By Travis Fain, WRAL statehouse reporter
Raleigh, N.C. — Duke Energy spends tens of millions a year in North Carolina on lobbying, public relations and advertising, focusing in its most recent TV and radio spots on the “smarter energy future” it’s working toward.
The Charlotte-based utility, which has a public relations staff of more than 100 people, spent $5.5 million on advertising in the first three quarters of 2017, according to data gathered by REDBOOKS, which tracks media spending. It spent $7.8 million the year before that and more than $10 million in 2015.
Why does a monopoly need to advertise?
NC WARN, a climate change group that for years has protested Duke’s reliance on fossil fuels, has a theory, proffered last week as it argued against the company’s latest rate increase request in North Carolina. That request, now before the North Carolina Utilities Commission, could add billions to the company’s revenue sheets in coming years.
“It’s because buying favor and distorting its public record is an essential part of Duke’s monopoly business model,” NC WARN director Jim Warren said.
Duke executives clearly disagree. They pushed back during testimony before the commission as NC WARN tried to make the implication a major part of its argument against allowing the company’s western North Carolina operation, Duke Energy Carolinas, the dougle-digit rate increase it wants.
“And what is the purpose of the advertising?” NC WARN attorney John Runkle asked David Fountain, Duke’s North Carolina president.
“To let our customers and others in the state know about the good work that the company is doing on behalf of our customers and to promote a level of brand awareness,” Fountain replied. “We want customers to understand that North Carolina is well positioned for a cleaner energy future, a smarter energy future.”
Millions in ‘targeted philanthropy’
By NC WARN’s count, Duke drops more than $80 million a year on “influence spending,” money meant to move the needle with government officials, civic leaders, the news media and the public.
A Duke attorney objected to the phrase repeatedly during last week’s rate hearings.
NC WARN said its count is not all inclusive and that most of what it tracked ties back only to North Carolina operations, not the five other states where Duke subsidiaries operate. It includes some $30 million that flows through the company’s charitable foundation.
NC WARN says this “targeted philanthropy” is designed to “maintain support – or at least silence – among civic, academic and nonprofit leaders.”
Fountain said during testimony that he’s proud of the giving, which comes in part from company shareholders and in part from customers and employees who make donations that the foundation matches.
The Duke Energy Foundation’s annual tax forms also show six-figure contributions to the Carolina Ballet, the Morehead Planetarium, state university foundations, the American Red Cross and the Arts and Science Council of Charlotte, with bigger donations to the Foundation for the Carolinas, where Duke Energy Chief Executive Officer Lynn Good sits on the board.
The foundation also funds college scholarships for the children of employees. And Duke is the name sponsor of the performing arts center in downtown Raleigh.
“We recognize we’re only as successful as the customers and communities that we serve,” Fountain said as Runkle quizzed him on the purpose behind some of the company’s philanthropy.
At one point in this back-and-forth, Ed Finley, chairman of the Utilities Commission and formerly an attorney in the industry, noted that he himself has donated to the Duke Energy Foundation. A commission spokesman later said Finley gets a $1,000 honorarium several times each year for speaking at Electric Power Research Institute events, and instead of keeping the money he splits it into donations to programs that help people pay their power bills.
This is one of Duke Energy Foundation’s more common charitable contributions, matching donations from employees and customers who send in extra payments with their bills.
The foundation’s most recent 990 tax form lists $32.6 million in outgoing grants for 2016. NC WARN included all of it in its count, which also tallied the following:
- $1 million in North Carolina lobbying costs in 2017
- $6.6 million in federal lobbying costs in 2017
- $460,600 in North Carolina political action committee contributions in 2016
- $700,876 in federal political action committee contributions in 2017
- $3 million to the Republican Governors Association in 2014
- $7.8 million in advertising buys in 2016
- $1 million to the North Carolina Chamber in 2016
- $596,203 to local chambers of commerce in Duke Energy Carolinas’ service area in 2016
WRAL News spot checked some of the figures to confirm the group’s findings.
