Duke Energy can charge southwestern Ohio customers $29 million to recover the cost of retiring propane caverns it used for decades to assist with delivering natural gas, the Supreme Court of Ohio ruled today.

In a unanimous decision, the Supreme Court rejected a challenge to Duke’s plan to charge customers $2.9 million per year over a 10-year period for the closure of the fabricated caverns in Butler County. The caverns were closed in 2021 when Duke constructed a new natural gas pipeline as part of its Central Corridor Pipeline extension.

The Office of the Ohio Consumers’ Counsel objected to the Public Utilities Commission of Ohio’s (PUCO) approval of $17 million of the $29 million cavern retirement charges. The consumers’ counsel argued the cavern retirement plan failed to meet the required standard as a cost of providing a “public utility service” and that the company, not the customers, should pay the closure costs.

Writing for the Court, Justice Jennifer Brunner explained that the PUCO permitted the costs as the caverns facilitated Duke’s transition to a new pipeline.

“Duke Energy’s expenses relating to the retirement of its aging caverns were necessary and current costs of doing business as a public utility. Utility companies will inevitably retire outdated facilities to ensure safe and reliable service,” she wrote.

Chief Justice Sharon L. Kennedy and Justices Patrick F. Fischer, R. Patrick DeWine, Daniel R. Hawkins, and Megan E. Shanahan joined Justice Brunner’s opinion. Seventh District Court of Appeals Judge Mark A. Hanni, sitting for Justice Joseph T. Deters, also joined the opinion.

Pipeline Replaced Caverns
Duke supplies natural gas to about 450,000 customers in southwestern Ohio. Since 1959, Duke and its predecessors have relied on caverns to store propane, providing a seasonal source of gas. The propane would also support pressure in the natural gas system and help meet high demand during the winter heating season.

In 2016, Duke proposed to retire the caverns as it constructed a new pipeline. The company claimed the caverns were reaching the end of their useful life and were incapable of being repaired. The new pipeline would increase the capacity of the company’s natural gas network and provide more reliable delivery.

Duke constructed the pipeline and put it into service in March 2022. The caverns were closed the next month, and Duke began decommissioning activities.

Utility Seeks to Recover Caverns Costs
In 2021, Duke submitted a plan to the PUCO to abandon the caverns and requested recovery of the closure costs as part of its next distribution rate case. In 2022, Duke applied for a rate increase and, as part of the proposal, sought $2.9 million per year from customers for the costs of taking the caverns out of service. The commission approved the plan.

The consumers’ counsel objected to part of the proposal. The office asserted that the PUCO inappropriately allowed Duke to convert the value of the caverns themselves, $17 million, into an expense that could be recovered from ratepayers. The consumers’ counsel did not object to Duke’s $7 million in expenses to decommission the caverns or the $5 million related to addressing the propane inventory in the caverns.

The PUCO rejected the consumers’ counsel’s challenge, and the office appealed to the Supreme Court.

Supreme Court Analyzed Rate Request
The consumers’ counsel argued that for a utility to label an expense as a cost it can pass on to customers, R.C. 4909.15(A)(4) requires that the expense be incurred in “rendering the public service for the test period.” The “test period” is a 12-month period during which the commission monitors a utility’s revenues and expenses to inform its decision on rates, the opinion explained.

The consumers’ counsel cited the Court’s 1981 Office of Consumers’ Counsel v. Pub. Util. Comm. decision in which a utility invested $56 million to construct nuclear power plants, but later canceled the project. The utility sought to recover the costs, and the Court rejected the proposal, finding that the PUCO had no authority to treat an investment in creating a physical asset as an operating expense. The Court found the costs of the canceled nuclear plants were extraordinary and not an ordinary operating expense.

In this case, the consumers’ counsel argued that Duke’s retirement of the propane caverns was extraordinary and the event was not part of normal, recurring expenses incurred in providing a public utility service.

Justice Brunner explained the ruling in the nuclear plant case was based on the plants never being constructed or placed into service. In contrast, Duke used the caverns for over 60 years, including during the test period, she noted.

“It was reasonable for the commission to conclude that Duke Energy’s expenses relating to replacing the outdated propane caverns with a pipeline constituted a ‘cost to the utility of rendering the public utility service for the test period,’” the Court concluded.

2024-1505. In re Application of Duke Energy Ohio Inc., Slip Opinion No. 2026-Ohio-2064.

View oral argument video of this case.

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