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Duke Energy’s profit margin is questioned — Charlotte Observer

By Bruce Henderson

RALEIGH — Attorney General Roy Cooper’s staff spent much of a Tuesday hearing probing the profit margin for investors built into Duke Energy Carolinas’ request for a 5.1 percent rate hike.

The return on common equity, or ROE, is a critical component of the case before the North Carolina Utilities Commission. By agreeing to pare its initial 11.25 percent request to 10.2 percent, Duke gave up $112 million in new revenue.

But Assistant Attorney General Margaret Force wanted to know how Duke and the commission’s Public Staff, which represents consumers, arrived at that number. The short answer: It’s complicated and, in large part, subjective.

Duke Carolinas’ interest is in maintaining a healthy return to attract favorable financing terms for the $6.5 billion it plans to spend on transmission, distribution and other upgrades over the next three years.

A lower figure means less new revenue for Duke and lower customer bills.

But it’s not smart for even consumer advocates to insist on the lowest possible return, said Public Staff consultant Ben Johnson. Too small an ROE would reduce customer bills for the short term, he said, but cause the company long-term problems.

The focus, he said, should be on “providing a return that provides (Duke) financial stability and the ability to deliver power when it’s needed.”

Cooper’s staff hasn’t suggested what it considers a proper return, but its interest is not casual.

The attorney general appealed Duke’s 2012 rate hike on grounds that customer impacts had not been adequately assessed, and won. The North Carolina Supreme Court this year sent it back to the commission for review. Cooper also appealed a rate hike granted to a sister utility, Duke Energy Progress, earlier this year.

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