On July 1, Duke Energy petitioned the North Carolina Utilities Commission to raise rates 17 percent on average for Durham residents. If approved, this hike would place an unfair burden on consumers, especially those who have lost either employment or financial security in the wake of the recession.
For many in Durham, handing over an additional $18 each month to keep the heat on will strain already tight budgets. Additionally, Duke Energy’s status as a legal monopoly means that consumers cannot switch power providers. The proposal would exploit both the lack of competition and the inelasticity of demand for energy, and violates citizens’ trust in companies not subject to market forces.
Duke Energy’s proposal pays only lip service to fairness. But worse, it may also violate North Carolina rules limiting the amount utility companies can charge customers for transitions to cleaner and more efficient energy sources. The power provider claims that rate increases will cover, among other things, the costs required to comply with state and federal standards for energy efficiency.
The North Carolina Renewable Energy and Energy Efficiency Portfolio Standard (REPS) indicates, however, that in order to recoup costs incurred by complying with REPS, energy companies can charge consumers an amount that reflects unavoidable costs as long as that amount does not exceed $12 annually per customer.
If Duke Energy’s proposed rate hike exists to cover the cost of compliance with environmental standards, then it exceeds the legal limit by $204 per person. Exceeding the regulated price increase by 1700 percent demands more justification than others costs, like plant maintenance.
Moreover, the company must express any REPS-related increase in the form of an annual rider and not a general rate hike to ensure both that a customer’s bill reflects the actual annual cost of compliance and that the company does not permanently increase prices in order to cover a temporary cost. Duke Energy has not indicated that it will employ an annual rider.
We find it surprising that Duke Energy has offered a proposal that seems to violate energy efficiency regulations, given that its CEO sits on the board of the Nicholas School for Environmental Policy Solutions.
Regardless of its legality, the proposed price increase lacks sufficient economic justification. Research on the cost-effectiveness of improved energy efficiency indicates that, in spite of high initial costs, transitioning to more efficient energy sources saves money over time. Duke Energy’s insulation from market fluctuations and its long-term guarantee of market share means that it will undoubtedly recoup its initial costs of complying with REPS. Because transitioning will involve very little financial risk and almost guarantees long-term profits, the utility cannot justify the exorbitant hike.
Duke Energy must shift away from dirty coal and improve energy efficiency, but financing that shift with an indefensibly high rate increase will only hurt Durham residents. The North Carolina Utilities Commission has recommended a rate increase of 4.8 percent. Although any increase will have adverse effects on community members, we support a more reasonable rate hike as long as the increased revenue serves to improve the efficiency of existing energy plants, facilitates the transition to renewable energy and complies with REPS. For Duke Energy, going green should involve improving energy efficiency, not picking the pockets of consumers.
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