It’s Not Your Imagination — Utilities Are Seeking More Rate Increases

Update: April 24, 2020

On April 6, the Virginia State Corporation Commission approved a $9 million rate hike for 30,000 Old Dominion Power customers in Southwest Virginia. This increase, effective May 1, translates to approximately $20 more per month for the average residential ratepayer. Appalachian Voices, the publisher of this newspaper, had legally intervened in the case in fall 2019.

“Once again, the corporation wins out over the needs of the people,” said Wise, Va., resident Laura Miller, an Old Dominion customer and member of advocacy group Southern Appalachian Mountain Stewards. “It seems unconscionable that during this time of pandemic and massive job loss this increase is allowed.”

The SCC did, however, reject Old Dominion’s request to increase monthly fixed charges from $12 to $16.13. These charges would have reduced the effectiveness of using energy efficiency or solar power to lower electric bills. The commission also denied the monopoly utility’s request to change rate structures that also would have disproportionately impacted those with solar panels or energy efficiency measures.

The monopoly utility originally requested an increase of $12.7 million.

On a Thursday night in early January, around two dozen people line up to pass through the metal detector of the Burke County Courthouse in Morganton, N.C., for a public hearing.

The N.C. Utilities Commission is holding the hearing as it considers a proposed rate hike that would increase utility bills by approximately $100 a year for the average Duke Energy Carolinas ratepayer in the state. At the same time, the company’s sibling Duke Energy Progress is also requesting their own rate increase. Both of these are happening only two years after the companies’ last rate cases in North Carolina.

These changes would result in a 14.3 percent average rate increase for Progress residential ratepayers and 6.7 percent average increase for Carolinas residential ratepayers in the state. South Carolina approved residential rate increases of 6.3 percent and 3.7 percent for Progress and Carolinas, respectively, in 2019, three years after their last rate hike.

According to the U.S. Energy Information Administration, electric utilities have regularly increased the frequency of requests to state regulatory boards to change the amount they can charge their customers since 2000. In 2018 alone, 78 major utilities proposed rate increases.

The prices that regulated, investor-owned utilities like Duke can charge customers are set by state commissions. These prices cover capital investments and operating costs, plus a guaranteed profit, or “return on equity.” The more a utility spends on approved infrastructure projects, the larger a profit they receive for shareholders.

In 2019, Kentucky Utilities and Louisville Gas & Electric were both awarded rate increases after already receiving them in 2017. West Virginia regulators approved a rate increase for Appalachian Power ratepayers in February 2019 after previously allowing rates to go up in 2011 and 2015 — resulting in a 25 percent increase in electric bills since 2014, according to the Herald-Dispatch.

And the federally owned Tennessee Valley Authority raised its wholesale electricity rates, the price it charges local power companies, six times between 2012 and 2018.

The Energy Information Administration states that the number of rate cases, or utilities’ requests to change the amount they charge their customers, typically reflects changes in the costs of electricity generation and delivery. But in 2018, the reasoning behind many of these rate cases included what utilities are branding as “grid modernization and improvement.” Matt Wasson, director of programs for Appalachian Voices, the nonprofit environmental organization that publishes this newspaper, explains how these new types of investments are different.

Over the last century, electric utilities in the United States have made money by building and expanding the grid. But with fewer large investment opportunities in recent years, utilities have had to find other ways to continue generating profits for their shareholders.

“Grid modernization is a new thing that utilities are trying to spend billions of dollars on to make a more efficient and storm-resistant grid,” says Wasson. “What they’re also trying to do is repackage a lot of routine maintenance that they don’t make a lot of return on, like it’s a big new investment.”

In the case of Duke Energy Progress’ and Carolinas’ latest rate increase, Duke claims that these rate hikes in North Carolina are necessary to shift to “cleaner energy” and to improve grid resilience. By 2034, Duke Energy Progress plans to source 19 percent of their power from renewables and 57 percent of their power from natural gas, the latter of which worsens climate change through methane leaks during extraction and transport. Duke Energy Carolinas plans to source 16 percent from renewables and 32 percent from natural gas by 2033.

