Major North Carolina energy supplier Duke Energy has lost a bid to increase their rates to support a 10.5 percent return on equity. The company was originally challenged by the North Carolina attorney general after it instituted a 7.2 percent rate hike in 2012, and the business dispute arose when the attorney general disputed the rate increase. He contends that a commission did not find any evidence to support this high rate of return.
The 10.5 percent figure was actually a compromise reached by the N.C. Utilities Commission’s public staff and Duke Energy. This amount reduced the original rate increase of 15 percent down to the 7.5 percent adjusted rate. While Duke believed its rate of return should be 11.25 percent, the public staff believed that it should only be 9.25 percent. However, the court stated that the 10.5 percent compromise simply fell between the two declared levels. It did not actually provide evidence to support the ROE determination, so the court reversed the Commission’s order, and it asking the Commission to review it and submit an amount that has sufficient findings to support it. The decision was unanimous.
This case demonstrates that corporate disputes can be settled in the courtroom. The laws are clear regarding regulated companies like Duke Energy: They are expected to provide reliable service that is safe and fairly priced. When consumers have no other businesses to turn to for important services, these protective measures are ultimately for the greater good.
In this case, the corporate dispute between Duke Energy and the attorney general is preventing them from instituting a high rate increase. It is up to Duke Energy to prove that the rate increase and return on equity should be at their desired level, but the public commission can question that amount and present their own evidence to show that a lower level would also be acceptable. Experienced lawyers on either side can help clearly demonstrate why certain levels of equity return are necessary for a company to continue providing valuable services in similar cases.
Source: Charlotte Business Journal, “NC Supreme Court overturns Duke Energy’s 2012 rate hike,” John Downey, April 12, 2013