Covington small business owner Chris Conley wasn’t expecting to see his electricity bill increase from $96 in November to $331.60 in December.
For many residents and business owners, opening the mail toward the end of the year can be an anxiety-inducing activity, especially as the outside temperatures begin to cover vehicles in a pesky layer of frost. Oftentimes, an increased energy bill in the winter months isn’t uncommon, but a spike in prices can be jarring.
Conley and his wife opened a small business in Covington’s MainStrasse Village in July 2022. Alchemy Aesthetics, their family-owned boutique, sells crystals, gemstones, jewelry and handmade soaps.
“It’s kind of a quirky gift shop,” said Conley.
Their business is a customer of Duke Energy Kentucky, the primary electric utility company servicing Northern Kentucky’s river cities. Frustrated, Conley took to Facebook to share his concerns about rising electricity costs with his community.
“We’re just getting started in our small business. When you start raising bills 60% to 70% higher than what they normally are, stuff like that can put small businesses out of business before they even get a chance to really begin,” Conley told LINK nky. “Luckily, we’re in a financial position where a $500 electric bill isn’t going to make us close our doors. But what about those people and businesses who are still struggling to recover from COVID?”
When he scanned his bill, the primary charge perplexing Conley the most was the Electric Fuel Adjustment Charge. Besides his normal energy consumption charge, it was the second largest amount owed on the bill. Naturally, Conley hopped on Google to research what the charge was. He was also able to connect with a Duke Energy customer service representative through the phone where he said he raised questions, voiced his concerns, and was then sent to an escalation line.
“They’ll send things to escalation and then you never hear from them,” said Conley. “Who are you going to complain to?”
Conley isn’t the only Duke Energy customer to regularly receive this charge on their bill. In fact, Duke Energy isn’t even the only company that has an Electric Fuel Adjustment Charge on their bills. Owen Electric, which provides electricity to many residents of Northern Kentucky’s rural communities, features an Electric Fuel Adjustment Charge on their bills. In Eastern Kentucky, the Kentucky Power Company includes the charge on their bills as well.
No such charge exists across the river in Ohio.
What exactly is an Electric Fuel Adjustment Charge?
For a utility provider, the purpose of the Electric Fuel Adjustment Charge is to reimburse the power company, or in this specific instance, Duke Energy, for the fuel they purchase to run their power plants. The Duke Energy website states the “charge can fluctuate widely over relatively short periods of time.”
Essentially, the cost Duke Energy Kentucky pays for fuel is passed through to their customers in the form of the Electric Fuel Adjustment Charge. Sally Thelen, director of communications for Duke Energy, emphasized to LINK nky that the charge is not a markup, but a straight pass-through to the customer.
The Duke Energy website acknowledges that as prices increase when the weather turns cold, their customers will see higher energy bills due to the increased cost of fuel needed to run their power plants.
“With prices increasing everywhere along with colder temperatures, we are committed to keeping your energy bill as low as possible. Many customers are seeing higher energy bills due in large part to a dramatic increase in the cost of fuel needed to power our plants. Duke Energy does not profit from higher fuel costs, and we are doing all we can to help protect our customers from these rising costs.”
Thelen told LINK nky that Duke Energy has done significant outreach to their customers to ensure they understand why prices are going up since October 2021. On December 6, Duke Energy Kentucky sent an email to their customers which sought to explain why bills would be increasing from the fall into the winter months, and also included payment assistance program information for customers in need of such services.
In hopes of alleviating the financial burden, the Duke Energy email provided their customers with energy saving solutions such as tutorials on how to install weatherstripping on their home’s doors and windows, and how to effectively caulk around their doors and windows.
A primary supplier of power in Northern Kentucky is the coal-fired East Bend Power Station located along the Ohio River near Rabbit Hash in Boone County. Duke Energy Kentucky owns East Bend so the fuel cost seen on a customer’s bill is the cost of fuel to run East Bend, which is coal. The price of coal is set by financial markets. Duke Energy purchases the coal at market rates.
“The fuel charge is related to the fuel cost associated with running East Bend Station, our generating plant in Boone County that runs on coal-fired generation,” said Thelen. “I can tell you that the cost of coal is also up considerably which is driving the higher prices as well.”
The price of coal has risen considerably since last winter due to a multitude of economic factors such as inflation, strained supply chains and increased demand. As countries around the world recovered from the COVID-19 pandemic shutdowns, demand for coal steadily increased. People wanted electricity faster than coal miners could produce the resource to sell to power plants. According to data from tradingeconomics.com, coal prices have increased approximately 40% from last December to this December.
Duke Energy Kentucky is required to file documentation with the Kentucky Public Service Commission, a three-member administrative body that regulates the intrastate rates of investor-owned utilities such as electric, natural gas and water and sewage services. The documentation breaks down how much Duke Energy Kentucky spent on fuel for each month.
In the commonwealth, Duke Energy Kentucky owns the power generation assets that produce the electricity; in this case, “generation assets” means power plants. This is different from Ohio where the non-regulated market allows power produced to be purchased at scheduled auctions.
“This is unique to Kentucky’s regulated utility market where we have generation assets,” said Thelen. “In Ohio, it’s a non-regulated market where power is purchased in scheduled auctions. Duke Energy Ohio doesn’t own generation assets anymore after selling off their commercial generation about nine years ago.”
Conley is a resident of Milford, OH, and prefers the way the Buckeye State allows customers to choose their energy providers.
“In the state of Kentucky, there aren’t the options that you have in Ohio,” Conley said. “Ohio gives you the option. You can pick your supplier. I changed suppliers regularly in the state of Ohio to whoever is offering the best rate competitive amongst energy companies. It’s not happening in Kentucky. They’re not allowing you to choose your energy provider.”
How is the charge calculated?
The charge is calculated by multiplying their Fuel Adjustment Clause Rate by the customer’s electricity per kilowatt hour used, or the amount of electricity they consumed during that month.
The Fuel Adjustment Clause Rate is calculated by dividing the energy provider’s fuel cost by their total sales for that month, minus their base fuel rate. Set in October 2021, Duke Energy’s base fuel rate is $.025401.
“The Fuel Adjustment Charge gets updated monthly to ensure that the regular energy charge includes only the actual fuel costs incurred each month, on a two month lag,” said Thelen.
Yes, the bill’s fuel costs do lag two months behind the current billing period. Customers receiving their December electricity bill are getting fuel costs based on East Bend’s coal usage from October. When customers notice the $.061579 number on their bill this month, it has increased almost 50% from the $.036071 number from the previous month, which was based on the amount of coal East Bend used in September.
Customers will see a higher number on their bills under the Electric Fuel Adjustment Charge when their local power plant burns more fuel.
“The Kentucky Public Service Commission reviews these costs every six months for prudency and accuracy and ensures the Company makes adjustments in their filings if necessary,” Thelen noted.
Some customers feel the language used to explain the charge on electric company websites can be unnecessarily complex. On top of that, without some moderate research, the numbers behind the Electric Fuel Adjustment Charge calculations can be difficult to find online.
“Of course, when you start digging into those pages, there’s a lot of unnecessary verbiage that makes it hard to really pinpoint what the charges are,” Conley said.
Conley said he is concerned that many Duke Energy Kentucky customer’s bills will be even higher in the coming months due to incoming cold weather. It’s expected to be 5 degrees throughout the day on Friday, December 23. Will December’s cold weather be reflected in February’s billing cycle?
“I’m just a small drop in the bucket,” Conley said. “There are people on fixed incomes that may not account for a $500 bill. I can’t imagine people’s bills if they’re at home seven days a week. That’s a shell shock.”
