Opinion: Utility customers’ leader says Duke Energy regulatory reform bill is unnecessary

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Sharon Miller is executive director of the Carolina Utility Customers Association, which represents some N.C. employers in rate-making cases. The nonprofit doesn’t disclose its membership or leadership, though its directors have included representatives of some big N.C. manufacturers and other businesses, according to the group’s tax filings. 

She wrote these comments in response to a request for her opinion on Senate Bill 559, which has been among the most contentious issues in the N.C. General Assembly this year.  It would enable Duke Energy Corp. and other utilities to use a multi-year rate plan to pay for major projects, pending approval by the N.C. Utilities Commission. Duke says the increased flexibility offers big advantages in its efforts to modernize its electric grid and promote new technologies and clean energy.

Miller’s reference to a Conference Report reflects to the current bill that emerged after previous legislative action. 

Her comments are edited for clarity. 

In my view, Harry Truman’s words – if you can’t convince them, confuse them – captures the approach being used to seek approval of Senate Bill 559. I concur with State Senator Erica Smith-Ingram’s assessment, which she expressed on the Senate floor when the Conference Report was being debated, that the report is poorly written, complex and confusing. Given that senators had little time to review the report before being asked to vote on it, there was scant time to comprehensively analyze and understand the full implications of the proposed bill language.

There is no consumer support for the alternative rate mechanisms that were cherry-picked by Duke and which have no quantifiable customer benefits. It’s a great disservice to citizens across North Carolina for legislators to mislead them otherwise.

Duke’s claim that nothing in the law requires the Utilities Commission to approve multi-year rate plans or flexibility on returns on equity is true. However, SB-559 explicitly gives the Utilities Commission authorization to approve these rate alternatives, which the commission currently lacks. Duke claims that these new tools will work to the benefit of customers, regulators, and investors in North Carolina. We have already dispelled that customers benefit from these mechanisms. Since the commission didn’t ask for these rate mechanisms, we don’t subscribe to Duke’s claim of benefit to them. In fact, when we asked a top bill co-sponsor why the commission didn’t ask for these rate mechanisms if they were so badly needed, he responded that in all his years at the General Assembly, he had never known an agency to ask for less authority.

We do agree with Duke that investors will handsomely benefit. Duke Energy CEO Lynn Good was quoted in the Charlotte Business Journal, on Sept. 7, 2017: “It is also important that we pursue regulatory and legislative initiatives that underpin our ability to deliver returns and turn those investments into cash and returns to shareholders.” Duke recently admitted that SB559’s proposed new rate mechanisms could be used for paying for coal-ash clean-up and vast grid upgrades that could cost ratepayers billions of dollars. The truth is SB559 will drive Duke’s earnings for the next decade.

We fail to see how these tools enhance the customer experience. Duke cites the benefit that customers will get quicker access to cleaner energy and attractive new technologies. If this is true, then why are the clean energy/solar energy advocates opposed to SB-559?

SB-559 alters the form and process of the Utilities Commission oversight to a single rate case for a 3-year period — with a return-on-equity range versus a single return on equity.

A bill proponent said on the Senate floor that this is the first time that the utility would be required to give back the money if the utility over-earned. The reality is that the Utilities Commission monitors and has compiled reports on the actual earnings of the utilities versus their allowed ROE. The Utilities Commission has the authority — and I would say the duty — to call a utility in for review if they show a pattern of material over-earnings.

Under SB-559. the utility would be required to use ratepayer over-payment monies to fund infrastructure investments for low-income customers and communities or energy efficiency and demand-side management programs for low income customers. Currently, if a utility over-earned and the Utilities Commission did call them in for review and determined the utility had excessively over-earned, those monies would be returned to all ratepayers. I fail to see how consumer advocates will love this and other processes embodied in SB-559.

SB-559 gives the Utilities Commission the authority to approve multi-year rate plans and ROE banding without an open stakeholder process to discuss the implications and impacts of these new mechanisms on rates and ratepayers. Duke cherry-picked these mechanisms because they are beneficial to them. Consumers strongly support consideration of other ratemaking options.  Stakeholders overwhelmingly want to have input into the process — not simply be permitted to file comments on a proposed rule. That is not an open stakeholder process.

Pro-SB-559 legislators made several comments on the Senate floor about the bill putting these issues in the hands of the experts — the Utilities Commission.  If legislators and Duke Energy are truly putting complete trust in the Utilities Commission to make the right decisions, why does SB-559 contain a provision that permits the utility to withdraw its application after the Utilities Commission has issued its ruling on the utilities’ request for these new mechanisms — and be governed under the Commission’s order in the base rate case.

If Duke doesn’t like the Commission’s decision, they can simply withdraw their application —after the ruling has been made. Under current law, once the Commission issues its order or decision on a utility rate case application, the only recourse available to the utility is to appeal the ruling to a higher court.  It is unprecedented to permit the utility to essentially usurp the Commission’s ruling authority.

SB-559 authorizes periodic changes in base rates during the 3-year plan without a base rate case. Does this mean consumers can expect to see their base rates increase annually? Periodically isn’t defined. The bill also fails to define the terms “sudden substantial rate increases” or “rate shock.”  Rate shock might be defined as anything higher than 3%; whereas Duke may view rate shock as 10% — defining these terms is crucial because any increase reduces N.C. businesses’ competitive position relative to other states and countries.

SB-559 is bad energy policy and it’s bad for consumers. Contrarily, it is crafted in the classic fashion of heads Duke wins, tails customers lose. The identified flaws and omissions alone should be cause for the Conference Report to be rejected, especially since amendments cannot be made to a Conference Report when it comes to the floor for a vote. Surely legislators don’t want to approve a significant change in energy policy with a bill that contains known flaws.

 

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