Retirement of Long-Used Utility Plant May Be Recovered as a “Cost of Rendering Service” Under R.C. 4909.15(A)(4)

1. Introduction

In In re Application of Duke Energy Ohio, Inc., Slip Opinion No. 2026-Ohio-2064 (June 5, 2026), the Supreme Court of Ohio affirmed an order of the Public Utilities Commission of Ohio (“PUCO”) allowing Duke Energy Ohio, Inc. (“Duke Energy”) to recover through customer rates approximately $29 million associated with retiring decades-old propane storage caverns formerly used to support winter peak natural-gas supply. The Office of the Ohio Consumers’ Counsel (“OCC”) challenged PUCO’s treatment of roughly $17 million—representing the caverns’ remaining undepreciated net book value at retirement—arguing PUCO unlawfully bypassed R.C. 4909.15(A)(1)’s “used and useful” standard and instead allowed recovery as a service cost under R.C. 4909.15(A)(4).

The central legal issue was whether retirement-related amounts—especially the unrecovered book value of plant removed from service—can be recovered as “cost[s] ... of rendering the public utility service for the test period” under R.C. 4909.15(A)(4), rather than being tested (and potentially disallowed) under the “used and useful” framework governing rate base under R.C. 4909.15(A)(1).

2. Summary of the Opinion

The court held PUCO did not act unlawfully or unreasonably in permitting Duke Energy to recover, through rates, costs associated with retiring the propane caverns under R.C. 4909.15(A)(4). The court rejected OCC’s reliance on Office of Consumers' Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153 (1981), distinguishing it on the ground that the canceled nuclear plants in that case never provided service, whereas the caverns had provided utility service for over 60 years (including part of the test period). The court also emphasized that language in Consumers' Counsel suggesting A(4) is limited to “normal, recurring expenses” was dictum, consistent with the court’s earlier clarification in In re Application of Duke Energy Ohio, Inc., 2017-Ohio-5536.

Because recovery was properly permitted under R.C. 4909.15(A)(4), the court dismissed as moot OCC’s challenge to PUCO’s alternative finding that the caverns would be “used and useful” under R.C. 4909.15(A)(1). The court also rejected OCC’s refund-related argument for lack of prejudice given affirmance on the merits.

