North Carolina regulators have rejected Duke Energy’s plan to sell power to Orangeburg’s Department of Public Utilities, saying it could raise costs for Duke’s North Carolina customers.

Now DPU is considering other options, including appealing the decision to the Federal Energy Regulatory Commission.

DPU has signed a 10-year, $500 million contract with Charlotte-based Duke Energy Corp. The city-owned utility says the deal would save DPU customers $10 million a year over the life of the contract.

But earlier this week, the North Carolina Utilities Commission ruled that Duke can’t spread the cost of serving DPU to retail customers in North Carolina.

Duke has argued that the DPU contract would help keep costs lower for its regular customers by spreading costs -- such as plant construction, transmission and maintenance -- around a larger payer base.

Both utilities have also said the NCUC’s decision may be an illegal restraint on interstate commerce.

“The NCUC’s opinion totally disregards the interests of the citizens of Orangeburg, who would receive substantial benefit under the terms of the contract,” DPU Manager Fred Boatwright said in a prepared statement Wednesday. “The opinion also completely discounts the likely benefits the sale to Orangeburg would provide to Duke’s North Carolina retail customers.”

In light of the decision, Boatwright said the utility is awaiting word from Duke Energy before it makes any concrete decisions on how to proceed.

“We are weighing all our options,” Boatwright said, noting that appealing to FERC is one avenue. “There are a number of legal and businesses avenues that we may elect to take depending on how the situation evolves.”

“Our mission, as with all DPU contracts, was to craft protections for our customers into the supply contract,” Boatwright said. “This was successfully done; which will eliminate the need for immediate rate increases, regardless of Duke’s final determination.”

Boatwright said as far as the utility is concerned, the contract with Duke is valid and it will prepare to take delivery of the company’s power May 1 as planned.

Under the contract, Duke has the right to provide DPU with power at possibly higher prices until the end of 2010 while DPU renegotiates the contract or seeks a contract with a different company.

“We will be discussing with Duke whether it will exercise that right before deciding what next steps Orangeburg will take,” Boatwright said.

In the interim, Boatwright expressed his displeasure at the NCUC’s majority opinion.

He said the opinion focuses on a, “relatively small per kilowatt retail cost of service increase before considering the acknowledged offsetting benefits.”

“The stated reason for ignoring these real benefits is because they cannot be quantified, even though it is clear that they will exist,” Boatwright said. “The opinion ignores the fact that the contract gives Duke the right to schedule and dispatch Orangeburg’s generation to serve the Duke load (including its North Carolina retail customers) and that this provides a real benefit to Duke and its other customers.”

The Public Staff, North Carolina’s consumer advocacy arm in utility rate cases, disagreed.

The Public Staff warned that if Duke signed enough deals to sell retail power to cities outside its service area, it wouldn’t be long before Duke would have to build new power plants to meet the extra energy demand.

Public Staff argued that households and businesses would pay for the plants through rate increases, but Orangeburg and the other cities could move on to another utility if they didn’t want to pay the higher electricity rates.

The Commission also rejected the argument that federal regulations pre-empt commission action on such agreements, saying that Duke specifically gave the NCUC authority to review interstate contracts.

McClatchy Tribune Wire Service contributed to this report. T&D Staff Writer Gene Zaleski can be reached by e-mail at gzaleski@timesanddemocrat.com or by phone at 803-533-5551. Discuss this and other stories online at TheTandD.com.

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