State agency: Deny Duke's $400 million rate increase and cut current rates by $130 million

Sarah Bowman | IndyStar

Show Caption Hide Caption What Duke Energy's rate hike means for consumers Duke Energy is seeking the first increase in its base rate in Indiana since 2004. Here's what that means for consumers.

Regulators should deny Duke Energy's request to charge household customers as much as $23 more per month for electricity, and instead roll back the company's current charges by almost $8 a month, one state agency recommends.

That unusual recommendation by Indiana's Office of Utility Consumer Counselor Bill Fine is causing observers to say everything about Duke's current rate case is unprecedented.

The utility's request for $400 million more annually is one of the largest in Indiana history. And the consumer counselor's recommendation to deny it, and cut current rates by $130 million is the largest dollar decrease it has ever suggested.

The $500 million difference of opinion has other consumer advocates fired up.

“That is a huge divide, and that should say something is fundamentally not right here and this case deserves thorough examination before Duke gets another penny,” said Kerwin Olson, executive director of the Citizens Action Coalition, a consumer advocacy group with decades of experience on utility issues. “This is uncharted territory.”

Consumer groups say the company has been unusually unforthcoming about how it has determined its proposed rate. They claim Duke has failed to provide enough information to do a complete analysis of its rates – something experts say they’ve never seen before.

Duke counters that it has provided all information required of it, and that it “strongly disagrees with many of the claims” and the recommendation put forth by the consumer counselor.

Duke spokeswoman Angeline Protogere points to the fact that rate cases are litigated, legal proceedings, so she said, “it’s not surprising there are adversarial positions like this.”

“This case is about generating cleaner power,” she went on to say, “investing to serve a growing customer base, and improving the reliability of service to approximately 840,000 customers in Indiana.”

Duke's request: $400 million, please

Duke, the largest utility in Indiana, filed its request with the Indiana Utilities Regulatory Commission in July – asking to increase its annual revenue by about $395 million.

The company serves customers across 69 counties in Indiana, and rates for all customer groups would increase by about 15% if the proposal were to be approved. Residential customers would see an increase of about 19%, or about an additional $276 per year. Some industrial customers would see an average increase of only 11%.

“We didn’t take this step lightly,” Protogere said, “and we have worked hard to keep our rates reasonable.”

This is the utility’s first appeal to state regulators for a rate increase in nearly two decades. At least officially.

Over the years, Duke has been able to increase customers' bills through what are called “trackers,” or add-ons that allow a utility to recover costs outside of the rigorous regulatory process involved in a rate case.

Duke actually has 12 of these add-ons, which account for nearly 40% of a customer's bill – a much greater proportion than the four other investor-owned utilities in Indiana.

Customers, for example, pay about $14 each month for Edwardsport, the controversial coal-to-gas plant in Knox County, or about 11% of their total bill.

Since 2010, the average Duke customer bill has gone up from about $96 to $121 – or 26% – entirely through such add-ons. If the utility's current rate hike were approved, it would push customers' bills to about $142, or a nearly 50% increase over 2010 rates.

Is Duke's rate hike justified?

Duke has said that its current rate request is driven by three major factors: a customer base that has grown by 100,000 since its last rate increase, a grid that needs to be made more reliable and resilient, and a transition to cleaner forms of energy.

Olson, however, said that he rejects each of those reasons.

While Duke’s customer base may have grown, new customers start paying when they come on line, thus generating more revenue.

As for modernizing the grid, Olson believes those costs were handled by a 2016 add-on that let Duke collect $1.4 billion over several years. The average Duke customer pays about $3.60 toward these improvements each month, and that amount gradually increases each year.

That money was meant to help build a smarter energy infrastructure and replace an aging system to reduce power outages – which is the utility’s same pitch now.

Olson also claimed Duke is being “disingenuous” when it says the rate request is about transitioning to a cleaner energy fleet.

Days before filing its rate case, Duke submitted its latest integrated resource plan, which lays out how the utility expects to generate electricity over the next 20 years. About 90% of the power Duke produced in Indiana in 2018 was coal-fired, a source that is considered dirty and utilities are beginning to leave behind.

In that plan, Duke suggests retiring its coal-fired power plants earlier than previously expected to diversify the utility’s generation. But most of the retirements are scheduled to occur in 2028 or later. And Duke intends to replace the lost coal-fired capacity primarily with natural gas, which is cleaner than coal, but environmental experts say it is still dirtier than renewable sources.

That said, in the rate case, Duke hasn’t committed to retiring any of its coal plants and there is no request for money to build wind or solar.

“I think the increase they’re asking for is completely unjustified and nothing but greed,” Olson said. “It’s extraordinary because there is no reason for it.”

The recommendation: Deny and reduce

Last week, many consumer groups including Olson’s and the consumer counselor's office submitted testimony as part of the rate case. This time around, the consumer counselor's recommendation is unlike any the office has given before.

While the office's testimony comes from the agency as a whole, Fine – who was appointed by Gov. Eric Holcomb in 2017 – signs off on all recommendations.

Fine's office is recommending Duke’s request be denied at this time; and its current rates be reduced “until and unless the utility provides the data we need for a full analysis.”

In another unusual move, his office did not issue a press release or summary of its findings with the submission of its testimony. That is because the agency considers its review of Duke’s rate case incomplete at this time, according to spokesman Anthony Swinger.

So does the Citizens Action Coalition, and the Sierra Club’s Hoosier Chapter and even the group of Duke’s industrial customers, among others.

The groups say that Duke has not provided the data necessary for their staff and experts to do a complete analysis of the utility’s financial health and revenue needs.

“The burden of proof in any rate case is on the utility,” Swinger said, “and the utility’s filing in this case fails to meet the minimum standards for a full review.”

Duke disagrees with that claim.

Motions and denials: he said, she said

In mid-October, the consumer counselor's office, Citizens Action Coalition, Sierra Club, Walmart, Kroger and others filed a motion asking that Duke be made to provide the formulas and numbers used to justify its rate proposal. They also wanted more time to review the proposal and additional information.

Expert analysts called Duke's failure to provide the data unprecedented. One such economist said in an affidavit in the motion: "I have been practicing public utility ratemaking for more than 39 years and have been involved in more than 300 rate cases. In my experience, I have not seen a rate filing that compares with the unsupported, inadequate, unorganized/undocumented nature of Duke's current filing in Indiana."

But utility regulators, who are also appointed by the governor, sided with the company, denying the motion.

Consumer advocates cried foul. “It’s a dangerous precedent on the part of the commission when folks who know what they’re doing say they’ve never seen anything like this,” Olson said, “and they’re ignored.”

But Protogere of Duke said the company believes that denial shows Duke has met the regulatory commission’s requirements and best practices for filing its rate case.

The utility has "gone above and beyond what is required," she added.

Duke has responded to more than 89 sets of discovery requests, comprising more than 1,060 individual data requests, according to Protogere. Duke has also met with various parties and held phone conferences.

Olson's coalition filed an appeal to the full regulatory commission Wednesday regarding the request for additional information and time.

Duke, meanwhile, is preparing its response to the thousands of pages of testimony filed last week, which it plans to submit Dec. 4. Hearings with expert witnesses are scheduled to begin in January.

Call IndyStar reporter Sarah Bowman at 317-444-6129 or email at sarah.bowman@indystar.com. Follow her on Twitter and Facebook: @IndyStarSarah. Connect with IndyStar’s environmental reporters: Join The Scrub on Facebook.

IndyStar's environmental reporting project is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.