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The controversial bill on Duke Energy rates, explained: How does it affect customers?

People use a road as a boat ramp after Hurricane Florence struck the Carolinas Monday, Sept. 17, 2018, in Conway, S.C. (AP Photo/Sean Rayford) People use a road as a boat ramp after Hurricane Florence struck the Carolinas Monday, Sept. 17, 2018, in Conway, S.C. (AP Photo/Sean Rayford)

People use a road as a boat ramp after Hurricane Florence struck the Carolinas Monday, Sept. 17, 2018, in Conway, S.C. (AP Photo/Sean Rayford)

By Elizabeth Thompson August 2, 2019

In the wake of Hurricane Florence, a controversial bill from the state Senate could change the way energy utilities, and especially Duke Energy, charge customers.

Senate Bill 559, approved by the Senate, is awaiting approval in the state House, where it is sitting in committee. The bill, which Duke Energy heavily lobbied for, consists of two parts -- the first related to storm recovery funding and the second, more controversial part related to expanding rate-setting options.

The bill was introduced after the North Carolina Utilities Commission denied Duke Energy’s request for $13 billion in increases for a 10-year improvement plan to fund grid modernization and coal ash cleanups. Duke Energy North Carolina President Stephen De May told WRAL News the bill was not a result of that decision.

The bill has been harshly criticized by a number of clean energy advocates, environmentalists and ratepayers, who say it would unfairly raise rates. Since this bill is so controversial and so complicated, we decided to investigate just what exactly it entails and what it could mean for customers.

Part One: Storm recovery funding

The first part of the bill has met considerably less opposition. Its main goal is to give Duke Energy and other utilities a way to cover costs related to storm recovery.

It would do this by allowing Duke Energy to issue "storm recovery bonds," which would help pay for storm-related expenses, said Lori Bennear, a professor of energy economics and policy at Duke University.

Because the bonds would be secured by a line-item charge on customer’s bills, that security mechanism could allow Duke Energy to borrow at lower rates, Bennear said.

The bonds would be issued for people and investors to buy, said Daniel Tait, the research and communications manager at the Energy and Policy Institute. This would be cheaper than taking a loan because bonds have lower interest rates.

Grace Trilling Rountree, a spokeswoman for Duke Energy, said this part of the bill could save customers "15%-20% on storm recovery costs."

"This is likely a good thing for customers in an era where we are expected to face increasing storm frequency and severity," Bennear said.

Bennear said this part of the bill would likely lower rates for customers, but the second and more controversial part of the bill is where rates may increase.

Part Two: Changes in rate-setting

The second part of the bill gives utilities two new options to set rates with the North Carolina Utilities Commission in order to pay for coal ash cleanup and grid modernization -- technical improvements to the electric utility grid that would allow for more efficient monitoring and delivery of energy.

Currently, if a utility wants to increase rates, it must consult the NCUC every time and go through an extensive review process, Bennear said.

One of the new options would allow utilities to establish rate increases over a time period up to three years.

The second option is referred to as "return on equity banding." Currently, the NCUC sets a specific amount of profit a utility may earn without being penalized. Using "return on equity banding," the commission would still set that amount, but the utility could earn 1.25% above or below that target and still be within an acceptable range, Tait said.

Neither of these new options necessarily have to be used, De May said in an opinion article in the News & Observer.. Duke Energy could only use them if the NCUC decided their rate-making mechanisms were fair and in the public interest.

Criticism of the bill

Opponents of the bill are concerned that it gives too much power to the utilities to the detriment of rate-payers.

One concern Bennear said she had with the bill at the moment is that it has not yet established rules for the NCUC to hold utilities accountable.

A recent amendment to the bill would require Duke Energy to invest returns up to 1.25% over what is authorized by the NCUC in electric infrastructure and management programs for low-income customers should it use the "return on equity banding" option. However, opponents to the bill say these investments could add to the company’s rate base and actually lead to rate increases, Tait said.

