"Setting up an unregulated subsidiary the sole function of which was
to make payments to opponents of a rate increase raises suspicions."
The Cincinnati Enquirer, Friday, January 18, 2008
Keep lights on electricity deals
The controversy over whether Duke Energy made improper deals with
some of its largest customers to win their support for a rate hike
might have been avoided if the company was as open about how much
electricity costs those customers as it is about how much the rest of
us pay to keep the lights on.
An antitrust lawsuit, filed Wednesday in U.S. District Court on
behalf of Ohio consumers, accuses Duke of engaging in a conspiracy
with large industrial and commercial customers against the rest of
its electric customers.
The suit claims Duke set up a "sham" company, Cinergy Retail
Services, to pay $22 million a year since 2004 to the unidentified
industrial and commercial customers. The purpose of the payments,
according to the suit, was to get those customers to back off their
opposition to the energy company's 2004 request to the Public
Utilities Commission of Ohio (PUCO) for a rate increase. The company,
then known as Cinergy Corp., received the rate increase. A company e-
mail that surfaced in the case Thursday characterized the opposition
from the large customers as a "roadblock" to approval of the rate
Duke spokesman Steve Brash acknowledges the payments, but says they
were perfectly legal. They weren't payments from the public utility
company, but from "a non-regulated entity" owned by Duke. Such
maneuvers are legal options for utilities in Ohio trying to keep
their biggest customers from buying their electricity from competing
companies in the unregulated energy market, he said. He said the
timing of the payments in 2004 was simply coincidental to the large
customers dropping their opposition to the rate increase.
We don't know exactly how good these deals were - the details are
redacted from company records included in the court files. That's all
confidential information for competitive reasons, Brash said.
But that is a big part of the problem. For most of its customers,
Duke is the only practical source of electricity. That monopolistic
status ought to oblige the company to conduct all of its business
openly, so customers can see that they are getting a fair deal and
are not paying higher rates to benefit favored customers. Setting up
an unregulated subsidiary the sole function of which was to make
payments to opponents of a rate increase raises suspicions.
The allegations of the suit will be settled in court. The Ohio
Legislature, now studying changes to the regulatory system, needs to
take careful note of this case and make sure that in the future
electric companies are required to keep the lights turned on high to
illuminate all the details of how they charge for their services.