Class-action certified in 2008 rebate case against Duke Energy Corp.

Attorney: Damages could reach $1 billion

CINCINNATI - A federal judge in Columbus has certified a class action lawsuit against Duke Energy Corp. in a 2008 case that accused the utility of giving improper rebates to its largest customers.

Plaintiff attorneys claim the case could produce more than $1 billion in damages against Duke. The utility maintains the lawsuit has no merit. The suit is filed in U.S. District Court for the Southern District of Ohio.

“We do not comment on pending litigation but we do intend to defend this case fully,” Duke spokesman Blair Schroeder said.

The case involves at least $73 million in rebates paid to 24 of Duke’s biggest customers between 2005 and 2008.

Plaintiff attorneys claim the rebates were unlawful kickbacks to customers who dropped their opposition to rate hikes. That allowed Duke’s predecessor, Cinergy Corp., to secure regulatory approval for its 2004 “rate stabilization plan,” which included rate increases for residential and business customers.

Duke has defended the rebates as legitimate option contracts designed to keep its largest customers loyal as Ohio welcomed new energy providers to compete against Duke and other utilities.

Case has long history

The dispute has been simmering for more than seven years, starting with a 2007 whistleblower lawsuit in which former Duke employee John Deeds alleged he was fired after questioning kickbacks to customers. That case was settled in 2008.

Attorney Randy Freking, who represented Deeds, is also involved in the 2008 lawsuit. In fact, court documents indicate Freking recruited a former neighbor, Anthony Williams; grade school friend, Dean Backsheider; and a former client, Charles Munafo; to join the 2008 lawsuit as plaintiffs. Backsheider is a vice president of BGR Inc., which represents small business owners in the class-action case. Munafo Inc. and Aikido of Cincinnati are the other lead plaintiffs.

U.S. District Judge Edmund Sargus Jr. initially dismissed the antitrust case against Duke in 2009 with a ruling that was reversed by a federal appeals court in 2012. Sargus dismissed the case on jurisdictional grounds.

In his March 13 decision, Sargus defined the class of plaintiffs as all Ohio business and residential customers who bought electric service from Duke Energy in a four-year period ending December 31, 2008 but didn’t receive rebates.

“A class action is the most efficient and convenient method to resolve this controversy,” Sargus wrote. “Repeatedly litigating the same issues in individual suits would produce duplicate efforts, unnecessarily increase litigation costs, impose an unwarranted burden on this court and other courts and create a risk of inconsistent results.”

Sargus has yet to rule on the legality of the rebates generally.

If Duke loses the complex suit, which could take years to litigate, as many as 1 million people could ultimately recover damages. That number is based on Duke’s public statements that it had 760,000 Ohio customers at the end of 2008, said Plaintiff attorney Bill Markovits. The additional 250,000 are estimated to have been former customers who may have discontinued service over the course of the case. 

Markovits is one of eight lawyers representing four plaintiffs who initiated the 2008 lawsuit. He said he thinks the case could yield more than $1 billion in damages against Duke Energy depending on if and how the court determines customers were harmed.

If damages were based strictly on the amount of rebates paid, damages could potentially reach $219 million. That’s the rebate amount of $73 million multiplied by three, the maximum allowed for punitive judgments, Markovits said. Damages could also be based on the amount of profit Duke Energy generated because it allegedly used rebates to secure a bigger rate hike. Or, the utility could be forced to pay all customers the same rebate on a percentage basis as its 24 “favored customers.” Both of those scenarios could yield compensatory damage awards of up more than $300 million. Punitive damages could inflate those awards to about $1 billion.

“I wouldn’t put it out of the realm of possibility at all,” Markovits said. “The more discovery we do the happier we are with our case.”

Who got rebates?

Duke has said its Ohio customers were not harmed by the rebates granted to 24 large customers, including 12 local hospitals, Procter & Gamble Co., Ford Motor Corp., AK Steel Corp. and G.E. Aviation. A complete list of those receiving rebates was attached to a recent court filing. It showed AK Steel got the most money. Its $23.8 million in total rebates represented an 8.1 percent off its total electric bill from 2005 to 2008. Marathon Ashland Petroleum LLC received the largest percentage discount. Its $3.9 million in rebates reduced the company’s total bill by 44.5 percent.


the list of companies, attached in the court filing 



Duke has argued industrial customers fall into different tariff classes than residential customers. So, a rebate granted to big energy buyers doesn’t impact residential customers or small business customers.

“Throughout this litigation, plaintiffs have struggled to explain how any putative class member suffered injury due to the fact that a rebate was paid to someone else,” said one recent Duke filing. “The payments plaintiffs describe as ‘illegal rebates’ paid to ‘favored customers’ were, in fact, lawfully-negotiated option agreements.”

Plaintiff attorneys counter that argument with the 2012 appellate court ruling that revived the case.

“The Sixth Circuit put to rest any notion that a utility could lawfully pay selective rebates,” the attorneys argued in June. “’The selective payment of rebates,’ the Sixth Circuit said, ‘constitutes a felony under Ohio law.’”

In February, 2008, Duke Energy Ohio CEO Sandra Meyer told the Cincinnati Enquirer’s editorial board that the payments were not intended to influence the company’s request for a rate hike in 2004.

But an internal company memo makes it clear that the payments were designed to remove a “roadblock” to “rapid approval” of a “rate stabilization plan” submitted to PUCO by Duke Energy’s predecessor, Cincinnati Gas & Electric. Jim Ziolkowski, director of rates and regulatory strategy at Duke Energy, explained the history of the payments to three other Duke Energy executives in a May, 2006 email.

“A number of large customers, some represented by industry groups, intervened in the filing,” Ziolkowski wrote. “CG&E’s and the PUCO’s goal was to obtain rapid approval of the RSP such that the new rates could go into effect on 1/1/2005. The interveners represented a roadblock, however. To eliminate this roadblock and prevent a formal hearing, CG&E negotiated special conditions with the interveners and ultimately reached agreements with them.”

Read the email, attached in court filing



Discovery producing new revelations


The email is one of several new revelations uncovered by attorneys in the case.

Another is that Duke Energy may have paid two trade associations that helped the utility arrange rebate deals with its largest customers.

Still another is that rebates for some companies may have continued beyond 2008.

“Cinergy and Duke have consistently attempted to mislead their rate payers, the public, and the courts,” said one recent filing in which plaintiff lawyers argued in favor of class action certification. “Duke has given every indication that it will continue trying to recast the option payments as something other than rebates, even though that’s exactly what they are called in internal documents among Duke’s own records.”

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