Wednesday, October 12, 2011

EPA Regulations Force Duke Energy to Raise Rates

Charlotte area residents attended a hearing by the North Carolina Utilities Commission. The capacity crowd was in an uproar over a 15% Duke Energy rate increase. The hearing lasted four hours with over 40 speakers venting their ire.

The Charlotte Observer reported the following:

It would be Duke's biggest rate hike in at least 20 years, if the N.C. Utilities Commission grants the request. Three-fourths of the increase would help pay for $4.8 billion in Duke construction since 2009, for new power plants and for pollution-control equipment.

Tim Gause, Duke's director of government and community affairs, said Duke faces a "perfect storm" in the need to retire old power plants and build new ones while the economy suffers.

"We're doing all we can to control costs, but we have to protect our customers as well," he said. "We can't stop planning and investing in a power system that is so vital to our community."

Several speakers, including the commission's own consumer advocates, challenged the 11.5 percent return on equity, or profit cap, that Duke is seeking as part of the increase. Most U.S. utilities have been allowed returns of 10 to 10.5 percent in the past five years, the Edison Electric Institute reports.

A handful of speakers spoke up for Duke, crediting the company's work in economic development and creating new energy jobs. Catawba Valley Community College official Garrett Hinshaw said Duke helped retrain laid-off industrial workers in his hard-hit region.

What the Disturber didn’t report is the reasons why Duke had to build new power plants and pollution-control equipment. The Environmental Protection Agency has implemented new guidelines to control CO2 emissions. Duke Energy published the following on their website:

Duke Energy Carolinas is asking the North Carolina Utilities Commission (NCUC) for an approximately 15 percent average increase to electric rates. If approved, new rates would likely go into effect February 2012.

Approximately three-fourths of the rate increase would allow Duke Energy Carolinas to begin recovering $4.8 billion in investments made since 2009 to modernize our electric system and comply with state and federal emissions regulations. The remaining fourth covers the impacts of lower than expected electric sales due to the recession, additional financing and other general costs.

Seeking this increase in electric rates better aligns the rates our customers pay with the cost to provide affordable, reliable and clean electricity today, and for decades to come.

The EPA’s regulations are so burdensome that energy companies are looking for ways to maintain a profit while adhering to guidelines:

Increased Regulatory Costs Explain the Urge to Merge

Bottom line: complying with new environmental regulations is becoming so burdensome that only the largest utilities with the lowest cost of capital can earn a decent return on investment in such an environment. On November 16, 2011, the Environmental Protection Agency (EPA) will
issue final rules limiting mercury, soot, and other toxic emissions from coal-fired power plants. These new rules will hit both Duke and Progress hard because they both rely on coal for a large percentage of their power generation:

In the
conference call discussing the merger, Progress CEO Bill Johnson revealed that a big reason for the merger was reducing costs and improving his company’s credit rating so that it could meet the burdensome new environmental regulations coming down the pike:

In Duke Energy, we gain a partner with an exceptional balance sheet and a diverse regulated footprint, resulting in a lower overall business risk profile. Given the magnitude of our capital investment opportunities in the decade ahead, this reduced risk profile is very important.

We believe the new company will be well positioned to meet the new EPA MACT [Maximum Available Control Technology] regulations expected later this year and to 2012. We still have much work to do to comply with these new rules, which could require significant additional capital investment and additional announced plant closures

I wonder how many citizens complained of the EPA’s regulatory overreach at this hearing. I’m sure the Charlotte Observer would’ve reported on that. Surely, they would’ve?


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