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Ohio SC sides with PUCO, energy company will refund more than $6.5 million

By John O'Brien | Apr 13, 2007


COLUMBUS - As a result of a recent Ohio Supreme Court ruling, Vectren Energy Delivery of Ohio will refund more than $6.5 million to consumers it allegedly overcharged.

In a 6-1 ruling, the Court rejected Vectren's argument that the Public Utilities Commission of Ohio erred in finding that the company made "imprudent and unreasonable" purchases of excess natural gas supplies in 2001 and 2002.

PUCO took issue with three winter-delivery service contracts that Vectren entered into that esulted in unused, excess natural gas capacity during those years. It also found that an asset-management agreement with ProLiance Energy, Vectren's affiliate, were not prudent, reasonable or appropriate.

"The commission concluded that Vectren's customers should not be responsible for the inappropriate excess-capacity costs of the winter-delivery service contracts and that Vectren's customers had been harmed as a result of the ProLiance contract," Justice Paul Pfeifer wrote.

"Accordingly, the commission determined that six adjustments to Vectren's gas-cost-recovery rates were warranted, and it ordered Vectren to refund, by those adjustments, over $9.5 million in gas supply costs that Vectren had previously collected from customers."

That number was later reduced by nearly $3 million.

Pfeifer noted that PUCO found that Vectren had relied on an overly conservative estimate of daily gas demand in its service area, then added a 5 percent reserve margin, passing inappropriate excess-capacity costs to customers.

Vectren claimed it should not be penalized for allowing its predecessor, Dayton Power and Light, to sell off most of its existing propane reserves prior to acquiring it in Nov. 2000. The Court denied that claim, noting that Vectren purchased a large amount of natural gas to replace that propane.

"The PUCO found that under the WDS-2 contract, Vectren obtained the equivalent of nearly 26 times the amount of the missing propane and that Vectren provided no explanation to justify a contract that was much larger than the main reason for its existence," Pfeifer wrote.

"According to the PUCO, Vectren's handling of the WDS-2 contract doubled the winter-demand service costs to its customers. The PUCO also held that Vectren improperly shifted, from Vectren's shareholders to Vectren's customers, the costs incurred in replacing the reserve represented by the propane removed by DP&L. The PUCO found that the risks associated with Vectren's business decision not to pursue the propane-depletion issue with DP&L prior to closing on the asset-transfer transaction should not be borne by Vectren's customers."

Justice Evelyn Lundberg Stratton wrote a separate opinion, concurring with the majority on three of the four contested PUCO orders. She did not feel, however, that Vectren should pay $1.98 million in refunds because of its agreement with ProLiance to sell Vectren's excess capacity to other users.

"(T)he record reflects that Vectren made a prudent and reasonable decision to enter into an asset-management contract with ProLiance. The ProLiance contract allowed Vectren to obtain fair market value for its unused capacity while shifting much of the risk of remarketing that capacity to ProLiance," Stratton wrote.

"Comparison to the DP&L-Columbia Energy Services contract is simply unwarranted. I would therefore reverse the commission's order requiring that Vectren refund $1.98 million to its customers for the ProLiance contract."

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