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State Commission Slashes Duke Energy Rate Increase

Duke Energy's rate increase in Kentucky won't be nearly as big as the utility had hoped.

The Kentucky Public Service Commission reduced an electric base rate increase sought by Duke.

As a result, the average monthly bill for a typical residential customer will increase by about $2.56, or about 3.2 percent, the PSC said in a news release. Duke Kentucky’s original rate adjustment request would have produced a monthly increase of $15.17. A subsequent revised request would have increased a typical monthly residential electric bill by $9.73.

In an order issued Friday, the PSC granted Duke Kentucky an annual revenue increase of $8.4 million, which is about 28 percent of Duke Kentucky’s revised request for a $30 million annual increase. Duke Kentucky originally asked for an annual increase of $48.6 million, but later reduced the amount, mostly to reflect changes in the federal corporate income tax rate, which were made after Duke Kentucky filed its application.

The company said on Friday that customers would benefit because of the federal tax law adopted last year.

The PSC granted Duke Kentucky’s request to increase the monthly residential service charge. The monthly charge will increase to $11, up from the current $4.50, and 10 cents below Duke Kentucky’s revised request. To limit the overall rate increase to the level determined by the PSC, the residential electric usage charge will be reduced from 7.546 cents per kilowatt-hour to 7.152 cents per kilowatt-hour.

Duke Kentucky’s last increase in electric base rates took effect in January 2007. The utility has about 140,600 electric customers in Boone, Campbell, Grant, Kenton, and Pendleton counties.

In applying for the rate increase, Duke Kentucky cited an inadequate rate of return on investment, recovery of costs related to the acquisition of the entirety of the East Bend power plant near Rabbit Hash in Boone County, recovery of storm restoration costs from Hurricane Ike in 2008, and costs related to the deployment of an advanced metering system.

The application also included a request for approval of Duke Kentucky’s environmental compliance plan and imposition of a surcharge through which the utility recovers the cost of compliance, as permitted under Kentucky law.

Changes resulting from the reduction in federal corporate income taxes, which took effect January 1, produced $14.74 million, or more than a third, of the $40.2 million reduction from Duke Kentucky’s original request for a revenue increase.

To arrive at the final revenue figure, the PSC made a number of other adjustments, including:

  • Changing Duke Kentucky’s proposed depreciation calculation - $6.94 million
  • Removing certain East Bend costs from the utility’s capital structure - $ 4.87 million
  • Reducing Duke Kentucky’s replacement power expenses - $ 4.07 million
  • Reducing the rate of return for utility shareholders to 9.725 percent, from the 10.3 percent requested by Duke Kentucky - $ 2.46 million
  • Eliminating recovery through rates of incentive payments to utility executives, because those payments are tied to financial performance that benefits shareholders, rather than factors that benefit customers, such as reliability and service - $ 1.64 million

Other smaller adjustments account for the remaining difference the PSC said.

In addition, the PSC rejected a number of other proposals made by Duke Kentucky. They included:

  • A surcharge to pay for electric system improvements, as well as a related program to bury certain power lines at highest risk of storm damage. The PSC found no pressing need for either, noting that Duke Kentucky’s system is quite reliable as is.
  • A proposal to allow customers to pay a set amount every month, independent of usage. The PSC said that customers must be billed an amount set in rates, and that a fixed-amount bill would violate that principle.
  • A request to establish a surcharge to reflect the variability in costs paid by Duke Kentucky to use transmission lines owned by other entities. The PSC said it was unnecessary because Duke Kentucky’s costs are fairly steady.

The PSC ordered Duke Kentucky to reinstate a special rate for school sports fields, which have unique usage patterns.

Duke Kentucky also was ordered to begin sending all customers detailed billing information. Until now, customers wishing to receive billing details had to elect to do so.

Finally, the PSC approved Duke Kentucky’s environmental compliance plan and a related surcharge through which the utility recovers the cost of compliance, as permitted under Kentucky law.

Duke Kentucky filed its rate adjustment application in September 2017 and amended it in February 2018. A formal public hearing in the case was held March 6 through March 8. The PSC also held a public comment meeting on February 8 in Florence.

Other parties to the case were the Kentucky Office of Attorney General, included the Kentucky Industrial Utility Customers (KIUC), the Kentucky School Boards Association, the Kroger Co., and Northern Kentucky University.

The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,500 gas, water, sewer, electric and telecommunication utilities operating in Kentucky.

Meanwhile, Duke Energy said in a news release Friday that its Ohio customers would receive approximately $20 million in annual tax savings on their electric bills beginning this month due to the new tax law. The release was issued before the PSC made its ruling about Kentucky customers. Duke had said that it recommended allocating more than $15 million of tax act benefits to its Kentucky customers.

"The tax act provides a unique opportunity for us to reduce customers' bills by millions of dollars," said Jim Henning, president of Duke Energy Ohio and Kentucky. "And that's exactly what we're doing here – delivering real savings to our customers."

Duke Energy Ohio also plans to lower its customers' natural gas bills by about $3 million beginning in May – subject to the approval of proposals filed with state regulators.

"The tax act reduced our corporate tax rate – and that's a benefit we are pleased to pass along to our customers," said Henning. "However, the impacts on our business and customers go far beyond the reduction in the corporate tax rate. While some of the changes reduce our federal tax liabilities over time, others could actually increase our tax obligations.

"We considered all of these scenarios as we determined the best ways to pass along the benefits of the tax act to our customers. And we continue to work through various regulatory proceedings in our efforts to ensure that our customers receive the benefits of this new law."

-Staff report

Image: Duke Energy plant at East Bend (via Duke)