2019 Ohio 2401
Ohio2019Background
- FirstEnergy’s 2016 electric-security plan (ESP) initially included Rider RRS to stabilize generation rates; after FERC action and rehearing, PUCO removed Rider RRS and adopted a Distribution Modernization Rider (DMR) to provide credit support and raise roughly $168–204 million/year for distribution modernization.
- PUCO staff promoted the DMR as an incentive to "jump-start" grid modernization by improving FirstEnergy Corp.’s credit access; PUCO approved the DMR in a rehearing entry and placed limited conditions on recovery.
- Multiple parties (Sierra Club, NOPEC, OMAEG, Environmental Groups, OCC, municipal aggregations, etc.) appealed, arguing the DMR was unlawful and that PUCO erred in other ESP-related rulings.
- The Supreme Court of Ohio reviewed whether PUCO lawfully authorized the DMR under R.C. 4928.143(B)(2)(h), among other challenges, applying the standard that PUCO orders are reversed only if unlawful or unreasonable and deferring to PUCO’s expertise on specialized issues when reasonable.
- The Court held that the DMR does not qualify as an "incentive" under R.C. 4928.143(B)(2)(h) because it provided funds up front without meaningful conditions tying payments to concrete modernization actions, and that PUCO’s relied-upon showing was insufficient to demonstrate how the rider would motivate modernization; the Court reversed the DMR approval and remanded for immediate removal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the DMR qualifies as an "incentive" under R.C. 4928.143(B)(2)(h) | DMR is not an incentive because it imposes no requirement, timeline, or link between payments and modernization actions | PUCO/FirstEnergy: DMR stimulates modernization by enabling credit access and thus qualifies as an incentive under the statute | Court: Reversed — DMR is not an incentive; payments upfront without meaningful conditions do not direct or motivate the utility to modernize |
| Whether PUCO’s conditions on DMR protect ratepayers | Conditions (HQ location, no control change, progress showings) are meaningless and lack enforceable consequences or refund mechanism | PUCO/FirstEnergy: Conditions ensure DMR will be used to jump-start modernization | Court: Agrees with appellants—conditions insufficient; no refund mechanism and no effective penalties; this supports reversal of DMR approval |
| Whether DMR revenues should be excluded from SEET (significantly-excessive-earnings test) | Excluding DMR from SEET improperly shields excess earnings from review and refund obligations | PUCO: SEET challenge is premature; can be raised in future SEET proceedings | Court: Declined to address now as premature; parties can raise in SEET proceeding |
| Whether PUCO properly applied the statutory ESP "more favorable in the aggregate" test (R.C. 4928.143(C)(1)) by excluding certain riders' costs | Plaintiffs: PUCO unlawfully excluded DMR and Government Directive Recovery Rider costs from the statutory comparison | PUCO: Exclusion proper because placeholder riders had no costs during the ESP term and similar revenues could be recovered under an MRO | Court: Dismissed DMR-related portion as moot due to DMR reversal; upheld exclusion of placeholder government-directive rider costs as reasonable when no costs were recovered during the ESP term |
Key Cases Cited
- Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 820 N.E.2d 885 (standard for reversing PUCO orders)
- Monongahela Power Co. v. Pub. Util. Comm., 104 Ohio St.3d 571, 820 N.E.2d 921 (deference to PUCO on factual findings; burden on appellant to show order is against manifest weight)
- In re Application of Columbus S. Power Co., 138 Ohio St.3d 448, 8 N.E.3d 863 (deference principles for rate-related statutory interpretation)
- In re Rev. of Alternative Energy Rider Contained in Tariffs of Ohio Edison Co., 153 Ohio St.3d 289, 106 N.E.3d 1 (refund-bar principles under R.C. 4905.32 and tariff refund mechanisms)