Dramatic Rise in Fuel Prices Prompts Proposed Cost-Recovery Increase in N.C. Rates

Fuel component in customer rates tied to spiking costs for coal, other fuels 


RALEIGH, N.C., June 6  /PRNewswire-FirstCall/ -- The same global economic influences that have caused prices to rise dramatically at the gas pump have pushed up the cost of other fuels in recent months. The increase - particularly in the price of coal used in electricity generation - has prompted Progress Energy Carolinas to seek an increase in the fuel component of the rates paid by the company's N.C. customers.

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The company today filed a petition to increase rates by about $424 million, to address the significant under-recovery of fuel expenses from prior years and the anticipated higher expense of fuel for the next year. The company also has filed to recover expenses associated with the implementation of energy-efficiency and demand-side management programs, as well as a renewable energy portfolio standard, both of which are required under the state's energy law enacted in 2007.

If approved, the changes would equate to an increase of about 16.2 percent for residential customers using 1,000 kilowatt-hours (kWh) of electricity per month, including a 13.61 percent increase for fuel expenses, 2 percent to recover energy-efficiency and demand-side management expenses and a flat monthly charge of 46 cents for renewable energy costs.

As filed, the increase would raise the monthly residential price of 1,000 kWh to $112.57 from the current $96.86. The increase would take effect Dec. 1.

Progress Energy Carolinas makes a fuel cost-recovery filing annually in North Carolina, to recover the cost of fuel used to provide electric service to the company's 1.25 million N.C. customers. The Utilities Commission reviews Progress Energy Carolinas' fuel costs and adjusts the fuel component of customer rates accordingly. By law, the company makes no profit from the fuel component of rates. In April, the company made its annual fuel expense filing in South Carolina.

Commercial and industrial customers in North Carolina would see the same fuel-related percentage increase, 13.61 percent. For commercial and industrial customers, the energy-efficiency and demand-side management and renewable energy costs vary based on size of the customer, energy usage and other factors.

Progress Energy Carolinas has maintained a deferred fuel balance (unrecovered fuel expenses) since 2000 in an effort to minimize the impact of rate increases on customers. Over time, that balance has grown and is expected to be approximately $300 million by the end of 2008.

After a slight increase in 2007, the prices of coal and other fuels used to produce electricity have risen sharply. Since June 2007, the market price for coal has increased more than 160 percent and has established several records thus far in 2008; natural gas prices have risen 55 percent; fuel oil prices have risen 87 percent. Meanwhile, demand for coal in developing countries, particularly China and India, continues to rise, creating global supply and price issues.

Coal fueled about half the electricity that Progress Energy Carolinas generated for its customers in 2007. The company's nuclear plants accounted for about 44 percent. Plants that use natural gas and oil accounted for about 5 percent, with the remaining generation coming from hydroelectric plants in central and western North Carolina.

The other major component of the rates, the base rate, has not been increased since 1988. In fact, since 1991, the total price of electricity for Progress Energy Carolinas' N.C. customers has increased only about 15 percent, while the U.S. Consumer Price Index, a measure of overall inflation, has increased about 58 percent in that time.

"Any price increase has an impact on our customers, and we are very sensitive to that fact," said Lloyd Yates, CEO and president of Progress Energy Carolinas. "Rising fuel prices are a new energy reality, and we will continue to work to meet the challenges of a growing service area reliably, affordably and in an environmentally sound manner. Even though we cannot control global economics that affect fuel prices, we are focused on managing the costs that we do have control over. We're doing all we can to operate our plants and facilities as efficiently as possible. We're pursuing a balanced energy strategy that includes investments in renewable energy sources, new programs to help our customers use energy wisely every day, and a state-of-the-art power system."

The company has filed a number of proposed energy-efficiency and demand-side management programs and will introduce additional programs this year. Meanwhile, customers can save up to 20 percent on their energy costs by making simple changes at home. Cleaning air filters, replacing incandescent light bulbs with compact-fluorescent bulbs, adjusting the thermostat and sealing windows and doors can result in noticeable savings. For more than 100 energy-efficiency tips, visit the company's Web site at http://www.savethewatts.com/.

Progress Energy, headquartered in Raleigh, N.C., is a Fortune 250 energy company with more than 21,000 megawatts of generation capacity and $9 billion in annual revenues. The company will observe a century of operation in 2008. Progress Energy includes two major utilities that serve 3.1 million customers in the Carolinas and Florida. Progress Energy is the 2006 recipient of the Edison Electric Institute's Edison Award, the industry's highest honor, in recognition of its operational excellence. The company also is the first utility to receive the prestigious J.D. Power and Associates Founder's Award for customer service. Progress Energy serves two fast-growing areas of the country, and the company is pursuing a balanced approach to meeting the future energy needs of the region. That balance includes increased energy efficiency programs, investments in renewable energy technologies and a state-of-the-art electricity system. For more information about Progress Energy, visit the company's Web site at http://www.progress-energy.com/. 

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