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Duke Energy Carolinas seeks $445M rate hike for coal ash, grid investments

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Duke Energy Carolinas seeks $445M rate hike for coal ash, grid investments

Duke Energy Carolinas LLC has filed for a $445.3 million base rate increase in North Carolina in the utility's second rate case in the state in two years.

The Duke Energy Corp. subsidiary said in testimony filed Sept. 30 with the North Carolina Utilities Commission that it plans to partially offset the 9.2% increase with a rate reduction of $154.6 million.

The rate reduction would be achieved by refunding certain tax benefits tied to the federal tax overhaul of 2017, which lowered the corporate income tax rate to 21% from 35%. This would result in a net revenue increase of about $291 million for an overall average rate increase of about 6%. The increase is premised upon a 10.3% return on equity.

Duke Energy Carolinas, or DEC, wrote that the base rate increase is necessary to cover "costs incurred to maintain and modernize the company's electric system" while generating cleaner power, improving reliability and restoring service after major storms. The company said it also will use funds to "responsibly close coal ash basins and operate active coal plants" as it also seeks to reduce its reliance on coal.

"Duke Energy is committed to a smarter, cleaner energy future for North Carolina," Stephen De May, Duke Energy's North Carolina president, said in a Sept. 30 news release. "We have significantly reduced our carbon footprint and have proposed additional steps to further transition to cleaner energy sources. We are also modernizing the electric grid to improve reliability, help avoid power outages and speed restoration when outages do occur."

About $36 million of the proposed rate hike is tied to DEC's work to restore service to about 1.3 million customers impacted by hurricanes Florence and Michael, as well as a strong winter storm in late 2018.

DEC said the proposed increase includes $123.6 million for the "recovery of reasonable and prudent" costs incurred since Jan. 1, 2018, for the closure of coal ash impoundments at the G.G. Allen, Belews Creek, Buck, Dan River, Marshall, James E. Rogers Energy Complex (Cliffside), Riverbend and W.S. Lee coal plants. This recovery would take place over a five-year period.

In addition, DEC outlined a grid improvement plan under which the utility asked to defer certain costs tied to distribution and transmission investments for future recovery. The proposed three-year grid investment plan would run from 2020 to 2022 and DEC is seeking approval to "begin deferring incremental costs not included in this case" beginning Jan. 1, 2020.

The North Carolina Utilities Commission in June 2018 ordered an initial revenue reduction for DEC as part of its decision to reject the utility's net $611 million electric rate hike and additional $36 million increase tied to a proposed Grid Reliability and Resiliency Rider. DEC was authorized a $56 million increase after the first four years that the rates are in effect.

DEC, in its latest case, argues the "conditions under which we operate continue to evolve ... challenging our ability to continue to provide the type of electric service our customers expect."

"The company is seeing and experiencing significant changes throughout many aspects of the electric industry, and the investments we have made and must continue to make are designed to keep pace with evolving customer needs and expectations," De May wrote in testimony filed with the commission. "These investments are capital-intensive and the company has incurred costs that are not otherwise reflected in current rates."

If approved, the typical residential customer who uses 1,000 kWh per month is expected to pay about $116.26, or an increase of $8.06 per month.

(NCUC docket E-7, SUB 1214)