Why SC might reject Duke Energy utility merger combination if it impacts ratepayers there

Charlotte Business Journal
November 11, 2022

By John Downey

North Carolina is behind the push to merge Duke Energy Corp.’s Carolinas utilities. But South Carolina regulators would have to approve the merger also, and that state will likely present the most obstacles.

Duke Energy Carolinas and Duke Energy Progress each operate their electricity distribution and generation systems across the two states’ border as a single utility. Duke wants to continue those “dual-state” operations as a combined utility.

“Moving away from the dual-state system developed over the last century would be extremely complex,” Nelson Peeler, Duke’s point man for the proposed merger, told the N.C. Utilities Commission in September. “Overall, operating with a single … model and joint unit commitment is the most efficient for all customers.”

For now, South Carolina officials know very little about the plan. Nannette Edwards, executive director of the S.C. Office of Regulatory Staff, which is the state’s customer advocate, says Duke made a presentation there in August. “But they haven’t really given us a lot of details on it,” she says.

There are already concerns about future customer costs. There is also a continuing dispute over the potential impact of North Carolina regulatory requirements on South Carolina.

The renewed urgency in fulfilling the 10-year-old promise to merge the utilities is bound up with the N.C. Carbon Plan mandated by the N.C. General Assembly. S.C. law has no counterpart.

“The issue hasn’t risen into the public domain in South Carolina — yet,” says Frank Knapp Jr., CEO of the S.C. Small Business Chamber of Commerce. “But it will.”

Sen. Wes Climer, R-York, is a leader on energy issues in the S.C. legislature. “South Carolina is not beholden to North Carolina’s green energy plans,” he says.

He expects the S.C. Public Service Commission would approve a merger “if the merger results in savings for South Carolinians.”

But the carbon plan is not expected to save money. And one of the primary goals of the merger would be to reduce the significant difference in rates charged by the two utilities.

In the long run, that would benefit Duke Progress customers because of the higher rates that utility charges. But as the rates are equalized, Duke Carolinas customers can expect to pay more.

“That kind of cross-subsidization could be problematic,” Climer says. “If it raises costs for Duke Energy Carolinas — I represent DEC ratepayers — that would be problematic.”

Duke has had a contentious relationship with regulators and public officials in South Carolina in recent years. That state, burned by the $9 billion failure of a major nuclear project (not related to Duke) has become more suspicious of monopoly utilities and more exacting in its regulation of them. It is also studying potentially ending or significantly curtailing utility monopolies in the state.

State officials have expressed skepticism about accepting costs imposed on S.C. by the carbon plan the N.C. Utilities Commission is slated to adopt in December. The SCPSC last year rejected Duke’s preferred 15-year Integrated Resource Plan proposal that was designed to conform with the expected carbon plan.

A dispute over coal-ash costs, dating back to a 2019 rate case, decided by the S.C. Supreme Court last year firmly established that regulators there have the authority to reject charges they find are mandated by legislatures other than the state’s own. In that case, the court upheld a SCPSC ruling that rejected about $115 million in Duke Carolinas coal-ash costs and $65 million for Duke Progress. The commission had found they resulted from North Carolina’s Coal Ash Management Act, which had stricter environmental requirements than those imposed by South Carolina or the federal government.

Duke had asked regulators in South Carolina to participate in a joint proceeding with the N.C. commission on the carbon plan, where the merger has been raised. But early this year, S.C. Attorney General Alan Willis issued an opinion that held such a joint hearing would be “highly questionable” and likely unconstitutional.

“This argument is essentially one of ‘taxation without representation,’ based upon the extraterritorial application of a North Carolina statute to South Carolina customers with a resulting rate increase,” Wilson wrote. “We think that this proposal stretches South Carolina law and federal constitutional law past the breaking point.”

Knapp says that “taxation without representation” question could rear its head again. And he thinks Duke and the Public Staff of the N.C. Utilities Commission, which has been a long-time proponent of the merger, have erred by keeping South Carolina so much in the dark so far.

“Why would they lock themselves into a position and then come to talk to South Carolina about it,” he says. “That issue can be a bigger problem if the N.C. Utilities Commission is making decisions for South Carolina.”


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