Duke Deal on State Oversight Could Boost Wholesale Profits

The commission staff does not agree with Duke's reporting change, however. It just convinced Duke to start including wholesale power profits in its regulated earnings last year. And other utilities, including Dominion (D - Cramer's Take - Stockpickr) and Progress Energy (PGN - Cramer's Take - Stockpickr), continue to do so.

But the commission approved Duke's proposal because it offers a guaranteed rate cut -- during a rate freeze that extends through 2007 -- that can start benefiting hard-hit industrial customers immediately. A rate review, on the other hand, could require significant time and still result in no reduction at the end.

"Any attempt to involuntarily reduce Duke's rates ... is likely to be seriously contested and involves all of the uncertainties associated with protracted litigation," the commission stated. "Thus, approval of Duke's proposal strikes us as the most expeditious way of lowering rates for Duke's North Carolina retail industrial customers and obtaining other customer benefits."

CUCA preferred to fight.

"Just because a battle may be long or challenging does not negate the necessity of it," CUCA Executive Director Sharon Miller told TheStreet.com on Thursday. "And it is the commission's job to regulate utilities -- no matter what the time frame is."

Two years ago, CUCA requested a formal review of Duke's rates. But the commission denied the request because it had already agreed to freeze Duke's rates through 2007 while the company invested in expensive pollution controls. CUCA has since lost an appeal of that decision and is now asking the North Carolina Supreme Court to review the case.

In the meantime, the association continues to feel shortchanged. Miller says that CUCA agrees that "industrial customers are in dire need of rate relief" right now. But she criticizes the new arrangement as inadequate.

"We don't think the potential short-term gains are worth the long-term costs," she said. "A token 2% rate cut pales in comparison to the potential for double-digit rate reductions" through a formal review.