Shedding Light on a Deal

City manager agrees to let Duke Energy raise local rates while accepting company’s money for streetcar plan

Some Cincinnati officials are angrily alleging that the city manager went behind their backs and approved a deal with Duke Energy to raise gas and electric rates in exchange for the city getting $7 million that will help pay for the proposed streetcar system.

City Manager Milton Dohoney Jr. sent a memo to city council Nov. 7 informing members that the city accepted the rate settlement with Duke. But the deal’s opponents note that they specifically told Dohoney at an Oct. 29 council meeting to delay any action on the settlement until council could hold a public hearing on the matter.

Several council members say they weren’t even aware of the proposed deal prior to the Oct. 29 meeting, when they were asked to approve it. Council postponed the vote, but Dohoney moved ahead regardless.

“This is unforgivable,” says Councilman John Cranley, a Democrat who heads city council’s Finance Committee. “That is not appropriate.”

Councilwoman Leslie Ghiz, a Republican who also opposes the deal, adds, “I’m not opposed to the streetcars. I voted for that project. But I don’t want to do it in a way that burdens our poorer residents and our residents on fixed incomes.”

Under the deal, Duke will give the city an economic development grant of $2 million in 2010 and $1 million in 2011 to help develop a streetcar system. If for some reason the city doesn’t move forward with the streetcar project, it can still use the $3 million for any economic development project as long as it creates a minimum of 25 new jobs in a three-year period at an hourly rate that exceeds 150 percent of the federal minimum wage.

During that period, Duke will retain the right to ask state utility regulators for a grant through Ohio’s Economic Competitiveness Fund to reimburse half of the company’s cost.

In return, Duke will be allowed to raise rates for residential energy customers a total of 4 percent over two years: a 2 percent hike effective Jan. 1, 2009, and another 2 percent hike effective Jan. 1, 2010. Industrial customers will face a 6 percent hike phased in over three years.

The residential rate hike is less than the 5.7 percent increase that Duke sought from the Public Utilities Commission of Ohio (PUCO), which it wanted to take effect all at once on Jan. 1, 2009.

Ghiz says, “There are some council members who didn’t want to take a vote because they wanted to avoid taking a public stance on the issue.”

Among the deal’s supporters were Mayor Mark Mallory and City Councilman Chris Bortz. Mallory and Bortz didn’t respond to a request for comment by deadline.

Although CityBeat filed a public records request with Dohoney’s administration Nov. 6 for all documents connected with the deal, an aide replied Nov. 7 that the newspaper wouldn’t receive the records until a week later, on Nov. 14.

Meanwhile, Dohoney approved the settlement with Duke on Nov. 7. A few days later, on Nov. 10, the mayor removed the issue out of council’s Finance Committee, which is headed by Cranley, and placed it into the Economic Development Committee, headed by Bortz.

In an e-mail exchange between the city manager and Cranley Nov. 6-7, Dohoney insisted he had the authority to enter into the deal at the administrative level rather than waiting for city council to act at the legislative level.

Cranley’s Nov. 6 e-mail states that the deal would establish a bad precedent.

“On principle, I believe that our only priority in dealing with rate disputes is to keep the economic hardship on our citizens that arises out of rate increases to an absolute minimum,” Cranley wrote. “The proposed settlement gives the appearance that the city supported a rate hike in exchange for funding of the streetcar. I believe this is an awful precedent and hope that the city will not do such a thing again, and certainly should abandon this settlement.

“In addition to the above, the costs of oil and coal have dramatically fallen and undermines the case for the proposed rate hike. Raising rates during a recession will cause hardships. We owe it to our citizens to fight this rate hike and should not put other agendas (i.e., streetcars) ahead of their interests.”

Dohoney wasn’t moved.

In a Nov. 7 e-mail, the city manager replied, “I am not aware of Mayor Mallory’s intention regarding the item but he did not give me any indication before he left for China that he intended to do a jurisdictional change. It has been the practice in this government that legal settlements do not need legislative approval. They are routinely settled at the administrative level. That is the case with this settlement. We have handled it the way we have so that transparency would be evident and it has been.”

Dohoney’s e-mail added, “PUCO will officially receive this item prior to your meeting and there is no opportunity for a party to be added in after the fact.”

A final decision on the rate hike is pending before state regulators, as is one final part of the deal proposed by Dohoney to city council.

If city council approves the provision, Duke also will pay the city $4 million to buy more than 20,000 existing streetlights. Currently the city owns the lights but Duke is responsible for maintenance. If Duke owns them, the logistics of making repairs will be easier, supporters say.

One city staffer, who spoke on the condition of anonymity, says, “This is a good deal for the city. Duke hasn’t had a rate increase in years. They could’ve gotten one for 5.7 percent or even higher from PUCO.”

Ghiz says that’s beside the point.

“I highly doubt PUCO would approve one for higher than what Duke sought,” Ghiz replies. “We should be fighting for the lowest rate possible, and we shouldn’t accept money in return because it gives the appearance of impropriety.

“Every city resident is going to pay more on their energy bills for a project that not everyone agrees with and a project that isn’t going to benefit everyone.”

In April, city council approved the planning stages for a long-discussed $102 million streetcar loop through downtown and Over-the-Rhine as well as an initial $35 million connector link to the uptown area near the University of Cincinnati. Eventually, a loop would be built in the uptown area for another $48 million.
The city’s current financing plan calls for generating at least $31 million from private sources — and possibly more with the addition of the uptown link — along with $25 million in debt financing through bonds that would be repaid using the city’s capital projects budget.

At the time, city council authorized Dohoney to begin negotiations with area companies to raise the private sector’s share of the money. Cranley, Ghiz and other critics, however, say they never gave Dohoney the authority to acquiesce to a rate hike in return for raising the private funds.

“The precedent set here is outrageous,” Cranley says. “This is the worst deal I’ve seen in eight years on council.”

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