Additionally, Duke is seeking to charge ratepayers for costs that will be incurred from moving nearly 80 million tons of coal ash from unlined pits into lined landfills. A years-long legal dispute resulted in a settlement in January between Duke and state regulators to excavate the material. The settlement is the result of a lawsuit filed by the nonprofit Southern Environmental Law Center on behalf of numerous environmental organizations including Appalachian Voices (read more on page 14).

On their website, Duke reasons that ratepayers should pay for coal ash cleanup because “the cost of that service is a responsibility we all share as consumers of electricity.” But Rachel Velez, with environmental nonprofit Clean Water for North Carolina, argued otherwise in a Jan. 26 Times-News op-ed.

“Duke’s coal ash management decisions weren’t open for public input at all,” wrote Velez. “Customers should not be held responsible for Duke’s stunningly poor decision making.”

Appalachian Voices’ Senior Energy Analyst Rory McIlmoil added to the arguments against the rate increase at the public hearing in Burke County, N.C.

“This rate case is just another example of Duke failing to address the climate crisis by not rapidly transitioning North Carolina to a fully decarbonized, clean energy system,” said McIlmoil. “It is another example of Duke trying to prop up their outdated business model by spending billions of dollars on outdated technologies and on infrastructure maintenance in order to maximize profits for their shareholders.”

McIlmoil also rebuffed Duke’s request to increase their profit margin from 9.9 percent to 10.3 percent.

At a Jan. 15 public hearing in Franklin, N.C., Duke Carolinas ratepayer Katie Breckheimer spoke out against the utility’s latest rate increase request.

“Duke is paying their top executives and stockholders millions of dollars, plus, we, their customers, are paying for Duke’s lobbyists in order to keep the status quo,” said Breckheimer. “We’re captive customers. We can’t shop around for a better company.”

Southwest VA Rate Spike

In July 2019, Old Dominion Power filed a proposal to increase rates for Southwest Virginia communities by $12.7 million — an average of nearly $30 per month for residential ratepayers. This is one of the highest rate hikes proposed by any investor-owned utility in the country in 2019, and it was the second-highest proposed increase for the average residential customer at the time it was filed.

Appalachian Voices formally intervened in the case, asking regulators to deny the rate increase in fall 2019. The group stated that it would disproportionately impact low- and fixed-income residents and those who attempt to save money through energy efficiency or renewable energy, especially because the proposal included an increase in residential fixed charges from $12 per month to $16.13 per month.

Old Dominion serves one of the most economically distressed areas of the commonwealth, where between 17.6 percent and 28.2 percent of residents live in poverty. Additionally, it does not offer any energy efficiency programs to its Virginia customers and powers 99 percent of its operations with fossil fuels.

“A roughly $29 dollar average monthly increase would be devastating for poor and low-income people’s livelihoods at a time when our region is already economically, socially and environmentally distressed,” said Big Stone Gap resident Adam Malle at an Oct. 2 public hearing in Norton.

“For myself, this rate increase will potentially cost me a tank of gas, nearly a week’s worth of food, nearly half of my water bill, or two-thirds of my phone bill. Which of these things does Old Dominion Power expect fixed-income people to give up in order to compensate for their failing to adapt to changes in the energy market?”

In mid-January, State Corporation Commission staff and Old Dominion Power agreed on a reduced increase request of $9 million, and the SCC held an evidentiary hearing on Jan. 22. The full commission is expected to make a decision in early 2020.

In the Legislatures

On Jan. 16, North Carolina and South Carolina policymakers announced an interstate legislative effort to evaluate the costs and benefits of electricity market reform. The representatives are backing legislation that would require the states to study the creation of a regional transmission organization encouraging utility competition.

N.C. Rep. Larry Strickland told the Charlotte Business Journal that both states are looking at “transitioning from vertically integrated monopoly structure to a market-based system that puts the interest of utility customers at the center of the discussion.”

The South Carolina bill awaited decision in committee as of press time in mid-February. North Carolina’s legislative session begins in April.

This comes after a 2019 effort by Duke Energy to have legislators pass a controversial ratemaking bill through the North Carolina General Assembly. The most hotly debated portions of Senate Bill 559 were eventually cut; the final version, passed in the fall, authorized Duke to finance storm recovery costs through means other than charging ratepayers for those costs.

