Duke exec: rate hikes needed for plant upgrades

Published 12:00 am Friday, August 26, 2011

By Emily Ford
SPENCER — At a ceremony Friday marking the retirement of a coal-fired unit at Buck Steam Station, Duke Energy’s Brett Carter tried to sell elected leaders and other officials on the company’s proposed 15 percent rate hike.
While some said Carter made his case, others weren’t convinced.
Duke needs the rate increase to reimburse $4.8 billion the company has spent since 2009 modernizing plants and complying with environment regulations, including a $600 million investment at Buck, said Carter, president of Duke Energy North Carolina.
The rate uptick would be the first significant increase to base rates since 1991, Carter said. It would come on the heels of a 5 percent fuel rate increase for residential customers that takes effect Thursday.
N.C. Rep. Fred Steen said Carter made a good case for the proposed increase, although he doesn’t like paying more.
“Nobody wants rates going up. Energy costs are high enough,” Steen said. “But it’s still a good bargain compared to the rest of the country.”
Duke’s rates are 30 percent lower than the national average, Carter said. On average, Duke customers pay about $3 per day for electricity, he said.
N.C. Rep. Harry Warren said he needs to know more before he supports the rate hike.
“Basically, they’re looking for a rate increase to recoup the investment they made in the business,” Warren said. “Many businesses make investments, but they don’t all go running back to the customer to ask them for reimbursement.”
While Duke Energy is a good corporate citizen, Warren said he doesn’t agree with North Carolina power customers paying more to help cover the cost of building a nuclear power plant in South Carolina.
While Duke has requested a 15 percent rate hike in South Carolina as well, “that still amounts to asking North Carolina to help subsidize a plant in South Carolina,” Warren said. “He has a hard sell on his hands up here, particularly in a tough economy.”
Duke’s petition to the N.C. Utilities Commission for a 15 percent overall rate hike — the largest in 20 years — would total about $646 million annually, with 75 percent going toward capital investments made in the past two years.
Adjusted for inflation, Duke customers pay less for electricity now than they did 20 years ago, Carter said. Duke is the first power company to modernize its fleet, retiring 38 units and replacing them with cleaner, more efficient generators like the new combined cycle power plant at Buck, he said.
“As we go up, believe me, everyone else will be following suit,” Carter told about 50 leaders from Rowan and surrounding counties who toured the retiring coal unit and viewed the new plant.
Four days ago, stockholders overwhelmingly approved a proposed merger between Duke and Progress Energy that would create the country’s largest utility. State and federal regulators still need to approve the deal, and N.C. Utilities Commission will begin hearings Sept. 20.
While he’s fine with the merger, Rowan County Commission Jim Sides said he opposes the rate hike.
Taxpayers are already paying more to Duke in cash incentives, Sides said.
“Everywhere they’re putting these things in, they’re getting incentives,” he said. “I think it’s a slap in the face to taxpayers to come back with a rate increase.”
In 2008, Rowan County awarded Duke an incentive to expand Buck Steam Station. Starting next year, the company will receive roughly $840,000 back from its property tax payment annually for 10 years.
Without incentives, the expansion at Buck could have gone to another plant, said Bob Wright, president of the Rowan County Chamber of Commerce.
The expansion put 700 people to work for more than a year constructing the plant and will increase the county’s tax base, meaning more money for schools and other services, he said.
While state regulators will have the final say on Duke’s requested rate increase, Wright said he thought Carter made his case. Duke needs a way to pay for new plants and has done good job of keeping energy costs low, Wright said.
“No one wants to pay higher utility bills, including myself,” he said. “But I think it’s a pretty good deal.”
Carter acknowledged it’s a bad time to ask for a rate increase.
“But we will come out of the downturn in such a great position to power North Carolina, we know this is the right path to be on,” he said.
N.C. Sen. Andrew Brock said lawmakers knew tougher state environmental regulations would come with a price tag. The rate increase is justified, he said.
“They have to do this to pay for the new equipment they have coming on line,” Brock said.
If approved, the proposed merger of Duke and Progress Energy eventually could result in a rate decrease, he said.
The two companies estimate customers in the Carolinas will save about $700 million over five years due to lower fuel costs and combining plant operations.
“Efficiencies from the merger could mean a future rate decrease passed on to customers,” Brock said.
The merger would create a utility serving 7.1 million customers in the Carolinas, the Midwest and Florida. The companies plan to close the deal by the end of the year.
Some consumer groups and municipal power companies have objected, saying the merged utility giant would have too much influence when selling wholesale electricity in the Carolinas.
The Federal Energy Regulatory Commission has asked Duke and Progress Energy to provide additional information before deciding whether there are market-control issues in the proposed merger, the Charlotte Business Journal reported Friday.
That could mean a delay in approval from the federal agency, although a Duke Energy spokesman told the Business Journal he doesn’t think that will happen.
Even if the merger is approved, Duke and Progress separately would pursue rate increases for their current customers — Duke’s 15 percent base rate increase in North and South Carolina, and a rate hike request coming next year from Progress.

Unit 3 produces its final electricity

After 70 years of service, coal-fired unit 3 — a GE J-1 steam turbine —  has been retired  at Duke Energy’s Buck Steam Station on the Yadkin River near Spencer. Unit 4 was retired earlier.
Duke Energy and GE marked the occasion with a ceremony Friday at Buck.
Unit 3 had compiled the longest service record of any unit in GE’s active fleet of large steam turbines.
With the retirement, only seven J-1 machines remain in operation. The J-1 is a single-casing, non-reheat steam turbine, with a combined high pressure-low pressure section.
Scheduled to be mothballed by 2015, units 5 and 6 are the only remaining coal-fired generators at Buck, where Duke is building a combined cycle power plant that uses both natural gas and steam to create electricity.

Contact reporter Emily Ford at 704-797-4264.