Raleigh, N.C. — Progress Energy called witnesses Monday to testify to the North Carolina Utilities Commission about the need for an electricity rate increase to maintain and improve the power supply in the state.

The utility and the North Carolina Public Staff, the agency within the Utilities Commission that represents consumers in rate cases, reached an agreement last month in which customers would see a 5.7 percent average increase in rates over a two-year period.

Progress, which was acquired by Duke Energy last year, originally requested an 11 percent increase, saying it would help the company as it transitions to cleaner energy. It is retiring 12 coal-fired units and replacing them with low-emission, natural gas-fueled plants.

Although the negotiated rate is lower, it remains controversial because it would hit residential customers hardest. Progress wants to cut rates for large industrial customers by 4.2 percent to try and save jobs.

"If industry leaves our state, those costs will be borne by other customer classes. So, some of the thought behind the rate design is to balance the concerns among all our customer classes," Progress spokesman Jeff Brooks said.

Progress said residential rates would go up 7 to 8 percent, which means close to $100 more a year for the average residential customer.

"You have to weigh (lower industrial rates) against the economics of raising a lot of other people's rates," said Jim Warren, executive director of NC WARN, a watchdog group that is a frequent critic of Duke and Progress. "It takes away buying power. That kills jobs, too."

The Utilities Commission held five public hearings across the state to discuss the impact of raising electric rates, and the evidentiary portion of the case is expected to last all week. Attorneys for business, government and the public cross-examined the utility's witnesses, and the commission is acting as the judge and jury.

Under the deal with Public Staff, Progress Energy also agreed to contribute an additional $20 million to help low-income customers in North Carolina pay their energy bills and to lower its return-on-equity demands.

The rate case is the first to come before the commission after tense hearings last summer in the wake of a management shake-up after the merger.

The Duke-controlled board ousted Progress Chief Executive Bill Johnson, who was to head the combined utility,  hours after the companies merged. That sparked an investigation into whether the board misled regulators.