Neither of the rate-setting options put forward by the bill are new and both have been used in other states -- with varying degrees of success, Bennear said. New York, for example, has used a multiyear rate plan since the 1990s and experienced growth in productivity.

However, some opponents to the bill fear it will follow the same path as Virginia’s multiyear rate plan, which resulted in Dominion, the state’s main utility, getting an excess profit of more than $300 million in 2018, according to NBC12 in Richmond.

"The Virginia case is complicated by interference in the rate-setting process by the state General Assembly, leading to accusations that the political coziness between the utility and the legislature resulted in a fleecing of consumers," Bennear said. "The details matter a lot and require effective and trusted regulatory oversight by the [NCUC]."

The fear that legislators are in cahoots with Duke Energy is a large motivator for Energy Justice NC’s opposition to the bill, said Rory McIlmoil, a senior energy analyst for Appalachian Voices, a nonprofit that is part of Energy Justice NC.

In a paid advertisement in The News & Observer, Energy Justice NC said, "Duke Energy and other electric monopolies are trying to pass a deceptive bill that’s opposed by consumers and businesses. That’s why they gave our politicians $1.6 million over 10 years and ramped up their giving in 2018 while they wrote this bill."

Energy Justice NC has published two reports that show Duke Energy’s contributions to state legislators’ campaigns and how the lawmakers have voted on legislation that affects Duke Energy. It has also lobbied North Carolina legislators at the state’s capital to vote against the bill.

In a statement to The News & Observer, Duke Energy said it is "doing nothing more than exercising our right to participate in the legislative process—just like the groups that oppose SB 559 are doing."

What this means for customers

Since Duke Energy’s $13 billion 10-year plan was denied by the North Carolina Utilities Commission, it has instead adopted a three-year multi-rate plan, Rountree said.

"Duke Energy has met extensively with stakeholders over the last year to refine our grid improvement plan and it is focused on an initial 3-year phase estimated at $1.7 to $2.5 billion," she said in an email to The News & Observer.

It is likely that rates will go up, Bennear said, but it is hard to tell how much at this moment because of the two different parts of the bill.

Tait said a multiyear rate plan is "making a decision in advance thinking you know everything that will happen in the next three years, and since that’s an impossible task, rates will probably go up."

The bill still has a way to go to become law. The House would have to approve the bill and send it back to the Senate with amendments. If the Senate agrees to the House’s changes, it would then go to Gov. Roy Cooper, who, WRAL reported, voiced concerns about the bill.

This story was produced by the North Carolina Fact-Checking Project, a partnership of McClatchy Carolinas, the Duke University Reporters’ Lab and PolitiFact. The NC Local News Lab Fund and the International Center for Journalists provide support for the project, which shares fact-checks with newsrooms statewide. To offer ideas for fact checks, email [email protected].

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Our Sources

"Bill would require Duke Energy to help low-income communities" by Lynn Bonner, July 8, 2019.

"Duke Energy: It’s time to set the record straight on NC Senate Bill 559" by Stephen De May, June 8, 2019.

"Duke Energy pitches new way to get state approval for rate increases" by Travis Fain, April 12, 2019.

Email interview with Grace Rountree, spokeswoman for Duke Energy, July 24 and 26, 2019.

Email interview with Lori Bennear, professor of energy economics and policy at Duke University, July 25 2019.

Email interview with Paige Layne, spokeswoman for Duke Energy, July 30 and 21, 2019.

"Governor weighs in on state budget, abortion veto, other issues" by Travis Fain, June 4, 2019.

"A plan that many Duke Energy customers don’t want is advancing in NC" by Lynn Bonner, April 30, 2019.

Phone interview with Daniel Tait, research and communications manager at the Energy and Policy Institute, August 1, 2019.

Phone interview with Rory McIlmoil, senior energy analyst for Appalachian Voices, a nonprofit that is part of Energy Justice NC.

"Regulators: Dominion Energy rates produced $300 million surplus" by Karina Bolster, August 30, 2018.

The controversial bill on Duke Energy rates, explained: How does it affect customers?