Corporate windfall lets N.C. utilities charge customers under outdated tax rate

A recent decision by the N.C. Utilities Commission allows Duke Energy and other public utilities to boost profits by charging customers under a corporate tax rate that the state legislature cut last year. Photo: The Duke Energy Center in Charlotte, N.C.

The North Carolina Utilities Commission is tasked with regulating public utilities operating in the state and the rates they charge for services that millions of North Carolinians use every day.

So it’s no surprise that a decision by a majority (4-3) of the seven-member commission to allow Duke Energy and other utilities to charge customers using an outdated, and inflated, corporate tax rate is rankling their dissenting colleagues, government watchdogs and N.C. Attorney General Roy Cooper.

As The Charlotte Observer reports, the commission (somehow) decided that even though the legislature cut North Carolina’s corporate income tax rate from 6.9 percent to 5 percent last year, utilities can continue charging customers at 6.9 percent and pocket the difference.

In their dissent, three Democratic commissioners called the decision a corporate windfall that “allows the utilities to charge ratepayers in perpetuity to collect for taxes that the utilities no longer pay.” Yeah, it’s messed up.

The rate individual utilities, including electric, gas and water companies, are able to charge their customers could change the next time they seek rate adjustments. But even then, the dissenting commissioners warned, ratepayers will never be refunded the over-collected funds; the utilities have simply been afforded an unearned gain at the expense of North Carolina ratepayers.”

This is all pretty scary for several reasons. Most importantly, perhaps, is the fundamental disagreement between commissioners on the issue of “single-issue ratemaking,” or when and how adjustments in tax structures should influence the amount utility customers see on their bills.

Although Republican commissioners said they sympathized with the points made by the dissenting commissioners, they claimed that the “doctrine against single-issue ratemaking in full force in this state, designed to prevent changes to utility rates outside general rate cases, should be adhered to except in limited, closely circumscribed situations.”

“The insubstantial and immaterial changes at issue in this docket do not fit within the exception,” Republican commissioners wrote. “The limitations should be preserved to prevent single-issue ratemaking in the future when tax rates increase in insubstantial and immaterial ways.” No word on who decides what constitutes substantial and material changes, or why this shouldn’t be considered a limited, closely circumscribed situation.

But maybe they’re right. After all, Duke spokeswoman Lisa Parrish told The Charlotte Observer that, if Duke decides to stop sharing the tax savings with its ratepayers, its customers would only see a 17 cent increase on their monthly bill. Progress customers would pay 9 cents more each month.

Overall, the charges could help Duke Energy, Duke-Progress, Dominion North Carolina and PSNC Energy bring in around $21 million more a year.

That’s not so bad, right? Just ignore that you’re paying extra for a corporate tax rate that no longer exists. Parrish of Duke Energy also said that a little bump in North Carolinians’ electric bills wouldn’t really hurt them because it would go toward operating expenses or it could be spent on programs with broad community benefits. Hopefully they remember that when a real discussion about how to address the state’s coal ash problem comes up.

Another thing: You also may remember that HB 998, the bill that lowered corporate taxes in North Carolina, did much more than cut taxes for big corporations. It also more than doubled sales taxes on electricity from 3 percent to 7 percent. The commission approved a rate increase related to that change back in May, and over the summer, monthly bills of Duke customers increased by around 50 cents. Last I heard, the company isn’t sharing that burden with its customers.

Meanwhile, for three consecutive quarters, Duke has received a larger rate of return and rate of equity, the profit a company generates with shareholders’ money, than authorized by state regulators, in this case, the utilities commission. The Charlotte Business Journal reported that it is the first time since 2003 that the utility has significantly exceeded the returns set by the commission.

Finally, it’s understandable that the vast majority of the commission’s activities are not scrutinized the way major decisions, such as the 5.1 percent rate increase it granted Duke Energy last year or the merger between Duke and Progress Energy that the commission approved the year before, have been. But in this case, the commission used its discretion to not include Attorney General Roy Cooper, a Democrat expected to run for governor in 2016, or the Public Staff, which represents the interest of consumers on issues before the commission.

Now Cooper says he plans to appeal the decision to the North Carolina Court of Appeals, and the Public Staff are weighing an appeal.

Oh, and the eventual decision of whether Duke will be allowed to saddle its ratepayers with the cost of cleaning up its leaky, polluting coal ash ponds across the state — that quagmire will land in the commission’s lap too.

This isn’t just about about the pennies added to our monthly electric bills — even though those pennies are piling up and becoming dollars — and, as the dissenting commissioners wrote, for families struggling to pay their utility bills, “every cent counts.”

It’s bigger than that. It’s about the commission adhering to the first tenet of its mission statement: to provide just and reasonable rates and charges for public utility services.

About Brian Sewell

Brian is an environmental news junkie concerned with our lagging energy policy and revealing the true cost of coal on our health, the environment and the climate. He is Appalachian Voices' Director of Strategic Advancement.