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The oldest trick in the book

Duke Energy wants to cut its customers in North Carolina a break. That’s how they want you to feel, anyway. Months ago, the energy company, which has a monopoly on North Carolina residential customers and a near monopoly on commercial accounts, announced its intention of asking the NC Utilities Commission’s permission for a 18.6 percent rate.

After the inevitable public outcry, on Nov. 23 Duke rescinded its request and resubmitted a more modest rate hike of 7.2 percent, which in comparison doesn’t sound too bad and has been endorsed by the commission’s Public Staff.

According to the Charlotte Observer, in a hearing that began in the capitol on Monday, the power company defended its rate increase as necessary to pay for $4.8 billion in new costs, including new plant construction and pollution controls, even as consumers excoriated the move.

And well they should. Duke is employing a classic bargaining technique in which they ask for way more than they think they can get, distorting the value in the minds of its customers. Seven percent sounds like a lot less than 18 percent. It brings to mind the price of another energy commodity: gasoline, which doubled in price between 2006 and 2008, and then dropped by two-thirds before ratcheting back up by midsummer 2011 — the only difference being that the oil companies didn’t ask anybody’s permission before jacking up rates.

Duke is employing a classic bargaining technique in which they ask for way more than they think they can get, distorting the value in the minds of its customers. Seven percent sounds like a lot less than 18 percent.

But Duke must comply with state law, meaning that any rate hike must be approved by the utilities commission, hence this week’s hearing.

Most companies are free to raise their prices anytime they choose, but all are subjected to the law of supply and demand, which means that not too many businesses can even contemplate a 15 percent price increase, because people would just opt not to buy the product.

Energy is different: Pulling your property off the grid is not the same thing as switching brands of toothpaste.

Duke knows the game well — it last requested, and was granted, a rate hike of 7 percent in 2009, though the hike was spread over two years. This one would kick in in February 2012, just as the last one expires.

We hope the commission, which is charged with protecting the public interests, can see through Duke’s ploy, even at the reduced rate increase of 7.2 percent, which will cost the state’s embattled households an additional $100 or so a year, but will bring in almost $200 million from the company’s 1.8 million customers — which will then be used to help the company increase its revenue further and bring it in line with existing environmental regulations.

But the energy company seems to already have Plan B in the works. A Duke spokesperson said Monday that Duke will be asking for another rate hike next year, after it opens two more plants. YES! Weekly chooses to exercise its right to express editorial opinion in our publication. In fact we cherish it, considering opinion to be a vital component of any publication. The viewpoints expressed represent a consensus of the YES! Weekly editorial staff, achieved through much deliberation and consideration

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