Utilities Commission, have each heard rumblings about new efforts from the utilities, but have seen no details.

Duke Chief Executive Jim Rogers and other top Duke executives say those proposals will be coming. They gave a broad outline in a conference call with analysts.

Rogers says a new regulatory framework will be needed to meet the changing demands on power companies. And he recognizes that it will be a difficult sell because prices are going to be hard to control.

“For the last couple of decades, the real price of electricity has been going down,” he told the analysts during a conference call last week. “Now they are going to start going up.”

The annual conference call includes a discussion of Duke’s capital spending, legislative and operating goals for the next five years.

And Rogers laid out the broad outlines of the legislative efforts.

He renewed his company’s commitments to major construction plans, including coal plants in North Carolina and Indiana, and the proposed $11 billion Lee Nuclear Station near Gaffney, S.C.

For the Carolinas, the expansion will mean average bills — including fuel costs — are likely to go up about 6.4% a year. That would mean that by 2013, rates could be about 36% higher than they are now.

The company expects to seek rate increases in the Carolinas in 2010, 2011 and 2012. Rogers told analysts that slowing growth has caused Duke to delay some projects for a year, including two gas plants in North Carolina.

But he says the company must go ahead with new construction and with energy efficiency through its Save-A-Watt program.

He said following through on those initiatives will require new legislation for what Duke considers appropriate regulatory treatment.

Carter, speaking in an interview after the conference, says Duke is looking at a model similar to regulation in the company’s Midwest region.

Many rate increases there are handled by riders that require less involved proceedings and allow, he says, for incremental increases year after year instead of large hikes following rate cases.

Such riders are similar to the fuel-cost provisions used in both Carolinas that allow rates to vary according to a utility’s annual fuel expenses.

Legislators and regulators in the Carolinas already have anticipated renewed initiatives from the utilities when their general assemblies convene in January.

And Duke has a particular incentive to seek regulatory changes. Approval of its Save-A-Watt program, for instance, appears stalled in both states.

Legislation on such major issues will be a tall order just a year after both states approved significant energy legislation last year.

North Carolina established requirements for renewable-energy production, set up mechanisms for approving nuclear plant planning costs and endorsed cost-recovery models such as the one Duke proposes in Save-A-Watt.

The South Carolina legislature gave utilities the authority to recover the financing costs of major base-load plants as they are built.

Harrison says new legislation on nuclear costs could undo the compromise reached last year in North Carolina.

Lawmakers pushing then for higher renewable-energy goals moderated their position in return for utilities agreeing to take less than they sought on nuclear cost recovery.



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