Duke Energy Ohio's Natural Gas Distribution Rate Case
On July 9, 2012, Duke Energy Ohio filed an application with the Public Utilities Commission of Ohio (PUCO) to increase rates for natural gas distribution service.
What are distribution rates?
Natural gas bills are comprised of two main parts – the cost of the natural gas and the cost of distribution.
The distribution rate pays for all the things that Duke must do to deliver gas to its customers including installing and maintaining gas pipelines, reading gas meters, processing bills and taking customer service calls. Duke spends the same amount of money per residential customer to do these things, whether a customer uses a little natural gas each month, or a lot. Since these distribution costs do not change with customer usage, they are referred to as “fixed costs.”
What is the PUCO’s role in setting distribution rates?
Under Ohio law, a public utility is allowed to recover from customers its operating expenses, plus a reasonable return on its infrastructure investments. When a utility requests a rate increase from the PUCO, several steps are taken to review the company’s financial condition and ensure the company is fulfilling its obligations to customers
When evaluating the company’s application, PUCO staff examines whether the proposed rates will provide the company with adequate operating revenue. In general, the cost of providing service to customers, maintenance of infrastructure and equipment expenses, depreciation expense, taxes and a return on the company’s infrastructure investment are used to calculate the company’s revenue requirement. PUCO staff prepares a report that makes recommendations to the Commission. The Commission is not bound by the staff recommendations and may implement some suggestions and reject others.
What did Duke request in its application?
Duke is requesting to increase distribution revenues by approximately $44.6 million or about 18 percent over current revenues. Duke also proposes new charges to support economic development, natural gas vehicle use, recover costs for infrastructure replacement relating to mass transit projects, a voluntary program designed to encourage natural gas fired electric generation, as well as anew reconnection charge for customers who voluntarily have their service disconnected for a period of time.
Duke also proposes to begin recovery of deferred costs related to environmental remediation of two manufactured gas plants totaling approximately $65 million.
Additionally, Duke proposes to extend current riders related to the replacement of aging infrastructure.
Was an agreement reached in the case?
In April 2013 a stipulation resolving many of the outstanding issues was filed by PUCO staff, Duke, the Office of Consumers' Counsel, Ohio Partners for Afordable Energy, Stand Energy, Interstate Gas Supply, the city of Cincinnati, The Greater Cincinnati Health Counil, Cincinnati Bell, Kroger, Direct Energy, Ohio Manufacturers' Association and People Working Cooperatively.
The stipulation set Duke's rate of return of 7.73 percent, resulting in no change to base distribution revenues. The stipulation also established caps on annual increases for Duke's advanced meter replacement program, provides $350,000 in annual low-income weatherization funding and expands eligibilty requirements for energy fuel funds.
A provision to allow Duke to fund mass transit facility relocations and alterations to its reconnection procedures were removed.
The stipulation did not address Duke's request for environmental remediation expenses.
How did the PUCO rule?
On Nov. 13, 2013 the PUCO adopted the stipulation. The Commission also made a determination in regards to the recovery of expenses related to environmental remediation manufactured gas plants that was not addressed by the stipulation.
The PUCO ruled that Duke be permitted to recover expenses, minus carrying charges, related to environmental remediation at two of its manufactured gas plants in accordance with state and federal environmental regulations. The PUCO also disallowed recovery of approximately $2.3 million for the purchase of a parcel of land at one of the sites.
Will any of this affect the cost of natural gas itself?
No, the cost of natural gas, which makes up the majority of bills, will continue to be passed on to customers through Duke’s gas cost recovery charge or a gas marketer’s rate. Either way, Duke makes no profit on this part of the bill.
Did the PUCO consider public opinion?
Yes. Four local public hearings throughout Cincinnati, Hamilton and Middleton were held to allow the public an opportunity to provide testimony on the company’s application.
How can I learn more?