Multi-year rate plan bill working through legislative process in North Carolina

A bill backed by Duke Energy that would change the way the company charges North Carolina electric customers and funds energy projects is currently being debated in a legislative conference committee, after being passed in the state Senate in May.

Senate Bill 559 seeks to establish a multi-year rate case for Duke Energy for up to five years at a time. Duke Energy has stated that extended rate plans would help ease the company’s costs for storm recovery and allow for grid upgrades. Rather than seek approval with the North Carolina Utilities Commission year-by-year for those expenditures, the commission could allow the company to have more flexibility by adopting multi-year spending plans. Critics of the bill, however, have cited a lack of stakeholder comment regarding the proposal.

“We’re going to have to see how it plays out when it comes back from the conference committee,” said Paige Layne, Duke Energy spokesperson, about potential changes to the bill. “It’s going through the legislative process right now.”

At issue for some opponents is whether Duke Energy should be granted multi-year rate cases or plans, which establish up-front procedures and mechanisms to manage future operations. These plans are always started in a full base rate case and utilities would have to demonstrate that it is in the public interest, according to Duke Energy.

“The multi-year rate plan in and of itself is not positive or negative,” said Dan Cross-Call, who leads regulatory reform work in the electricity program at the Rocky Mountain Institute. “It’s how the whole suite of design details come together that would determine the net benefits of it. For instance, multi-year rate plans can include customer savings directly imbedded in the formulas and that can encourage or drive utilities’ savings that result in customer bill savings.”

Establishing clear goals or objectives at the outset of designing a multi-year rate plan is critical to avoid underdelivering on customer or societal benefit, Cross-Call says. It’s important that these plans are addressed holistically, he adds, noting that an intentional participatory process where community and other stakeholder interests can weigh in is critical for success.

Cross-Call says this is the case in Hawaii where the utility commission is leading an investigatory proceeding into performance-based regulation that will consider a five-year multi-year rate plan. Instead of incentivizing capital investment, utility revenue will be based on a combination of target revenues designed to encourage cost control, resulting in savings for customers. There’s an opportunity to earn additional performance revenues for achieving highly valued objectives, according to the Public Utilities Commission of Hawaii.

Hawaii is not alone. Seventeen states have implemented multi-year rate plans in one form or another. More recently, the Maryland Public Service Commission has taken steps to advance an alternative utility rate-setting process, noting that multi-year rate plans resulted in a “shorter cost recovery period, providing more predictable rates for customers and more predictable revenues for utilities, spreading rate changes over multiple years and decreasing the administrative burden on regulators by staggering filings over several years.”

According to a report by Scott Madden, a consulting firm, multi-year rate plans are not without challenges. Utilities must be able to show that investments were made according to the plan submitted at the time of the filing. Failure to adhere to the plan may result in refunds or other costly regulatory issues. Ability to budget properly and execute projects to plan is critical with multi-year rate plans.

“Regulations in any industry, including utilities, are a very alive process,” Cross-Call said. “They are always going under review and adaption, and it’s important that the reforms meet the objectives that we have. We’re at a stage where we’re also in a learning curve particularly on a broader set of objectives for the power system right now, including customer choice and environmental concerns. As these are being addressed, it’s perfectly appropriate to undertake a deep review and introduce new measures and adapt those based on experience.”

Duke Energy of North Carolina says it is doing just that.

“We support the S.B. 559’s sponsors and their desire to ensure the work and the mission,” Layne said. “We want to make sure that they have all the modern rate-setting tools possible.”