Owen Electric was the only electric provider to bid on a new Covington electric franchise, a requirement instituted in May, even though most of the residents in the city use Duke Energy, which believes a franchise agreement is unnecessary.
Now that the Covington City Commission has affirmed Owen’s franchise agreement following a vote last week, what does that mean for people’s bills?
The franchise, which is a renewal of a previous agreement, requires Owen Electric to pay the city $4,000 plus 3% gross receipts to the city on a quarterly basis. In exchange, the city would allow Owen to construct, repair, install and generally maintain any utility infrastructure they own along the city’s public right of ways. The agreement lasts for 20 years. Although the franchise has been approved, Owen and the city will still need to agree to a contract, which will come before the city commission in the coming weeks.
A small portion of residents in South Covington get their power from Owen Electric, but almost everyone else in the city uses Duke Energy. The franchise is non-exclusive, so multiple companies can still operate in the city, and residents won’t have to change providers.
Earlier this year, Mayor Joe Meyer pitched the idea of a mandated franchise agreement with utility providers after characterizing Duke Energy’s relationship with the city as difficult. Although Duke provides much of the city with power, there has been no franchise agreement between the company and the city since the 1980s.
Former Covington City Solicitor David Davidson stated at the city caucus meeting on April 2 the city had been in various negotiations with Duke for at least two years and argued that Duke, in the absence of a franchise agreement, had been arbitrarily setting its fees with the city, at least in specific areas, when compared to other cities. In a conversation with LINK nky in the subsequent weeks, Davidson characterized Duke as a de facto “monopoly,” although he was quick to assert that the legal tension stemmed not from any enmity between the city and Duke but rather a simple disagreement.
Some of the issues Davidson mentioned include opaque pricing structures on specific pieces of land and difficulties in dealing with third parties that Duke has allowed to use its infrastructure. Davidson claimed that anytime some other entity, such as Spectrum, used one of Duke’s poles, getting them to cooperate could be more difficult than if the city was just dealing with Duke directly.
So, what does this mean for your electric bill?
The agreement would have no effect on electric rates, at least not directly. Neither the city nor the power companies can arbitrarily set rates. Instead, rate increases must be approved by the Kentucky Public Service Commission, which regulates service areas and rates throughout the state. If Duke or Owen wanted to increase rates, they would have to legally petition the commission and make their case. The Kentucky Attorney General’s office acts as a consumer advocate in such proceedings, making the case for why rates should not change. The commission then adjudicates the decision on whether to allow a rate increase.
To offset fees associated with city franchises, a provider may charge an additional fee on customer’s bills (read LINK nky’s explainer to learn how to read and understand your electric bill). Owen Electric customers already pay such a fee to Owen, all of which is then remitted to the city. Owen confirmed with LINK nky that the fee would not change with the new agreement.
Brian Pokrywka, one of Duke’s in-house lawyers, spoke to the board of commissioners on April 9, arguing that a franchise agreement wasn’t necessary.
“For more than 140 years, since 1881, Duke Energy through its predecessor companies has provided, for a while, affordable electricity to the city of Covington without any form of franchise agreement in place,” Pokrywka said in April.
A subsequent email statement from Duke declined to elaborate further but reaffirmed the company’s commitment to its existing NKY customers.
“Duke Energy Kentucky looks forward to continuing to provide safe and reliable service to its customers in Covington, in accordance with Kentucky’s certified territories act and in accordance with its state-granted electric franchise, as it has for more than a century,” reads the entirety of Duke’s email. LINK nky sent follow up questions to Duke, and we will update this story if they respond.
Given the new legal requirements, however, it’s possible the city could sue Duke in an attempt to make them comply. This has not occurred yet, and officials have not publicly declared intentions to do so.
Still, Meyer said at the end of September when the measure first came before the commission, “Duke is saying that they have a perpetual franchise and don’t need to play by our rules.”
When asked if potential legal action might affect customers in Covington, Meyer said, “We’re doing this in order to protect the customers of the city.”
Owen has no intention of expanding its service area or buying up new infrastructure in the city, said Vice President of Member Services Mike Stafford.
“Owen Electric respects Duke’s territory and will not be encroaching upon it,” Stafford said. He added that other aspects of service and billing for current Owen customers would not change with the new agreement.