Dominion NC Power seeks rate increase

Published 9:02 am Tuesday, February 23, 2010

RALEIGH – Dominion North Carolina Power filed an application with the North Carolina Utilities Commission (NCUC) last week to increase its base rates for the first time since February 1993.

The increase would enable the company to meet customers’ growing energy needs and recover higher costs incurred by the company to serve its customers.

If the request is approved, the monthly bill for a typical residential customer using 1,000 kilowatt-hours of electricity would increase by 9 percent from $99.17 to $108.13. The increase would go into effect after the NCUC rules on the request. The company estimates the increase would become effective Jan. 1, 2011.

“Dominion has worked hard to be as efficient as possible and will continue to do so to help keep electric rates low,” said Dominion North Carolina Power Chief Executive Officer Paul Koonce. “Even with this adjustment, our rates will remain well below the national average. This adjustment is needed to meet our higher operating and capital expenses and thus ensure that our customers continue to have the power they need when they need it.”

The company requested an increase of $29.4 million in non-fuel base rates, which cover operating, maintenance and capital costs. Base rates recover approximately two-thirds of the total cost of providing electrical service to the company’s North Carolina customers and include costs for power plants, the transmission and distribution power delivery network and customer service. Fuel costs and fuel-related expenses account for the remaining one-third of customer bills.

The company also is asking the NCUC for approval to add an estimated $17 million in purchased power costs into calculations for the next annual fuel rate adjustment Jan. 1, 2011. The company projects that this charge is likely to be offset or mostly offset by a continuing decline in fuel costs if recent trends continue. Therefore, the company projects that when it files its annual fuel charge adjustment application with the commission in August of this year, it will show that there would be little or no change in the fuel rate on customer bills next Jan. 1.

If approved, the new cost for the typical residential customer would still be 7 percent lower than the national average of $116.33, according to figures from the Edison Electric Institute.

While base rates are lower today than they were in 1993, the fuel portion of rates has increased as fuel costs have generally increased. In spite of rising fuel costs, however, the total bill – fuel and base – has risen less than the rate of inflation. The Consumer Price Index has increased by 49 percent from July 1993 to July 2009, while a residential customer’s summer-month bill for 1,000 kilowatt-hours increased during the same period by 18 percent.

An agreement reached with the NCUC’s Public Staff and other parties and approved by the commission in April 2005 reduced Dominion’s base rates by about 6 percent and froze them until April 2010. Since then, the company has added 13,900 new customers in North Carolina and has invested $168 million in transmission and distribution system improvements. Service reliability, as measured by customer minutes out of service excluding major storms, has improved dramatically, from 196 minutes in 2004 to 130 minutes in 2008 and 113 minutes in 2009.

The company plans to invest an additional $200 million in transmission and distribution system improvements in the next five years.

The 2005 base rate freeze caused the company to absorb increases in operating, maintenance and capital costs without increasing customers’ rates. It has also been unable to recover a significant portion of the cost of purchasing power to serve North Carolina customers even though this power was economically beneficial to customers.

“It is clear that the costs of operating the company for the benefit of our customers are now higher than our existing rate levels will support,” Koonce said.

As a result of these unrecovered costs, the company’s rate of return on its investment has fallen to a very low level – far below returns for other electric utilities in North Carolina and a rate Koonce says is “well below a just and reasonable” return on equity for Dominion North Carolina Power. Koonce noted it is critical that the company have the opportunity for improved returns to assist in accessing the capital the company needs to maintain and improve its generation, distribution and transmission at high levels of quality.

The company’s request for an allowed return on equity of 11.9 percent – in line with returns earned by other North Carolina utilities for attracting capital to maintain and improve service – is based on calculations by Dr. James H. Vander Weide of Duke University’s Fuqua School of Business.

Koonce noted that assistance may be available for customers facing financial difficulties. Dominion’s EnergyShare is a fuel assistance program that provides heating assistance in winter regardless of the family’s primary heating source – oil, natural gas, kerosene, wood or electricity. In 2008, EnergyShare benefitted more than 1,300 families in Dominion North Carolina Power’s service territory.