3. Analysis

3.1. Precedents Cited

  • Office of Consumers' Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153 (1981)
    OCC framed this case as controlled by Consumers' Counsel, where a utility attempted to amortize losses from canceled nuclear plants as A(4) service costs. The court distinguished that decision as turning on a critical fact: the canceled plants “never provided any service whatsoever to the utility’s customers.” Here, by contrast, the propane caverns were integrated into Duke Energy’s system for decades. The court further narrowed Consumers' Counsel by reiterating that its “normal, recurring expenses” characterization of A(4) was dictum.
  • In re Application of Duke Energy Ohio, Inc., 2017-Ohio-5536
    This was the doctrinal bridge to affirmance. There, the court allowed recovery of manufactured-gas-plant environmental remediation costs under R.C. 4909.15(A)(4) and explicitly labeled Consumers' Counsel’s “normal, recurring expenses” language as dictum. In the present decision, the court applied the same principle: A(4) can encompass necessary, current business costs of being a public utility, even if not “routine” in the everyday sense.
  • In re Application of Suburban Natural Gas Co., 2021-Ohio-3224
    Cited for the “used and useful” limitation on what can enter rate base under R.C. 4909.15(A)(1) and for statutory-interpretation methodology (plain meaning; contextual reading). The court used this framework to separate (i) rate base determinations under (A)(1) from (ii) expense/cost determinations under (A)(4).
  • AT&T Communications of Ohio, Inc. v. Pub. Util. Comm., 51 Ohio St.3d 150 (1990) and Dayton v. Pub. Util. Comm., 174 Ohio St. 160 (1962)
    These cases reinforced two themes: commission-set rates are presumed reasonable, and appellants bear the burden to show unlawfulness or unreasonableness. They also underscore judicial restraint in technical ratemaking matters (“neither accountants nor engineers”), shaping the court’s deference to PUCO’s evidence-based accounting characterization.
  • Constellation NewEnergy, Inc. v. Pub. Util. Comm., 2004-Ohio-6767, In re Application of Firelands Wind, L.L.C., 2023-Ohio-2555, Ohio Edison Co. v. Pub. Util. Comm., 1997-Ohio-196, In re Complaints of Lycourt-Donovan v. Columbia Gas of Ohio, Inc., 2017-Ohio-7566, and Monongahela Power Co. v. Pub. Util. Comm., 2004-Ohio-6896
    Collectively supply the decision’s review architecture: “unlawful or unreasonable” under R.C. 4903.13; independent review on questions of law; limited review on factual determinations; and reasonableness review of PUCO’s discretion within broad statutory criteria (“zone of permissible statutory construction”).
  • In re Application of Duke Energy Ohio, Inc., for a Certificate of Environmental Compatibility & Public Need for the C314V Cent. Corridor Pipeline Extension Project, Power Siting Bd. No. 16-253-GA-BTX (“Duke Energy's 2016 power-siting case”) and In re Application of Duke Energy Ohio, Inc., 2021-Ohio-3301
    Provide factual context: the pipeline project that enabled retirement of the caverns was approved and later affirmed, supporting the narrative that retirement was part of a planned transition to maintain reliable service.
  • In re Review of Alternative Energy Rider Contained in Tariffs of Ohio Edison Co., 2018-Ohio-229 and In re Application of Columbus S. Power Co., 2014-Ohio-462
    Used to support the court’s treatment of OCC’s second proposition of law as moot once A(4) recovery was affirmed.
  • In re Application of Ohio Power Co., 2020-Ohio-143, In re Application of Ohio Power Co., 2018-Ohio-4697, In re Complaint of Cameron Creek Apts. v. Columbia Gas of Ohio, Inc., 2013-Ohio-3705, and State ex rel. Elyria Foundry Co. v. Indus. Comm., 1998-Ohio-366
    Underpin the court’s rejection of the refund argument: reversal requires showing harm/prejudice; hypothetical disputes are not reviewable.
  • State v. Bertram, 2023-Ohio-1456 and dictionary reliance (Webster’s Third)
    Cited to justify the court’s plain-meaning analysis of the undefined statutory term “cost,” including recognition that business “cost” can include depreciation and amortization.

3.2. Legal Reasoning

  1. R.C. 4909.15(A)(1) and (A)(4) are distinct components of ratemaking.
    The court carefully separated “rate base” (valuation of “property ... used and useful” under (A)(1)) from “cost” (service costs for the test period under (A)(4)). OCC’s central move was to force the caverns’ unrecovered net book value back into the (A)(1) lane.
  2. Accounting treatment mattered: the unrecovered net book value was removed from plant/rate base and recorded as an expense via regulatory deferral.
    Duke Energy witness testimony (Sarah E. Lawler) supported PUCO’s finding that this was a “dying” or “stranded” asset situation: the entire asset class was retired, leaving no surviving plant group over which to spread remaining book value. Under the approved stipulation from the abandonment/deferral proceeding, Duke Energy removed the remaining book value from its plant account and recorded the balance as a regulatory asset—reflected as an expense and recovered through amortization in base rates. OCC did not marshal contrary authority sufficient to show PUCO’s acceptance of that treatment was unlawful or unreasonable.
  3. The court interpreted “cost” broadly enough to include such amortized retirement-related amounts.
    Because “cost” is undefined in R.C. 4909.15, the court used ordinary meaning and business usage. It emphasized definitions that include business outlays and items “including depreciation and amortization of capital assets,” concluding PUCO could reasonably treat the deferred retirement balance as a “cost” once it was booked as an expense.
  4. The “rendering service for the test period” requirement was satisfied.
    OCC argued retirement costs were extraordinary and not part of service “for the test period.” The court rejected the premise that A(4) is limited to recurring expenses, relying on In re Application of Duke Energy Ohio, Inc., 2017-Ohio-5536, and treating Consumers' Counsel’s narrower description as dictum. It then distinguished Consumers' Counsel on the decisive “never provided service” fact, concluding that retiring long-used, service-providing facilities is a foreseeable and necessary part of utility operations.
  5. Procedural posture and harm principles narrowed the remaining issues.
    Once A(4) provided a sufficient lawful basis for recovery, OCC’s “used and useful” merits challenge became moot. And the refund issue failed because OCC could not show prejudice in the absence of any entitlement to refunds after affirmance.

