Background
Duke Energy Ohio, a natural-gas distributor serving approximately 450,000 customers in southwestern Ohio, operated a system of underground propane caverns for over 60 years. The caverns served as a seasonal supply source, providing roughly 10 percent of supply on peak-demand days. After completing a replacement pipeline — the C314V Central Corridor Pipeline Extension Project — Duke Energy retired and decommissioned the caverns in April 2022.
Before retiring the caverns, Duke Energy obtained commission approval in a separate abandonment proceeding to defer certain retirement-related costs — approximately $17 million in undepreciated net book value, $7 million in decommissioning costs, and $5 million in remaining propane inventory — in a regulatory asset account, pending recovery in a future base-rate case. Duke Energy removed the caverns’ remaining net book value from its plant accounts and reclassified the amount as an expense on its books.
In June 2022, Duke Energy filed for a distribution base-rate increase, seeking recovery of the full ~$29 million deferred amount, amortized over ten years. The Public Utilities Commission of Ohio approved the recovery, finding the costs recoverable as a “cost of rendering public utility service” under R.C. 4909.15(A)(4). The Office of the Ohio Consumers’ Counsel (OCC) objected, arguing that the net book value portion should instead have been analyzed under the “used and useful” standard of R.C. 4909.15(A)(1), which would have potentially barred or reduced its recovery.
The Court’s Holding
The Supreme Court of Ohio unanimously affirmed the commission’s order. The court held that the commission did not act unlawfully or unreasonably by treating the entire ~$29 million deferred amount — including the ~$17 million attributable to the net book value of the caverns — as a cost of rendering public-utility service recoverable under R.C. 4909.15(A)(4), rather than subjecting it to the used-and-useful investment standard of R.C. 4909.15(A)(1). Because Duke Energy had reclassified the net book value as an expense rather than a capital asset before filing its rate case, and because the commission had sufficient evidentiary support for that accounting treatment, the used-and-useful test was inapplicable.
The court further held that the retirement costs qualified as a “cost to the utility of rendering the public utility service” under R.C. 4909.15(A)(4). Distinguishing the 1981 decision in Office of Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153 — which barred recovery of costs tied to nuclear plants that were never built — the court emphasized that the propane caverns had provided actual service for over six decades. The court reaffirmed that recoverable costs under R.C. 4909.15(A)(4) are not limited to routine recurring expenses; necessary costs of retiring aging infrastructure are properly included. The OCC’s remaining arguments — that the commission’s alternative used-and-useful finding was against the manifest weight of the evidence, and that rates should have been subject to refund pending appeal — were dismissed as moot or unmeritorious in light of the primary holding.
Key Takeaways
- When a utility retires an entire class of aging assets and reclassifies the undepreciated net book value as an expense (rather than plant investment), the commission may treat that amount as an operating cost under R.C. 4909.15(A)(4), without applying the used-and-useful capital standard of R.C. 4909.15(A)(1).
- The Consumers’ Counsel (1981) bar on recovering costs as service-related expenses applies only where the underlying facilities never provided any utility service — it does not extend to costs associated with retiring long-operating infrastructure.
- R.C. 4909.15(A)(4) encompasses necessary costs of retiring outdated facilities, not just routine recurring expenditures; retirement of aging utility plant is a normal cost of doing business.
- A party challenging a commission rate order bears the burden of showing the order is unlawful or unreasonable; unsupported assertions that an accounting treatment is improper, without contrary expert testimony or legal authority, will not suffice.
Why It Matters
This decision provides important guidance for Ohio utilities facing the retirement of aging infrastructure. It confirms that, where proper regulatory accounting converts undepreciated plant value into an expense before a rate filing, the utility need not satisfy the more demanding used-and-useful test to recover those costs from customers. That distinction matters significantly in practice: a failed used-and-useful showing could bar recovery entirely, while classification as an operating cost under R.C. 4909.15(A)(4) preserves the path to full recovery with commission approval.
The ruling also reinforces that Consumers’ Counsel‘s limiting language — restricting R.C. 4909.15(A)(4) to “normal, recurring” expenses — is dictum, not binding law. Combined with the court’s 2017 decision allowing recovery of manufactured-gas-plant remediation costs, this opinion signals that Ohio’s ratemaking framework accommodates a range of non-routine but necessary utility expenditures, including the costs of transitioning from legacy infrastructure to modern alternatives.