In re Application of Duke Energy Ohio, Inc. (Slip Opinion), 150 Ohio St. 3d 437

Background

Duke Energy’s predecessors operated two manufactured-gas-plant (MGP) sites near downtown Cincinnati; operations ceased in 1928 and 1963, but hazardous MGP waste remained on site.
Groundwater/soil contamination at the East End and West End sites triggered remediation obligations under CERCLA; remediation began after nearby development and bridge projects raised exposure risk.
Duke deferred remediation costs with PUCO approval and later sought recovery of remediation expenses (through Dec. 31, 2012) in a rate case; parties settled most issues but disputed recovery of MGP costs.
The Public Utilities Commission of Ohio authorized Duke to recover approximately $55.5 million via a Rider MGP over five years, but denied carrying costs and required shareholder efforts to recover third-party/insurance proceeds for the benefit of ratepayers.
Appellants (Office of the Ohio Consumers’ Counsel, Ohio Manufacturers’ Association, Ohio Partners for Affordable Energy, Kroger) appealed, arguing the commission exceeded its authority by allowing recovery for costs not tied to "used and useful" property, not normal/recurring, and not related to distribution service.
The Ohio Supreme Court affirmed the commission, rejecting appellants’ statutory construction and factual challenges excepting two bond-related propositions rendered moot.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether R.C. 4909.15(A)(1) "used and useful" standard bars recovery of MGP remediation costs	Appellants: Costs are recoverable only if tied to property "used and useful"; MGP sites ceased operation decades ago, so costs not recoverable	PUCO/Duke: "Used and useful" limits rate-base valuation under (A)(1) only; (A)(4) allows recovery of costs incurred in rendering service during the test period	Court: (A)(1) applies to rate-base valuation only; commission correctly refused to apply "used and useful" to (A)(4) cost recovery
Whether R.C. 4909.15(A)(4) is limited to "normal, recurring" expenses	Appellants: (A)(4) permits only normal, recurring operating expenses; remediation is nonrecurring and capital-like	PUCO/Duke: Consumers’ Counsel case language about "normal, recurring" was dictum and does not categorically bar recovery of nonrecurring, prudent costs incurred in rendering service	Court: Rejected appellants’ reliance; Consumers’ Counsel dictum not controlling; remediation costs may be recoverable if prudent and service-related
Whether remediation costs lack nexus to distribution service	Appellants: Costs relate to historical gas production, not current distribution; no sufficient nexus to current service	PUCO/Duke: Remediation necessary because Duke conducted ongoing operations at sites and federal CERCLA liability makes the costs necessary to continue safe distribution operations	Court: PUCO found a sufficient nexus (ongoing operations and safety/regulatory obligations); appellants failed to show error
Whether bond requirement for stay (R.C. 4903.16) is unconstitutional / exempt	Appellants: Bond requirement unconstitutional and Consumers’ Counsel exempt under R.C. 2505.12	PUCO/Duke: Bond statute valid and applicable	Court: Issues previously addressed in stay proceedings; propositions moot and dismissed

Key Cases Cited

Westfarm Assocs. Ltd. Partnership v. Washington Suburban Sanitary Comm., 66 F.3d 669 (4th Cir.) (explaining CERCLA strict liability)
Babbit v. Pub. Util. Comm., 59 Ohio St.2d 81 (Ohio 1979) ("used and useful" standard constrains rate-base valuation)
Office of Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153 (Ohio 1981) (limits on treating capital investments as operating expenses)
Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530 (Ohio 2004) (standard of review for PUCO orders)
Monongahela Power Co. v. Pub. Util. Comm., 104 Ohio St.3d 571 (Ohio 2004) (appellate review and burden on appellant to show PUCO order is against manifest weight)