In re Application of Suburban Natural Gas Co. (Slip Opinion)
2021 Ohio 3224
Ohio2021Background
- Suburban Natural Gas built a 4.9‑mile pipeline extension (placed in service Feb. 22, 2019) after engineering models showed pressure could fall below safe minimums during peak cold weather.
- Suburban kept the project under five miles to use an expedited siting process; construction cost basis for rates was about $8.9 million.
- Suburban applied to the PUCO for a rate increase; PUCO set the "date certain" for the used‑and‑useful inquiry as Feb. 28, 2019.
- The Office of the Ohio Consumers’ Counsel (OCC) intervened and argued only about 2 miles were used and useful as of the date certain; PUCO staff and Suburban settled on inclusion of the full 4.9 miles.
- PUCO approved recovery for the full 4.9 miles, citing engineering modeling and cost‑effectiveness (avoiding repeated small builds); OCC appealed.
- The Ohio Supreme Court reversed and remanded, holding PUCO improperly relied on a prudence/prudent‑investment rationale rather than applying the statutory used‑and‑useful test as of the date certain.
Issues
| Issue | Plaintiff's Argument (OCC) | Defendant's Argument (PUCO/Suburban) | Held |
|---|---|---|---|
| Whether the remaining 2.9 miles of the 4.9‑mile extension were "used and useful" as of the date certain | Only ~2 miles were useful on Feb. 28, 2019; the rest was overbuild and not compensable | The full 4.9 miles were used and useful based on modeling and to avoid future incremental construction/regulatory costs | Reversed and remanded: PUCO must determine used‑and‑useful status as of the date certain without importing future prudence reasoning |
| Whether PUCO permissibly relied on the prudence/prudent‑investment rationale when valuing plant | Prudence is not the statutory standard for R.C. 4909.15(A)(1); only date‑certain usefulness matters | Considering prudence and cost‑effectiveness is reasonable and consistent with regulatory practice to avoid inefficient re‑builds | Error: PUCO applied the prudent‑investment test in lieu of the used‑and‑useful date‑certain inquiry; that was beyond its statutory mandate |
| Whether OCC was aggrieved by PUCO's approved three‑year phase‑in of the rate increase | Phase‑in violates requirement to value property as of the date certain and could harm some customers | Phase‑in benefits consumers and does not change the aggregate recovery; any harm speculative | Court: OCC failed to show concrete aggrievement; challenge to phase‑in not sustained |
Key Cases Cited
- Smyth v. Ames, 169 U.S. 466 (U.S. 1898) (origin of the fair‑value/used‑and‑useful ratemaking concept)
- Fed. Power Comm. v. Hope Natural Gas Co., 320 U.S. 591 (U.S. 1944) (rate‑making must result in just and reasonable rates; Supreme Court moved away from strict used‑and‑useful constitutional mandate)
- Duquesne Light Co. v. Barasch, 488 U.S. 299 (U.S. 1989) (confirming Hope's just‑and‑reasonable standard)
- Cincinnati v. Pub. Util. Comm., 113 Ohio St. 259 (Ohio 1925) (used‑and‑useful phrasing: property must be "actually used and useful for the convenience of the public")
- Office of Consumers' Counsel v. Pub. Util. Comm., 58 Ohio St.2d 449 (Ohio 1979) (utility cannot recover for property not actually used and useful as of the date certain)
- Office of Consumers' Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153 (Ohio 1981) (usefulness must be measured as of the date certain; commission may not include unfinished or ineligible projects)
- In re Application of Duke Energy Ohio, Inc., 82 N.E.3d 1148 (Ohio 2017) (statutory ratemaking framework, including rate‑base valuation, discussed)
- Ohio Edison Co. v. Pub. Util. Comm., 63 Ohio St.3d 555 (Ohio 1992) (date certain tied to application timing; utility bears burden to prove proposals are just and reasonable)