NC WARN also threw out other figures in its argument, including the various multimillion-dollar settlements Duke has funded in recent years to close out regulatory actions over coal ash contamination and other issues.
Duke does not dispute NC WARN’s numbers, only the characterization. Company spokespeople argue that most, if not all, of the money in question comes from Duke shareholders, not customers.
NC WARN calls this “an accounting fiction.”
‘They need to not look so big’
Company ads often linger on images of solar panels, though solar makes up just over 3 percent of the company’s capacity in North Carolina, including what it generates itself and what it buys.
“The public largely thinks Duke is indeed green because they are pummeled with ads showing solar panels,” Warren said in a statement last week.
Still, Duke says its percentage is good for No. 1 in the Southeast for solar and that it plans to double the solar power feeding its grid over the next five years.
Runkle went back to the advertising issue repeatedly during the Duke rate hearings, which are expected to continue through the coming week. What, he wanted to know, does Duke get out of these 30-second television spots?
“We really want to give customers information,” Fountain said, citing company energy efficiency programs as an example of something customers might learn about.
Does advertising help influence the General Assembly? Runkle wanted to know.
“It really helps us more with our customers, helps them understand the work that we’re doing, and that’s the target audience,” Fountain said.
“We really want to give customers information.”
David Fountain, Duke Energy
Marketing strategists not involved with Duke or its rate case said there are several reasons a monopoly might advertise, and influencing politicians is definitely one of them.
“To set customer service expectations in order to guide and motivate customer service personnel,” Brad Brinegar, chairman and chief executive at the McKinney firm in Durham, said in an email. “To justify rate hikes. And to insulate them from legislative moves to weaken their monopoly power.”
“So when they ask for rate increases, there will be less resistance,” said Olalah Njenga, with the YellowWood Group in Raleigh.
Advertising also breeds familiarity, Njenga said. It makes brands accessible. In Duke’s case, it might remind people who to call if they have a problem.
“It’s not that they need to make more money as much as they need to not look so big,” she said.
Duke spokesman Jeff Brooks said the company wants customers “to understand the work that Duke Energy is doing on their behalf.”
“We simply want them to know that we’re listening to their needs,” he said.
Who pays for what?
One of the more fundamental contentions as Duke seeks its rate increase is who pays for what.
Shareholders, company executives insist, cover the costs NC WARN has highlighted. Shareholders, NC WARN and attorneys for other groups fighting the increase argue, make their money off customers.
State and federal regulations include rules on what utility companies can charge back to ratepayers and what they can’t. North Carolina’s Public Staff, a group of attorneys and accountants who represent Duke customers in these rate cases, negotiate with the company over what’s what.
It quickly becomes complicated.
Lobbying costs, for example, are supposed to be borne by shareholders, but various divisions within Duke participate in the company’s lobbying. A consultant determined that about 66 percent of certain activities were attributable to federal lobbying, company spokeswoman Meredith Archie said. When it came to state lobbying, the figure was 75 percent, she said.
Those costs get booked as shareholder expenses, with the rest included in Duke’s rate requests as pass-along costs for customers.
But, in the end, it all comes from ratepayers, Runkle argued.
“I would disagree with that characterization,” Fountain replied, noting that shareholders advance funds to the company.
Duke recently announced a public offering of 18.5 million shares to raise capital. Investor materials from February tell shareholders to expect 8 to 10 percent returns and note that the company boosted dividends 4 percent last year.
A return of about 10 percent is baked in to what customers pay, not just for day-to-day costs but as a tack-on for construction costs as well. The company made just over $3 billion in profit last year.
If the money’s not coming from customers, then where does it come from? Runkle asked.
It comes from shareholders, Fountain and Jane McManeus, Duke’s director of rates and regulatory planning, replied.
“And where do the shareholder funds come from?” Runkle asked.
“They come from shareholders,” Fountain said.
A short round of laughter rippled through the hearing room, which was mostly full of attorneys, and the proceedings moved on.