Dive Brief:
- Duke Energy’s request to raise residential electricity rates by 11.6% in North Carolina faced scrutiny from state regulators during a seven-hour hearing on Wednesday, with commissioners and stakeholder representatives questioning the utility’s financial logic and its treatment of data centers versus residential customers.
- North Carolina Utilities Commissioner Tommy Tucker noted that Duke’s large-load queue is 70% data centers and asked how other customers are expected to pay for “roughly $100 billion” in investments by 2035. “I understand the payouts from the data centers running 24/7/365, I understand the profitability there for Duke and the return on investment,” he said. “But then with my customer shoes on, we're in the middle of a rate case, so I don't see how you can say that we're benefiting customers.”
- Thomas Heath, corporate finance director at Duke Energy Business Services, said that a “different capital structure that would lower this rate request would result in a lower revenue requirement for customers today, but they're going to trade that lower cost today for higher costs in the future.”
Dive Insight:
Earlier this year, Duke announced a capital spending plan of $103 billion, which company officials called the largest spending plan on file at any regulated U.S. utility. Now Duke is under pressure from ratepayers and regulators to justify that spending as it seeks to increase residential rates.
Heath noted that Duke had revised its requested ROE from 10.95% to 10.48% in “a recognition of affordability concerns.”
“We believe that that is [...] the low end of what we can absorb and maintain the long-term financial health of the utility,” he said.
Heath argued that if Duke’s return on equity drops low enough, it could lead to a credit downgrade for the utility, which “not only has consequences to the company, it also has consequences to customers through higher borrowing costs, and ultimately, over time, through a higher ROE required to entice equity investors to make future investments in the company.”
He said the proposed rate hike was “beneficial to customers in the long term.”
“It could be much more expensive if we are downgraded,” he said. “The question is, [is the ROE] coming at a level that causes the rating agencies to change their assessment of the regulatory jurisdiction […] At some point in the longer term, that is going to have to correct, to get back to a more reasonable equity return to attract equity investors to continue to make investments in the utility.”
Heath also noted that Duke Energy has at times been able to “raise significant amounts of capital,” including in the aftermath of Hurricane Helene in 2024, to fund restoration “efficiently and effectively, because of the credit strength at the utilities.”
Duke originally requested an 18% residential rate hike, but lowered its request to 11.6% after pushback from customers and the state Attorney General Jeff Jackson.
“Our case was that Duke could afford a lower rate while still meeting its needs. Duke just agreed,” Jackson said in a June 22 release, but added that the new rate “is still too high. Our case is about lowering this rate hike and making sure rates for data centers and other large users are handled in a way that is fair to families.”
Jackson’s office has argued that Duke is mishandling the balance between its data center and residential customers. An energy expert witness for the office, Current Energy Group regulatory consultant Justin Brant, testified to the commission in June that the utility’s approach “shifts significant costs and risks onto other ratepayers.”
David Neal, a senior attorney with the Southern Environmental Law Center who represented the North Carolina Justice Center in the hearing, questioned Brent Guyton, Duke’s director of distribution asset management, as to whether the grid improvements included in the utility’s more than $100 billion capital plan would flow to residential customers as equally as large load customers.
Neal pointed to a confidential exhibit containing a chart showing that “about 98% of those identified financial benefits accrued to non-residential customers,” then asked, “What customer class caused these grid improvement plan projects?”
“We do these projects for all customers,” Guyton said.
The hearing continued Thursday. The commission has until Sept. 20 to make its decision about the case.