Introduced in early April 2019, the original S.B. 559 would have allowed Duke to also pursue multi-year rate hikes with less accountability. This would have let Duke request and potentially receive advance approval for rate increases for future costs, and these rates would have been set even if new technology or other factors later caused prices to drop. Energy Justice North Carolina, a coalition of environmental and consumer protection groups including Appalachian Voices, was among the wave of public and business opposition against the provision.

In late April 2019, Energy Justice NC released the first of two reports examining how Duke targeted the majority of their campaign contributions toward 11 key representatives in charge of reviewing the bill, which, according to various stakeholders, represented the biggest change to ratemaking in state history. Additionally, the group stated that the bill was written without stakeholder input, shifted the risk of bad investments away from shareholders and onto ratepayers, would have likely resulted in ratepayers being overcharged, and could have allowed Duke to pass $10 billion in coal ash cleanup and another $13 billion in “grid improvement” costs onto ratepayers.

Despite widespread public opposition to the measure and only Duke’s support, it took state legislators nearly seven months to remove the provision and pass the bill without it.

“This was not a normal legislative process,” says Peter Ledford, general counsel for the nonprofit clean energy advocacy group North Carolina Sustainable Energy Association.

“You also saw advocates and Duke Energy pulling out all the stops.”

Duke included several of its requests from S.B. 559 in its late 2019 rate hike proposal for its North Carolina subsidiaries, including for multi-year rate increases.

In Virginia’s 2019 election, voters elected 40 delegates and nine state senators who refused campaign contributions from Dominion Energy and other monopoly utilities in the state. This is in stark contrast to previous years.

For example, between 2013 and 2015, Dominion donated $1.6 million to statewide and legislative candidates, according to the Virginia Public Access Project. Then in 2015, the state legislature froze Dominion’s rates at an artificially high point for three years, resulting in hundreds of millions of over-earnings for the monopoly utility. While Dominion was eventually forced by the legislature to refund $200 million back to ratepayers in 2018, the State Corporation Commission estimates that the utility overcharged ratepayers by $1.3 billion.

With a new crop of state representatives, however, utility influence in politics in Virginia looks to be weaker than ever before. During the 2020 Virginia General Assembly session — which was still underway at press time — legislators introduced several bills opposed by Dominion that are aiming to reform energy policy in the commonwealth.

In January, Del. Mark Keam (D) and Del. Lee Ware (R) introduced the bipartisan Virginia Energy Reform Act. The bill would limit monopoly utilities to just owning and maintaining electricity transmission and distribution infrastructure, taking them out of the business of generating and selling power. It also includes provisions to implement cost-effective energy efficiency programs, remove barriers to customer-owned energy like rooftop solar, and build in consumer protections like a low-income bill assistance program. The bill is supported by the Virginia Energy Reform Coalition, a group of stakeholders that includes Appalachian Voices. A state House sub-committee tabled the bill for consideration in 2021.

Another bill introduced in Virginia is the bipartisan Fair Energy Bills Act, which would restore the authority of the State Corporation Commission to review electricity rates and set profit levels for Dominion Energy. Del. Ware also introduced a bill that would ensure the commission’s ability to review contracts entered into by monopoly utilities to purchase space, or “capacity,” on gas pipelines to fuel their power stations. This could prevent costs from being passed on to ratepayers.

As the backlash against monopoly utilities plays out in state legislatures, ratepayers on the receiving end of proposed cost increases are making their voices heard. Utilities may be requesting more rate hikes, but more and more legislators are refusing utility money, and communities continue to protest rate hikes.

Victoria Estes, an Asheville, N.C., resident and volunteer for the nonprofit Center for Biological Diversity, was one of several Duke customers who spoke against the utility’s request for a rate increase at a Jan. 15 hearing in Franklin, N.C.

“By people continuing to stand up and hold corporations like Duke accountable for their sneaky, underhanded investments in fossil fuels,” said Estes, “we can demand that our hard-earned money doesn’t go into the pockets of these that are poisoning our communities and profiting off of our most valuable asset, which is the planet that sustains our life.”

Editor’s Note: This story was updated on April 24, 2020, to reflect the latest news in the Old Dominion Power rate increase as well as changes to the Duke Energy rate case schedule.