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Vectren Energy Delivery of Ohio's application to increase distribution rates

Vectren Energy Delivery of Ohio filed an application with the Public Utilities Commission of Ohio (PUCO) on March 30, 2018, in Case Nos. 18-0298-GA-AIR and 18-0299-GA-ALT, to increase its rates for natural gas distribution service and to implement an alternative rate plan.  On April 13, 2018, in Case No. 18-0049-GA-ALT, Vectren filed a separate application for an alternative rate plan.  The PUCO consolidated the three cases on May 24, 2018.

What are natural gas distribution rates?

Natural gas bills are comprised of two main parts – the cost of the natural gas and the cost of distributing the natural gas to homes. 

The distribution rate pays for all the things that Vectren must do to deliver natural gas to its customers, including installing and maintaining natural gas pipelines, reading natural gas meters, processing bills and taking customer service calls.

The cost of natural gas is not a part of this rate case.  This cost is passed on to customers through Vectren’s standard choice offer rate or a gas marketer’s rate.  Vectren makes no profit on this part of the bill. 

What is the PUCO’s role in setting distribution rates?

According to Ohio law, a public utility is allowed to recover 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 that the company is fulfilling its obligations to customers.

When evaluating proposed rates, the PUCO staff looks at whether the proposed rates will provide the company with adequate operating revenue according to Ohio law. In general, the cost of providing service to customers includes operating expenses (i.e. labor, supplies, maintenance of infrastructure and equipment, depreciation expense and taxes) and a return on the company’s infrastructure investment, which are used to calculate the company’s revenue requirement. The revenue requirement is the amount of money a company is allowed to collect from its customers during a given year.

What did Vectren Energy Delivery of Ohio request in its application?

Vectren Energy Delivery of Ohio requested an increase of $34.0 million.  This would increase the monthly distribution rates, excluding the cost of natural gas, for a residential customer using 100 Ccf from its current level of $32.47 to $39.63 a 22% increase or $7.16 per month. 

Vectren Energy Delivery of Ohio also is proposing modifications to its Distribution Replacement Rider (DRR), Energy Efficiency Funding Rider (EEFR), Capital Expenditure Program (CEP) and Distribution Accelerated Risk Reduction Program (DARR).  Additionally, Vectren is proposing to implement a Multi-Family Housing Pilot Program, expand the Straight Fixed Variable (SFV) rate design to include small non-residential customers, and to propose an Energy Conversion Factor.

What did the PUCO staff recommend?

On October 1, 2018, the PUCO staff issued a report recommending a distribution rate increase of $12.1 million to $16.2 million. Using the mid-point of this range, this would increase the monthly distribution rates, excluding the cost of natural gas, for a residential customer using 100 Ccf from its current level of $32.47 to $35.05, or $2.58 over current charges. The staff report also recommends continuing the distribution replacement program for an additional five years. The PUCO staff report advises the PUCO commissioners of the staff’s recommendations. However, the Commission is not bound by the staff recommendations and may implement some of the staff’s suggestions and reject others.

What settlement agreement was reached?

On Jan. 4, 2019, a settlement agreement was reached by Vectren, PUCO staff, the city of Dayton, Federal Executive Agencies (FEA), Interstate Gas Supply (IGS). Retail Energy Supply Association (RESA) signed the agreement later that month.

The settlement agreement serves as a recommendation to the Commission. Several parties including the Ohio Consumers’ Counsel and Ohio Partners for Affordable Energy opposed the settlement agreement.

The settlement agreement includes recommendations that would establish an increase in base distribution rates of $22.7 million. Distribution rates would be calculated using the new federal income tax rates established by the Tax Cuts and Jobs Act of 2017. A framework is also established for how the utility will return to customers any amounts it has over collected under the previous rate structure that used the old tax rates.

The agreement also calls for Vectren to continue its program to replace aging pipelines with modern steel or plastic piping through 2023, by which time the company expects to have completed its replacement work. The agreement continues the practice of reviewing the utilities expenses annually, and that costs be subject to caps based on the impact the customers’ monthly bills. A residential customer may experience no more than a $2.50 increase in their month bill or less each year.

Vectren would also be permitted to recover from customers deferred costs the utility incurred from 2011-2017 related to its capital expenditure program. The agreement established a customer bill cap to limit the impact to customer bills. Residential customers may experience no more than a $1.50 increase in their monthly bill each year. The PUCO will regularly review expenditures to ensure customers are only charged for prudently incurred costs.

How did the Commission rule?

On Aug. 28, 2019, the Commission adopted the settlement agreement with no changes.

How does this affect my bill?

The fixed customer charge will increase from $18.37 to $32.86. However, the agreement resets the DRR from $9.25 to $0.00 per month.

An average residential customer will experience an increase in their distribution rates by $5.24. The plan to return money over collected as a result of the tax change will reduce customer bills by a to-be-determined amount in the near future.

On Aug. 28, 2019, in a separate proceeding, the Commission also authorized Vectren to adjust its DRR to reflect its 2018 investments to upgrade aging pipelines. A residential customer will see an additional $1.75 increase in their monthly bill.

Did the PUCO take public opinion into account?

The PUCO held three public hearings in November 2018 throughout Vectren’s service territory. Hearings were held in Dayton, Washington Court House, and Sidney. Eleven witnesses provided testimony. Additionally, the PUCO received numerous public comments through its website.

How can I learn more about the rate case?

Vectren’s application and the case record can be viewed online by visiting the case docket for 18-0298-GA-AIR.

If you would like to know more about the PUCO or have utility-related questions or concerns, contact the PUCO at (800) 686-PUCO (7826) or visit us online at www.PUCO.ohio.gov.