Chuck B from Cincinnati, OH. Duke Energy Ohio territory. My client is a large auto parts manufacturer. When they built the plant in 2008, Duke gave them an economic development rider that exempted them from the infrastructure modernization surcharge for 5 years. The exemption expired in 2013. But Duke never added the surcharge back to the bills. My client has been paying $0.00 on the infrastructure rider line since 2008. The surcharge should have been approximately $0.0038/kWh starting in 2013. At 650,000 kWh/month, that is $2,470/month they should have been paying but were not. Over 4 years that is roughly $118,000 in underbilling.
Client had a rider exemption that expired — nobody noticed for 4 years
Chuck, this is a delicate situation. You found an error that favors your client — they have been underbilled by $118,000. Your ethical obligation is to disclose it. But strategically, how you disclose matters. If you bring it to Duke proactively and negotiate the back-bill terms, you can likely get a payment plan and possibly a reduced amount based on the utility failure to bill correctly.
Randy, I agree on disclosure. Already discussed with the client. They understand the obligation and would rather manage this proactively than get hit with a surprise back-bill. My question is about the back-billing limit. Ohio has a rule limiting utility back-billing for utility errors to 12 months. If Duke failed to add the surcharge back after the exemption expired, that is Duke error. So the exposure might be 12 months, not 4 years.
Chuck, I have worked with that Ohio back-billing rule before on AEP accounts. The key language is that the utility cannot back-bill for more than 12 months when the error is attributable to the utility. Duke failing to remove the exemption flag in their billing system is clearly a utility error. Your client exposure should be capped at $29,640 — 12 months of the surcharge — not the full $118,000.
Rob, that is the argument I plan to make. The difference between $118,000 and $29,640 is significant. Even at $29,640 the client can handle it, especially spread over a payment plan.
Chuck, one more angle. Check whether the economic development rider had a renewal provision. Some utilities offer the option to extend the exemption for an additional period if the company meets certain job creation or investment thresholds. Your client might actually qualify for an extension, which would reduce or eliminate even the 12-month back-bill.
Janet, brilliant thought. Pulled the original economic development agreement. It does have a 5-year extension option contingent on maintaining at least 200 full-time employees and $10 million in capital investment. The plant currently employs 280 people and has invested $18 million since 2008. They qualify for the extension. If Duke had properly tracked the exemption, they would have offered the renewal in 2013 and the surcharge would never have applied.
Filed the renewal application retroactive to 2013 along with the employment and investment documentation. Duke reviewed it for 6 weeks and approved the extension. Result: the infrastructure surcharge exemption is extended for another 5 years (2013-2018). My client owes NOTHING in back-billing because the exemption should have been renewed. And they have exemption protection through 2018. Net savings: $118,000 in avoided back-billing plus approximately $29,640/year in ongoing surcharge exemption through 2018.
From a $118,000 liability to zero owed plus ongoing savings. Chuck, this is one of the best outcomes I have seen on this forum. Janet suggestion to check the renewal provision turned a defensive case into a huge win. This is why collective knowledge matters.