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Balancing the Challenging Economy with the Need to Raise Rates

Seeking an increase to the base rates our customers pay for electric and gas services  is never an easy decision for Duke Energy – especially given the state of the economy. However, we must continue to invest in modernizing our system, building cleaner power plants and installing pollution control equipment. As a result, we pursued base-rate increases in several of our service territories in 2009 to recover these costs.

Our goal was to align rates and actual expenses while keeping in mind the economic challenges facing customers today. We collaborated with regulators, customer groups and other parties to reach the following outcomes, which we believe strike a fair balance:

  • In December 2009, the North Carolina Utilities Commission approved an 8 percent average base-rate increase, to be phased in over two years. This is Duke Energy Carolinas’ first nonfuel base-rate increase in North Carolina since 1991, following a nonfuel base-rate reduction in 2008.
  • The Public Service Commission of South Carolina granted an average nonfuel base-rate increase of 5.2 percent in January 2010, to be phased in over three years. As in North Carolina, this is Duke Energy Carolinas’ first nonfuel base-rate increase since 1991.
  • In mid-2009, the Public Utilities Commission of Ohio (PUCO) approved an electric distribution rate increase of approximately 3 percent of the total bill for residential customers. Distribution charges are one component of the total bill and cover the cost of building, operating and maintaining the system that delivers electricity.
  • The Kentucky Public Service Commission approved an increase for natural gas delivery service of 10.4 percent on total gas revenues, effective early 2010. This rate change, the first since 2006, enables the company to recover costs of the Accelerated Main Replacement Program, a major gas reliability and safety initiative.

These base-rate increases will help us provide cleaner and more reliable energy. Rates that are better aligned with our expenses also allow us to maintain our strong financial position, which in turn keeps the cost of borrowing money low. We continue to aggressively manage our costs so our rates remain affordable and compare favorably with national averages. We also continue to offer energy efficiency programs to help customers use less power and save money.

Competition in Ohio

In Ohio’s competitive electricity market, customers are free to switch generation suppliers. This is different from the traditional regulated markets of the Carolinas, Indiana and Kentucky, where customers are served by the electric generation provider assigned to their area.

Although the Ohio market has been competitive since 2001, Duke Energy Ohio historically experienced limited customer switching due largely to its attractive generation rates. However, with the weak economy, there is excess generation and lower prices in the wholesale market. This has resulted in increased switching activity in Duke Energy Ohio’s service territory. As a regulated utility, Duke Energy Ohio’s generation rates are set until the end of 2011, pursuant to the Electric Security Plan established by the PUCO.

Duke Energy Retail Sales (DERS) – the company’s competitive retail electric generation provider – has begun to offer customers savings as well. DERS provides electric generation service to both residential and nonresidential customers throughout the state.

Duke Energy Ohio continues to serve as its customers’ power distribution provider, regardless of which entity they choose for their electric generation.