Utilities Watchdog Project In the News

By David Ranii, Staff Writer

PSNC Energy is seeking a 3 percent rate increase that would raise the natural gas bill for the average residential customer by $3 a month, or $36 a year.

The Gastonia-based company says higher rates are justified by higher costs and because the average household is using less gas. PSNC also is asking state regulators to revamp how its prices are controlled to give it more freedom to adjust rates based on customer consumption.

Utilities rarely succeed in getting approval for the full amount of the rate increases they seek from state regulators and typically settle for a lesser amount. PSNC serves 460,000 customers across the state, including 280,000 in the Triangle.

PSNC last sought a rate increase -- other than adjustments linked to the price of gas -- in 2006. Since then, the utility asserts that it has spent more than $188 million expanding and improving its distribution system, including adding 900 miles of transmission pipe. In the past two years, the company has added nearly 32,000 customers.

But Rusty Harris, president and chief operating officer of the utility, said the average household's natural gas consumption has declined about 2 percent a year over the past five years, after excluding the impact of weather.

"Declining usage has been problematic," Harris told editors and reporters at The News & Observer on Monday afternoon. "Our profits come from the volume of gas our customers consume."

More efficient appliances and houses have enabled people to conserve, while higher gas prices and "a growing awareness of conservation" have encouraged them to do so, Harris said.

The rate request the company filed with the state Utilities Commission on Monday also contains several conservation proposals, including:

* Home energy audits, which the utility would perform for $25.

* Rebates for customers who replace their current gas appliance with more energy-efficient models.

* Discount rates for homes and businesses that meet energy-efficiency standards.

* A promotional program that includes teaching the benefits of conservation in schools.

PSNC also is asking regulators to allow it to recover the costs of these conservation initiatives.

Harris acknowledged that the utility hasn't aggressively promoted conservation up to now because it is counterproductive from a revenue standpoint.

To address that problem, PSNC is asking the Utilities Commission to break the link between the company's revenue and the amount of gas it sells by allowing it to change rates every six months based on consumption. That's known in the industry as a "decoupling mechanism."

In any six-month period, the biggest driver in consumption rates will be the weather, Harris said. People use more gas to heat their homes when the weather is colder than normal and less gas when it's unseasonably warm.

Such a system can have merit, but only if utilities such as PSNC demonstrate that their efforts to promote conservation are reducing consumption, said Shana Becker, a consumer advocate at the nonprofit N.C. Public Interest Research Group.

"It has to come with accountability," Becker said. "If it doesn't, we're just giving the utility money for global warming or warm weather patterns."

In 2005, Piedmont Natural Gas won approval for a decoupling mechanism as part of an overall settlement that included a lower rate increase than the utility requested, said Jan Larsen, utilities engineer for the natural gas division of the Public Staff, the consumer-protection arm of the utilities commission.

Larsen said the commission will examine PSNC's decoupling request "in the context of the overall case and see if it is reasonable."

Piedmont's decoupling mechanism was approved on a three-year experimental basis, Larsen said. On Monday, Piedmont asked to extend it as part of its request for a rate increase that would amount to $4 per month, or $48 per year, for the average residential customer. Piedmont serves more than 1 million customers in North Carolina, South Carolina and Tennessee.

The rate increase requests come when the essentials of daily life, such as food and gasoline, are costing more, putting added pressure on household budgets.

The Utilities Commission will hold hearings on the rate requests and likely will issue a decision in the fall. The rate changes that win approval would take effect Nov. 1.

david.ranii@newsobserver.com or (919) 829-4877