3.3. Impact

This decision strengthens a utility’s ability—subject to PUCO’s evidentiary scrutiny and prudency oversight—to recover retirement-related costs of long-used infrastructure through R.C. 4909.15(A)(4), including unrecovered net book value that has been removed from rate base and carried as a regulatory asset amortized in rates. Key practical implications include:

  • Expanded clarity on A(4) scope post-2017: The court reinforces that A(4) is not confined to “routine” expenses and can include necessary costs of modernization, remediation, and retirement when tied to the provision of utility service.
  • Strategic importance of abandonment/deferral proceedings and stipulations: The accounting and regulatory pathway—approval to abandon facilities and to defer retirement balances—becomes central to later base-rate recovery.
  • Limits remain: The court did not announce that any retirement balance is always recoverable. The decision is anchored to a record showing decades of service use, an approved regulatory-asset deferral mechanism, and the reasonableness of PUCO’s statutory construction and factfinding. Future litigants can be expected to contest whether particular retirements are “necessary,” whether the deferral/amortization period is “reasonable,” and whether the utility carried its prudency burden (expressly preserved in the prior stipulation).
  • Consumer-side litigation posture: OCC-type challenges may need to focus less on categorical A(1) vs. A(4) labeling and more on record development: prudency, causation, allocation, timing within the test period, and whether costs reflect shareholder vs. ratepayer responsibility.

4. Complex Concepts Simplified

“Used and useful” (R.C. 4909.15(A)(1))
A gatekeeping standard for what property can be included in “rate base” (the investment on which the utility earns a return). If property is not actually used and useful in providing service, it generally cannot be included in rate base.
Rate base vs. costs/expenses (R.C. 4909.15(A)(4))
Rate base concerns capital invested in assets (pipes, plants, systems). A(4) concerns costs of providing service (including, as this case recognizes, items treated as expenses and recovered through amortization).
Regulatory asset / deferral
An accounting mechanism that allows a utility to record certain costs as an “asset” on its books because it expects a regulator will allow recovery in future rates. Recovery typically occurs through amortization over a set period.
Net book value
The original cost of an asset minus accumulated depreciation. When an asset is retired before full depreciation, an “unrecovered” balance may remain.
Amortization
Spreading recovery of a balance over time (here, roughly 10 years) rather than collecting it all at once.
Test period
A 12-month window used to measure a utility’s revenues and expenses for ratemaking purposes (here, calendar year 2022).
“Unlawful or unreasonable” (R.C. 4903.13)
The Supreme Court of Ohio will reverse PUCO only if the order rests on legal error (“unlawful”) or lacks evidentiary support/reflects an impermissible exercise of discretion (“unreasonable”).

5. Conclusion

In re Application of Duke Energy Ohio, Inc., 2026-Ohio-2064, confirms that PUCO may treat the retirement of long-used utility facilities— including recovery of unrecovered net book value carried as a regulatory asset—as recoverable “cost[s] ... of rendering the public utility service for the test period” under R.C. 4909.15(A)(4). The court limits the reach of Office of Consumers' Counsel v. Pub. Util. Comm. to its core context (never-used, canceled plant) and reinforces the post-2017 understanding that A(4) is not confined to merely “normal, recurring” expenses. The decision thus provides utilities and regulators a clearer legal foundation for cost recovery associated with necessary infrastructure transitions, while preserving the centrality of record evidence, prudency showings, and PUCO’s ratemaking discretion.