Duke Energy Progress agreed to reduce its request for new revenues from N.C. customers rates from $615 million to $587 millions over the next 3 years.
The N.C. Utilities Commission is still debating the first rate plan for a multi-year period requested by a North Carolina subsidiary of Duke Energy Corp.
Chris Ayers predicted that the majority of the hearings have focused on accounting matters, including the return on equity Duke can make and the debt-to-equity ratio. Ayers’ group proposed a 9.25% ROE, which is lower than Duke's proposal of 10.4%. This would cut $95,8 million from Duke's original request. All the groups that have intervened, while they may have different ROE figures proposed, all agree it should be lower than Duke's request.
Duke has also softened its original proposal. Roger Morin is the principal of Utility International, an expert in ROE. He said that his 10,4% proposal was based off information from late last and early this year.
Yesterday, Will Freeman, the attorney for Public Staff, told him that if he were to do that calculation now, it would come out at 10.2%.
Interest rates have gone up. Inflation increased. The risks went up.
He consistently denied any suggestion that the rate of return should be less than that. Freeman asked Morin a number of questions about a settlement deal Duke Progress reached in South Carolina earlier this year, wherein the utility accepted 9.6% ROE for a 'fair' and'reasonable' rate.
Morin explained that settlements are a mix of giving and taking. "We'll give this to you if you'll give us that." There are many factors that go into a successful settlement.
Freeman also asked Morin to explain his testimony, in which he argued that the N.C. commission had approved a ROE of 9.6% while Morin claimed it was 10.4%.
Morin protested, 'That was over two years ago.' "Interest rates have gone up." Inflation increased. The risks went up.
Freeman accepted all of it, but noted that Duke made an 11.4% return in August 2022 and that in March this year its return was near 11.1%, despite the increased risk. He asked if this did not suggest that the rate allowed should be lower.
Morin stood firm in his testimony. He acknowledged that such a large return was surprising, but claimed that the returns were often lower than permitted.
The CEO is in the House
Freeman agreed that the commission should avoid this outcome if ROE was too low. He added, however, that if ROE is too high, "wealth will be transferred from shareholders to customers." Freeman and Morin both agreed that the job of the commission was to strike the right balance, and maintain the competition in order to keep the state-approved utilities on track.
Duke Energy CEO Lynn Good was present at the hearing but did not give a testimony. She stated that she was present 'to support and observe the team, and out of respect for the whole process'.
Good was joined in the front row by Lara Nichols of Duke, who is the vice president for federal and legal support. Karl Newlin is the treasurer and director of development. Kendal bowman, N.C. President, and Julie Janson are the CEOs of North and South Carolina.
In this case, only Bowman and Newlin testified.
Capital structure dispute
Newllin gave testimony on Friday in support Duke's request that its capital structure be composed of 53% equity, and 47% debt. This is higher than the current capital structure of 52%-48%. Many intervenors are against the increase. This accounts for $11 millions in annual charges that Duke has included.
Newlin stated that Duke Progress would benefit from reducing its debt because of new guidelines by Moody's Analytics regarding what debt qualifies as A-rated. Moody's has recently changed its requirements for retained cash flow to debt. According to the new guidelines, a rating of A requires that this ratio be lower than 21%. Duke has been near that 21% level over the past two years. Reducing the debt component of the capital structure to 47% would give Moody's more breathing room.
He also said that Duke’s analysis of comparable peers revealed the average equity component in capital structure was 53.3%. This justified Duke’s request to go to 53%.
He also noted that Duke Progress would be reliant on debt in order to finance its current phase of growth as it builds cleaner power plants and heavily invests in updating its grid.
The parent company has stated that they do not anticipate any equity offerings before 2027. Duke Progress needs a high credit rating in order to keep debt costs down.