Weekly Briefing

Duke Energy’s rate hike case highlights need for some kind of low-income relief

One of the best decisions ever made by the state of North Carolina – at least in recent years – was the decision to retain state regulation over the electricity generation industry. For those who have already forgotten, it may be interesting to remember that it was less than a decade ago that states all over the nation were rushing to usher in “competition” in the sale of electricity.

Here in North Carolina, lawmakers initiated a long and often excruciating study commission process that, at times, looked as if it might actually lead to some sort of major industry overhaul. The idea was that consumers would have “choice” when it came to purchasing electrons in the same way that that they have choice (or sort of do, anyway) in the choice of their long distance telephone provider.

That it is actually physically impossible to track electrons – at least so long as there is only one set of wires going into everyone’s home or business – was to be overcome by a complicated and mysterious process whereby consumer demand would be allocated amongst various electricity generators who would send out prescribed amounts of electricity onto the giant grids that connect us all.

Ultimately, of course, deregulation fever subsided in the wake of the greed induced collapse of California’s electricity system and the giant Ponzi scheme known as Enron. North Carolinians were spared from the price spikes and other disasters that struck many other states and have, to this day, retained the traditional model whereby most areas are served by private monopolies regulated by the state Utilities Commission and some areas get their service of with municipally owned systems or rural cooperatives.

The system that remains

None of this is to imply that the current system is all peaches and cream. Despite being subject to regulation by the Commission, North Carolina’s two electricity giants – Duke Energy (once known as Duke Power) and Progress Energy (nee Carolina Power and Light or CP&L) remain enormously powerful and controversial corporations. Both are up to their eyeballs in the environmentally disastrous practices of operating coal and nuclear plants and have regularly fought efforts by environmental and consumer advocates to “green” their activities. Moreover, despite the enormous protection afforded them by being legally protected monopolies with guaranteed profits, both are often rapacious and even ruthless corporate actors.

Meanwhile, despite being publicly owned, both the municipals and coops have often done a fair imitation of (or even outdone) their for-profit cousins when it comes to things like high rates and heartless billing and shut-off practices.

One of the most unfortunate shortcomings of the current system has involved the neglect of low-income consumers. In many parts of the country and around the world, electricity service is seen as a necessity of life. As such, it is treated more like water and sewer or, in some places, health care – that is, something for which everyone should pay what they can reasonably afford, but not something that ought to cause great economic hardship or that ought to be at risk of being shut-off when one is going through tough times.   

For the most part, however, neither Duke nor Progress nor any of the publicly owned providers does much to offer any kind of special rates or protections for low-income or otherwise vulnerable consumers. Save for a Utilities Commission rule that limits winter shut-offs by the private companies in certain circumstances, electricity is treated a lot like cable TV or any number of other regular services that a household might purchase or subscribe to: run into financial problems and you can quickly find yourself facing a loss (or denial) of service and thereby, as a practical matter, a quick ticket to homelessness.

Duke’s rate hike case

Recently, the issue of electricity affordability has been thrust back into the limelight in North Carolina as the result of a large rate hike sought by Duke that would have raised the electricity bills of average Duke residential customers by 12 to 27%.  The rate hike comes on the heels of Duke’s success in winning Commission approval (over the strenuous objection of environmental advocates) to construct a controversial coal powered generating plant at its Cliffside facility. Some of the rate hike would be for the purpose of reimbursing its projected expenditure of billions of dollars on the Cliffside expansion.

The rate hike proposal has met with strong opposition from regulators (including the Utilities Commission Public Staff and Attorney General Roy Cooper’s office) as well as representatives of both industrial consumers and the environmental community.

Perhaps the most compelling (and underreported) opposition however has come from advocates for low income residential consumers. These advocates argue that Duke’s proposal would only worsen a problem that’s already a crisis for hundreds of thousands of households of modest means.

Among the facts advanced by these advocates:

·     More than 1.3 million North Carolinians (or roughly one in seven) live under the official poverty level. Of course, the official poverty guidelines are ridiculously low and obsolete. For instance, the official threshold for a family of four is a paltry $22,050 per year. When one looks to what constitutes a realistic “living income” (roughly twice the poverty level), the percentage of the state’s population living in effective poverty is much, much higher.

·     Most low income people are renters. Unfortunately, for the vast majority, electricity is not included in the rent – thus giving the landlord little incentive to insulate or pursue efficiency solutions. For these people home energy costs have already been taking a larger and larger slice of family income. For instance, while the general guideline is that energy expenses should not amount to more than 20% of total shelter costs, in 2007, average home energy bills exceeded 30% of the fair market rent in more than half the state’s counties. This was up from just 27 counties in 2003.

·     Rising energy costs have been demonstrated to, literally, take food out of the mouths of vulnerable populations.  According to studies published in the Journal of Nutrition and  Pediatrics, there is a direct and documented connection between high seasonal home energy costs and food insecurity, hunger, and ultimately, diminished health outcomes for vulnerable populations – particularly children and the elderly.

Crafting a solution

According to the low income advocates, the Duke case is a classic example of why it was so important for North Carolina to retain control over electricity ratemaking: without such control, it’s almost impossible to imagine any coherent public effort to even question (much less to halt) a plant like Cliffside or the contemplated rate hike.

Happily, they point out, the case presents a golden opportunity to break new ground in the treatment of the poor. They argue persuasively that not only should the Commission deny Duke’s request, but that it should also use the case as a stepping off point for fashioning a new low income consumer protection program – as has been done in several other states and cities. Such a plan might provide direct subsidies for rates and efficiency measures, expanded shut-off protections, or even the exploration of a “percentage of income program” in which rates for the poor would be capped at some reasonable percentage of household income.    

At last word, the Public Staff – the group officially charged with representing the public before the Commission – was proposing a settlement in which Duke’s rate hike would be limited to less than what was requested. If this turns out to be the final solution, let’s hope that the Commission takes some meaningful steps to honor the request of low income advocates. Given the hard economic times and vulnerability that already exists for so many people living on the edge, it’s hard to imagine a better place or time for the Commission to justify North Carolina’s decision to keep it on the job.       

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This entry was posted on Wednesday, October 21st, 2009 at 9:27 am and is filed under Weekly Briefing. You can follow any responses to this entry through the RSS 2.0 feed.