State regulators on Wednesday voted to drastically scale back a Duke Energy Carolinas rate hike package and faulted company executives for their “tone deaf” proposal before reducing compensation pay for four of them.
The unanimous Public Service Commission vote ends months of contention between the Charlotte-based utility and its ratepayers over the costs of doing business. Duke Energy Carolinas serves 591,000 customers in the Upstate.
“I think we all can say we certainly heard a public outcry, particularly from the elderly and those who were on a limited or fixed incomes,” commissioner Thomas Ervin said in outlining a series of 11 recommendations that in total cuts more than 50% from the revenues Duke hoped to realize through the rate adjustments.
During six days in March, Duke officials and intervenors in the case made their case in front of the commission, with the company agreeing to drop its proposed Residential Basic Facilities Rate charge, or BFC, to between $11.70 and $13.09 a month instead of the $29 it initially asked for. Prior to Wednesday, that levy was $8.29
Ervin credited Duke’s responsiveness — which was based on a fee scheduled proposed by the State Office of Regulatory Staff — but said asking for such a large increase to begin with was unacceptable.
“What concerned the ratepayers who testified, and what concerned the commission, frankly, was the fact that the CEO, Lynn Good and her executive team demonstrated that they really were tone-deaf as to how a 238% increase in the South Carolina Basic Facilities Charge would negatively and adversely impact the elderly, the disabled, the low-income and low use customers who are being served by the company,” Ervin said.
As a result, he recommended cutting the portion of her compensation package paid for by those in Duke Carolina’s territory by 75% — from $547,000 to $136,750. Duke’s next three highest paid executives will take a 50% cut to that portion of their compensation package following Wednesday’s vote. Good’s salary was $21.4 million as of 2017.
“These high, fixed-rate charges would have discouraged customer investments in energy efficient appliances, as well as incentives to make their homes more energy efficient. High fixed charges would also discourage customers from investing in solar panels and we heard testimony at our public hearings from those who had already purchased solar panels or contemplating buying them, and how discouraged they were about these high fixed charges,” Ervin said. “These fixed charged also would have reduced customer control over their electric bills, even if they used less power, which could lead to changed behavior where customers where customers were actually increasing their energy consumption.”
Though Duke showed a willingness to compromise on the BFC, the company insisted it be allowed to charge $15.57 more a month for users that consume 1,000 kilowatt-hours of power to yield a 10.5% return on equity for investors.
“In regulating utilities and their prices, there is very long-standing precedent when a company devotes assets to providing public service to the community. As a utility like we are, the regulations are to ensure just and reasonable rates, but the investors that provide funding to operate the business also deserve a fair return on their investment, and that’s one component of our cost,” Duke Energy Carolinas President Kodwo Ghartey-Tagoe told the Public Service Commission in March. “If we cannot raise those funds, utility customers suffer.”
Jeffrey Nelson, ORS’ chief legal officer, told regulators his agency is “willing to accept” a return on equity of 9.76%.
That “is the national average for vertically integrated utilities only over a three-year period encompassing 111 decisions,” Nelson wrote. “South Carolina customers should not pay rates based on a ROE that is more than the national average.”
A “vertically integrated utility” owns all levels of its supply chain: Distribution, generation and transmission.
According to national policy group American Energy Economy, the average ROE for utilities is 10.13%— the Alabama Power Co. at 13.75% is highest, while two Illinois firms have the smallest, at 8.64%.
The Public Service Commission said Duke was entitled to collect a 9.5% return.
“The company is by law entitled to a reasonable return on equity on its allowable cost, but it has no right to earn profits comparable to highly profitable enterprises or speculative ventures,” Ervin said.
Duke will be required to present a revised tariff reflecting the commission’s ruling, Ervin said.