NC Supreme Court reviews right role for considering consumers in electricity rate increases

Energy Associated Press

North Carolina's Supreme Court on Monday took a new look at whether state regulators are doing enough to balance consumer protection against the pursuit of higher rates by the country's largest electric company.

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The new-look court heard arguments in two lawsuits in which Attorney General Roy Cooper argues regulators did not sufficiently explore the impact on consumers when allowing rate increases for Duke Energy Carolinas. The Duke Energy Corp. subsidiary serves customers in Durham and western North Carolina.

One of the cases challenges a 7.2 percent rate increase originally approved in 2012 that translated into an extra $309 million cost to consumers. The second case involves a 4.5 percent average increase approved last year for two years, growing to a 5.1 percent increase thereafter and costing electricity customers $235 million a year. Consumers are already paying the higher rates.

Cooper, a Democrat considering challenging Republican Gov. Pat McCrory in 2016, has challenged four electricity rate increases by Charlotte-based Duke Energy or Richmond, Virginia-based Dominion Resources in the past two years.

Cooper appealed the 2012 rate increase and the Supreme Court last year ordered the North Carolina Utilities Commission to reconsider its size in light of its effect on customers. The commission did but came to the same conclusion, emphasizing that the rate increase and Duke Energy's profit margin had to be large enough that it could borrow millions more from investors at favorable rates available to a healthy company.

Regulators aren't observing the Supreme Court's 2013 ruling to consider consumer impact because "there's no discussion, analysis, linkage of the effect of changing economic conditions on people that are having a hard time making their bills," said John Maddrey, one of Cooper's top assistants. The commission should offer evidence explaining its decision for the appropriateness of rate hikes, he said.

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"There's nothing other than the commission's assertion that 'this is how we do it,'" Maddrey said. "What you have here falls into the category of an indirect or afterthought consideration of the impact on the consuming public."

Judges grappled with what yardstick regulators should use to meet their obligation to consumers. Justice Robert N. Hunter Jr. asked whether Cooper's office had any objective test it could recommend. Justice Barbara Jackson asked whether giving consumers the opportunity to speak at public hearings was sufficient.

Courts should stay out of second-guessing the best judgment of the appointed regulatory commission because there is no specific test that could measure the impact on all consumers, said Chris Browning, an attorney representing the utility. The 7.2 percent rate increase approved in 2012 that the Supreme Court ordered revisited amounted to less than $7 a month extra for the average residential consumer, he said.

"The attorney general is arguing there must be some sort of econometric analysis that's done by the expert witnesses to explain how that impacts the 1.8 million customers" of Duke Energy Carolinas, Browning said.

Duke Energy, the Charlotte-based corporate parent of Duke Energy Carolinas, has defended its rate increase as necessary to recover some of the $11 billion it has invested in the past quarter-century. Customers benefit in the long term when the company guarantees safe, reliable power, Browning said.

"Blackouts and brownouts are not an option for this utility," he said.

The hearing came less than three weeks after the Supreme Court ruled that regulators sufficiently considered consumer impact when it approved an $88-a-year increase for residential customers of the former Progress Energy. The court ruled regulators met their duty to consumers by considering high unemployment and foreclosure rates, as well as hearing objections from nearly 60 witnesses who said the rate increase was not affordable.

The court hearing was the first since former Justice Mark Martin was promoted to chief justice to replace Sarah Parker, who retired last month. Martin's spot was filled when McCrory promoted Hunter from the lower state Court of Appeals. The changes give Republican jurists a 5-2 majority on the court.

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Emery Dalesio can be reached at http://twitter.com/emerydalesio