Watchdogs say regulators ignored costs and risks to ratepayers as Duke touted benefits to the corporation
The NC Court of Appeals is reviewing NC WARN’s case challenging a 2012 merger that created the nation’s largest electric utility. Duke Energy and the NC Utilities Commission’s Public Staff will soon file responses to our July 19 brief in which we laid out numerous errors in the NC Utilities Commission’s approval of Duke’s acquisition of Progress Energy, as summarized below.
NC WARN is seeking to revoke or modify the merger so that Duke’s management and stockholders – not its customers – bear the costs of its corporate mistakes and secret deal-making.
In short, the Commission erred by accepting Duke’s one-sided cost-benefit study showing the merger would be good for corporate shareholders. Duke provided no evidence that the merger will result in actual benefits to the public, as required. Duke also did not produce a shred of evidence that it had analyzed large financial risks to customers, as also required by law.
Before approval of the merger and during its subsequent investigation of improprieties, the Commission refused to act on NC WARN’s claims that Duke was withholding information on several different billion-dollar financial risks that could impact Carolinas ratepayers either directly or indirectly.
Since the Commission’s merger approval in July 2012, two of those risks – a broken nuclear plant in Florida and plans to build two more units – have been abandoned by Duke at a cost totaling $5 billion, most of which will be borne by Florida ratepayers. And after Duke and NC regulators had insisted last year that North Carolina customers are protected from mistakes in Florida, NC WARN exposed that Duke tried to stick Carolinas customers with at least $165,000 of the broken Crystal River nuclear plant fiasco in the current rate case.
Here is a synopsis of our legal brief by NC WARN attorney John Runkle and Matt Quinn of the Law Offices of F. Bryan Brice, Jr.*
1) THE COMMISSION IGNORED THE RISKS POSED BY THE MERGER, IN DEFIANCE OF THE LAW.
Duke submitted a one-sided cost-benefit analysis which examined only alleged benefits, and the Commission was never apprised of, nor deliberated over, the risks of this merger.
Nowhere in Duke’s application or supporting materials is there any discussion of potential risks, costs or impacts on those companies that provide goods and services to Duke and Progress, such as renewable energy providers.
Even Duke’s own witnesses testified, under cross examination, that such risks should be evaluated.
One key omission of costs and risks was the broken Crystal River Nuclear Plant. Even though Duke-Progress admitted that Crystal River could place $1.3 billion in costs onto the merged corporation’s books – and despite indications the cost could run much higher – the Commission refused to allow intervener NC WARN to question Duke about it.
2) THERE IS NO EVIDENCE THE MERGER WILL RESULT IN BENEFITS TO THE PUBLIC, AS DUKE IS REQUIRED TO PROVE.
Duke-Progress touted two benefits in support of the merger: fuel cost savings and non-fuel savings. No evidence, however, was presented that these specious savings will benefit the public.
The non-fuel savings were mostly the lay-off of 2,000 employees.
Throughout the proceeding, Duke-Progress claimed the merger will benefit the public because it will improve the financial status of the emerging entity and increase its presence in North Carolina.
But the standard is not how a merger benefits the emerging entity. Indeed, no witness was able to testify – and no part of the record indicates – that these benefits to Duke also benefit the public.
In other words, Duke-Progress asked the Commission to accept on blind faith that the merger’s boon to Duke and Progress shareholders will somehow translate into benefits for the public. Yet faith is not evidence, especially when Duke insisted the “primary driver” of the merger is non-fuel cost savings.
Duke also claimed the merger benefits the public because fuel savings will be passed on to customers. But such savings must transfer to ratepayers regardless of the merger.
It is not enough to baldly state that the merger will help Duke Energy and therefore help the public.
3) THE MERGER DOES NOT SATISFY THE REQUIRED STANDARD OF PUBLIC CONVENIENCE AND NECESSITY.
A. The merger allows Duke-Progress to manipulate prices and harm local markets for utility goods and services. Duke’s own expert – among others including federal regulators – agreed that the merger could allow Duke-Progress to drive down prices within local NC markets for various suppliers and contractors, including renewable energy providers.
Duke never analyzed this issue nor presented evidence to rebut testimony about those dangers.
B. The merger would terminate 2,000 or more jobs in a time of economic crisis. Both Bill Johnson and CEO Jim Rogers noted that North Carolina’s economy is floundering, and that already troubling poverty levels are rising. Both admitted the merger would terminate 2,000 or more jobs.
C. The merger harms low-income families. NC WARN’s expert witness, Roger Colton, testified at length about how the merger will harm low-income families, and was subject to only the briefest rebuttal.
For example, utilities commonly negotiate over payment plans, deposits, and service disconnections for non-payment. Without adequate customer service personnel to provide this help, low-income families would frequently go without heated homes and refrigerated food.
Even Duke acknowledged that the merger was intended to result in fewer customer service representatives. The result will be less personal contact with financially troubled customers and reduced assistance to such customers in the event of an inability to pay.
As for the $15 million, one-time payment for “workforce development and low-income energy assistance” in the Duke-Public Staff settlement: No guidance was given by the Commission, or in the settlement, as to what percentage of the payment goes to financially troubled families. Thus there is no guarantee that the $15 million payment will assist even a single indigent household.
Neither Duke nor the regulators supplied any evidence that this amount is related to the impact of the merger upon low-income families. It was a PR distraction to soften the multiple insults to the public posed by the merger.
See NC WARN’s full legal brief
* NOTE: In a related proceeding, the Court is considering NC WARN’s appeal regarding the Commission’s investigation of merger improprieties. We contend that the Commission began its investigation as a separate docket in order to exclude NC WARN as an intervener, a charge bolstered by last November’s revelation that Commission Chair Ed Finley met privately with Duke’s CEO to settle the investigation docket in a manner that altered the merger itself.