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Duke Energy Ohio Files Standard Service Offer for 2012 and Beyond Nov. 15, 2010

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CINCINNATI -

  • Plan puts generation prices on path toward market rates, in line with consumer demand
  • Company intends to request power-plant transfer within next few months

Duke Energy Ohio today applied to transition power generation rates from pre-determined prices to prices that instead are driven by the open market.

The regulatory filing, known as a standard service offer, asks the Public Utilities Commission of Ohio (PUCO) to approve the company’s move toward a market-based rate structure. Additionally, the filing notes that at a future date, the company will ask the commission to approve a transfer of Duke Energy Ohio’s commercial generation assets out of the regulated utility and into an affiliate.

“Customers clearly have embraced the competitive marketplace in Ohio,” said Duke Energy Ohio President Julie S. Janson. “They like having a choice over their generation supplier.

“From a company perspective, we need the agility to respond to pricing shifts,” she added. “We hope to achieve longer-term certainty with regard to generation pricing, which allows us to adopt a broader view for meeting the needs of our customers, both today and in the future.

“This standard service offer effectively balances the needs of our customers with the needs of our company and our shareholders,” Janson said.

Legislature Set Stage
More than a decade ago, the Ohio Legislature began working to develop a viable competitive market for deregulated electric generation service. More recently, in 2008, it created for utilities the option of a market-rate offer, or MRO, that sets prices through an independent competitive auction process. With this filing, Duke Energy Ohio is exercising its option to move to market rates.

The company’s current rate plan is in effect through Dec. 31, 2011. If the PUCO approves Duke Energy’s market-rate application, a transition to market prices would begin Jan. 1, 2012. The transition can last anywhere from two to 10 years, with the commission determining the timeline. 

“The MRO affords the company’s customers with, among other things, the benefit of cost-effective electric service,” Duke Energy Ohio said in the filing. “It provides certainty for the company and generation suppliers alike, as the procurement of generation is accomplished through a standardized format pursuant to which least-cost bidders commit to providing Duke Energy Ohio’s customers with reliable service.”

Duke Energy Ohio said its market-rate offer accomplishes the state’s goals, which include maintaining a competitive environment for electric generation, ensuring customers are provided with a stable, reliable supply of electric generation, and maintaining the financial viability of the company.

Asset Transfer Reduces Uncertainty
The request to transfer generation assets out of the regulated utility will be made independently of the request for a market-rate offer. Although the transfer is not a condition of the market-rate offer, it fits well with the move to market prices.
“Given the fact that the competitive market in Ohio is working and Duke Energy Ohio has asked to transition to market rates, it will no longer be necessary to continue to dedicate generating facilities to a specific group of customers,” said Chuck Whitlock, president of Midwest Commercial Generation for Duke Energy.
“Once Duke Energy Ohio prices are fully at market, customers will be served at a price solely determined by competitive bid or by the retail electric provider of their choice,” he said. “Additionally, transferring the assets out of the utility to an affiliate will better position Duke Energy to manage the generation business and benefit from changes in market prices.”

Rates to Migrate to Market Gradually
Because Duke Energy Ohio is an electric distribution utility that also owned generating facilities at the time the new law went into effect in 2008, it is required to move to a market-based rate structure over a period of years. At least for the first two years under the company’s proposed plan, pricing will reflect a blend of market rates and the most recent rate established in the electric security plan that expires at the end of 2011. Under the company’s request, in mid-2014, and every year thereafter, the price would be set solely through the competitive process.

“The blending period was designed to safeguard customers from abrupt rate changes and to ensure utilities remain financially viable during the transition to full market,” Janson said in discussing the request. “When the electric security plan rate and the expected market prices converge, the need for further blending is not necessary. We expect this to happen in the third year of the company’s proposal and thus are requesting a shorter transition to market.”

Market-Rate Offer May Enhance Energy Investments
Janson said the market-rate offer will not affect the company’s commitment to energy efficiency or compliance with the state’s alternative energy requirements. 

“Duke Energy Ohio remains at the forefront of implementing successful energy efficiency programs,” she said, “and we do not expect this to change under the market-rate offer.”

The company said the market-rate structure may enable it to rely upon a variety of options in meeting the state’s renewable requirements. Additionally, Duke Energy Ohio noted that the short-term, three-year design of an electric security plan discourages long-term contracts with commercial developers, as cost recovery is uncertain beyond the three-year horizon. 

A market-rate offer, on the contrary, has no termination date. This gives the company more freedom to initiate project requests or enter into long-term agreements. In turn, this gives developers and suppliers more confidence and security, which could stimulate energy investment in the state.

Janson said the company will continue to invest in its smart grid infrastructure upgrade under the market-rate offer, adding that investment is important to overall long-term energy efficiency.

Next Steps
Over the coming weeks, the PUCO will gather testimony from Duke Energy Ohio and others as it considers the company’s standard service offer. The law requires the commission to rule on the company’s filing within 90 days.

The company has not yet filed for approval to transfer its generation assets.  It expects to make that filing in the coming months.

To read Duke Energy Ohio’s standard service offer, visit www.puco.ohio.gov.

Duke Energy Ohio
Duke Energy Ohio’s operations provide electricity to approximately 685,000 customers and natural gas service to approximately 400,000 customers.

Duke Energy is one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 4 million customers located in five states in the Southeast and Midwest, representing a population of approximately 11 million people. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the United States.

Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com.  To learn more and contribute to the discussion about the energy issues of today and the possibilities of tomorrow, see www.sheddingalight.org. To learn about Duke Energy in the Greater Cincinnati community, visit http://news.duke-energy.com/2010/09/21/duke-energy-in-the-community.


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