Data centers are key to fight over Duke electric rates in North Carolina

Data centers are set to proliferate, and Duke Energy electric rates are poised to soar — and North Carolinians are mad about both. They’re packing public hearings to complain about their utility bills and passing moratoriums in their communities to stop construction of the ginormous, computer-crammed warehouses.

The two phenomena aren’t unrelated: Duke has proposed an 18% rate hike for households in some part to prepare the electric grid for the power-hungry facilities planning to set up shop in the state.

Now, as state regulators weigh Duke’s bid to raise rates, climate and consumer advocates are pushing proposals that could rein in bill increases and ensure data centers pay their fair share for grid upgrades — without undermining the clean energy transition. They’re recommending the creation of a new class of ​“large load” customers that would pay fees to support infrastructure and be allowed to bring their own renewable energy, instead of relying on Duke’s resources.

Duke has also proposed upping the percentage of profit it earns on its capital investments. Critics want to lower it. 

To be sure, Duke’s rate request isn’t tied only to the coming onslaught of data centers, but advocates say the proposed buildout is a critical point of focus.

“This is the issue of the day,” said Eddy Moore, decarbonization director at the Southern Alliance for Clean Energy, which is intervening in the rate case.

“The large-load additions are on such a scale that if they’re handled well, the impact is very positive, and if they’re not handled well, it’s negative — and we don’t have the luxury of a lot of time to figure it out.”

Moore’s group isn’t alone. Heavy hitters including state Attorney General Jeff Jackson, a Democrat, are pushing similar reforms. Expert hearings are set to begin next month at the North Carolina Utilities Commission, a five-member panel with three Republican and two Democratic appointees. A decision is expected in the fall.

An ​“excessive” request ​“largely to serve data centers”

Duke is proposing rate hikes for 2027 and 2028 for both of its North Carolina utilities: Duke Energy Carolinas, covering mostly the central and western part of the state, and Duke Energy Progress, covering mostly the east.

Regulators are set to examine the Duke Energy Carolinas proposal first, but the gist of each bid is similar. If the increase is approved, the average household using 1,000 kilowatt-hours a month would pay $280 to $355 more per year in 2028.

Duke argues that higher rates are warranted to cover a mix of past expenses and future investments: upgrading and expanding the company’s transmission and distribution system; making that network more resilient in the face of storms like Hurricane Helene; and building new power sources, from gas plants to battery storage.

“From transformers to poles to power lines, material costs have increased dramatically over the last few years,” Duke spokesperson Bill Norton said over email, ​“and our proposed rates reflect this reality.”

Demand from prospective data centers sets the context for these outlays. Duke has said that the facilities are responsible for more than 85% of the expected load growth from new economic development projects seeking to come online.

Duke is also asking for a return on equity for investors of 10.95%, up from 10.1%. That, Norton said, is because ​“a fair return on equity is essential to attract the capital we need to make the energy infrastructure investments North Carolina requires.”

Critics adamantly oppose that percentage increase. In a press release, the Southern Environmental Law Center, representing clean energy and consumer groups in the case, called it ​“breathtaking” — and not in a good way.

“No one needs a guarantee of a nearly 11% return in a protected market,” said Moore, a onetime staffer for the Arkansas utilities commission. ​“We understand these excessive requests to be connected to the rush to build out new infrastructure, largely to serve data centers.”

In fact, to satisfy 43 anticipated large-load projects through 2035, Duke has already added 8 gigawatts to its demand projections in the Carolinas, noted John Wilson, expert witness for the Southern Environmental Law Center. The company is using those predictions to help justify a whopping 9.7 gigawatts of new gas plants in the same time frame.

“The scale of these investments and others will literally reshape Duke Energy through a 2025-2029 corporate capital plan of $87 billion, compared to $190 billion in current assets,” Wilson testified. ​“In other words, Duke Energy’s corporate assets could increase by nearly 50% over the next five years, with much of that growth on its electric system in North Carolina and South Carolina.”

On behalf of the Southern Alliance for Clean Energy, the North Carolina Housing Coalition, Vote Solar, and other nonprofits, the Southern Environmental Law Center is advocating a 9.1% return on equity. The change could save customers $370 million, it says. The office of the attorney general wants an even lower return of 7.4%.

“The status quo is untenable”

The advocacy groups are also pushing for major energy users to be put into a new customer class that would be subject to special rules and rates — a scheme called a ​“large load tariff.”

Duke has asserted that such a class isn’t needed. The utility touts its case-by-case electric service agreements with large-load customers, claiming the agreements ensure that data centers pay their fair share.

But clean energy advocates aren’t convinced. For one, Duke’s agreements are confidential and variable, while a large load tariff would be transparent and consistent.

Detractors also argue that North Carolinians could be left holding the bag if power plants and other infrastructure are built to serve data centers but the facilities don’t come to fruition or stay in operation as long as expected. ​“There are loopholes in the contract language that could lead to the cost being shifted onto other ratepayers,” Moore said.

To prevent this from happening, the groups’ proposed mandatory large load tariff would require customers with 25 megawatts or more of demand to pay for at least 85% of projected usage over a minimum of 20 years.

Advocates are also calling for a voluntary program known as a ​“clean transition tariff,” which would allow any customer who wants 24/7 carbon-free energy to contract for it using Duke as a go-between. Such a program has been discussed for years but has never materialized. Earlier this year, Duke agreed to reconsider it as part of a separate docket before regulators.

The nonprofits aren’t the only ones advocating for a large load tariff. Both the attorney general and Public Staff of the North Carolina Utilities Commission, the state-sanctioned consumer advocate, have made similar proposals.

Norton of Duke defended the utility’s individual agreements with data centers, but also said the company would ​“carefully evaluate the specific proposals filed in the rate review docket.”

Meanwhile, in response to the Public Staff large-load proposal, tech giant Microsoft is urging commissioners to start a separate proceeding on the matter. ​“Microsoft shares the Public Staff’s view that these issues are urgent and that the Commission should act with dispatch,” the company said in a June 8 filing.

But, it continued, the Public Staff’s recommendation requires ​“a level of stakeholder engagement, evidentiary development, and deliberation that cannot be adequately accomplished within the confines of this already-complex general rate case.”

Advocates insist that change is needed, no matter in what docket.

“The status quo is untenable with regards to the lack of preparation for large-load customers,” said Munashe Magarira, a senior attorney at the Southern Environmental Law Center. ​“We see our recommendations as a set of choices that would be better for North Carolinians, better for the grid, better for the utility, and better for the environment.”