Legal fight won’t affect rates or service but would improve responsiveness to businesses, residents

COVINGTON, Ky. – After five years of fruitless negotiation and mediation, the City of Covington has been forced to file legal action to settle the legitimacy of Duke Energy’s claim that it enjoys the exclusive, irrevocable, perpetual right to provide electric service in Covington without a franchise agreement with the City.

Regardless of the outcome, the legal fight will have zero effect on customers’ rates and the availability of electric service, City officials said. But a successful case would force Duke to adopt a more collaborative approach that is more responsive to the concerns of the City and the needs of its businesses and residents.

“This is a classic case of a big institution thinking it can do whatever it wants and that it can ignore established, reasonable, local ordinances,” Mayor Joe Meyer. “We have tried for years to get cooperation, but Duke refuses to follow even common rules of business practice, including following a bidding process and signing a franchise agreement as required by the state Constitution and as it willingly does with virtually every other city in which it provides service. Duke is not above the law.”

Covington’s action was filed Wednesday in two places: Franklin Circuit Court, since Frankfort is where Duke’s registered agent in Kentucky is located; and the state Public Service Commission, or PSC, which regulates utilities in Kentucky.

The filing was authorized by a vote of the Covington Board of Commissioners on Oct. 22.

The issue concerns only electric service, not natural gas service, which Duke also provides.

The question at hand is not a complex one, City Solicitor Frank Schultz said.

As explained in the City’s complaint, Duke believes that it operates in Covington under an exclusive, perpetual franchise that it allegedly “inherited” as the successor of the Covington Electric Light Company, whose 1882 charter pre-dates the Kentucky Constitution, which limits franchises to a 20-year term.

Covington points out, however, that a U.S. Supreme Court case from 1904 – Shaw v. City of Covington, (in which Duke’s predecessor-in-interest was a party) – extinguished Duke’s alleged perpetual franchise. The famous Supreme Court Justice Oliver Wendell Holmes Jr. authored the opinion in that case and stated authoritatively that the “[e]xclusive privilege to operate did not transfer to the electric company …”

The City is asking the court to rule that Duke does not have a perpetual franchise and is asking the PSC to order Duke to follow the City’s bidding process for the right to provide electric service in Covington.

Meyer says that Duke’s position – and the company’s recent refusal to participate in the City’s invitation to bid for the right to provide electric service in Covington – have had negative effects on Covington residents and businesses. For example:

• Duke requires people renovating or painting the exterior of buildings to arrange for Duke to move or insulate nearby electric wires. But the company is slow to respond and in one case billed a restaurant owner $3,000 to perform the service, Meyer said.
• Duke refuses to inform the City when other companies use space on utility poles in the public right of way, as required by City ordinances. Those companies then effectively operate in secret within Covington and are able to evade paying required taxes and fees like everyone else. Duke’s refusal to provide this simple information also delays streetscape projects and residential and commercial development, leading to increased wear and tear on vehicles, more traffic congestion, and increased construction costs.
• Duke does not comply with the City’s right-of-way encroachment ordinance.

“Franchise agreements at their core are about establishing a fair, equal, and level playing field, so to speak, where there is mutual respect and a strong working relationship beneficial to all sides,” Schultz said. “Right now, Duke operates as if the concerns of Covington’s businesses, residents, and lawmakers are of no importance. Duke has no incentive to listen to the public’s concerns because they think they have the right to operate as the City’s exclusive electric service provider until the end of time. We think the U.S. Supreme Court terminated that alleged right 120 years ago.”

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