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SC regulators cut Duke Energy Carolinas' rate increase by more than half

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SC regulators cut Duke Energy Carolinas' rate increase by more than half

South Carolina regulators cut Duke Energy Carolinas LLC's proposed revenue increase by more than half, allowing the Duke Energy Corp. utility to recover about $107 million of its $230.8 million request.

Duke Energy Carolinas, or DEC, in its November 2018 filing with the Public Service Commission of South Carolina, proposed to return $63 million in state and federal tax benefits through a rider. Inclusive of the rider, the utility proposed a net revenue increase of about $168 million, or an overall average rate increase of 10%. (Docket 2018-319-E)

It was unclear, however, if the unanimous May 1 directive by the PSC is net of the returned tax benefits.

DEC also requested an overall rate of return of 7.74% with a 10.5% return on equity and a 53% equity component, based on a South Carolina rate base of $5.6 billion.

South Carolina regulators approved an ROE of 9.5% with a capital structure of 47% debt and 53% equity for a revenue increase of $106.9 million, which represents a 54% decrease from DEC's original request.

The bulk of the utility's revenue increase request was tied to "significant plant additions and changes." This accounted for $251 million of DEC's revenue requirement and reflected capital investments in the 750-MW W.S. Lee Combined-Cycle Project, which began operating last year, and the scrapped William States Lee III Nuclear Station, as well as solar, hydro and advanced metering infrastructure investments.

DEC tied $62 million of its revenue request to coal ash management costs, while requesting recovery of $242 million of deferred coal ash costs over a five-year period.

The most contentious issue in the case was DEC's request to increase the monthly basic facilities charge for all customers, including for residential, non-time-of-use customers, to $28 from $8.29. While the utility later agreed to reduce this charge to $11.96, the PSC directive chastises Duke Energy's CEO and executive team for being "'tone deaf' as to how a 238% increase in the Basic Facilities Charge would have negatively and adversely impacted the elderly, the disabled, the low income and low use customers."

"It is one of the reasons I am recommending a 75% disallowance of the CEO's excessively high executive compensation for South Carolina during test year 2017 and a 50% disallowance for the next three highest company executives," Commissioner Thomas Ervin wrote in his motion.

The seven-member commission, which has not yet issued a formal order, also decided to disallow recovery of more than $800,000 in O&M expenses; disallow recovery of about $469.9 million of costs that could be allocated to South Carolina from the "incremental increase in coal ash remediation and disposal costs" from North Carolina's Coal Ash Management Act; and disallow any return on pre-construction costs for the canceled Lee nuclear plant and disallow recovery of reserve for an End of Life Nuclear Fund.

Commissioners also rejected DEC's proposed three-year amortization of costs for the Lee combined-cycle plant, advanced metering infrastructure and a distribution control center. They agreed to adopt the South Carolina Office of Regulatory Staff's recommendation of a 30-year amortization period for the control center costs, 39-year amortization for the combined-cycle plant expenses and a 15-year cost recovery period for the advanced metering infrastructure initiative.

DEC will be allowed to recover more than $1.3 million in rate case expenses spread out over five years.

The utility said it is awaiting the full commission order, likely available in the next couple weeks, before responding in-depth to the commission's decision.

"While we are currently evaluating the Public Service Commission of South Carolina's decision, we disagree with some of the findings and legal conclusions made by the commission," Duke Energy spokesman Ryan Mosier said in an email. "We will complete a thorough review of the order once issued — including any needed clarification — and then evaluate next steps, keeping in mind that it is critical to balance the needs of our customers with smart investments that keep costs as low as possible and keep South Carolina competitive for the long term."