In re Comm. Rev. of the Capacity Charges of Ohio Power Co. (Slip Opinion)
60 N.E.3d 1221
Ohio2016Background
- AEP (Ohio Power Co. and Columbus Southern Power) participates in PJM and elected the FRR Alternative, making it responsible for capacity for all load in its territory; PJM/RAA allows states to set a "state compensation mechanism" for capacity pricing.
- AEP sought to change compensation for capacity sold to CRES providers from PJM auction-based market prices to a cost-based rate; the Ohio PUCO opened an investigation and set a cost-based capacity rate of $188.88/MW-day.
- Because the cost-based rate exceeded PJM auction prices, PUCO required CRES providers pay the auction (market) price and allowed AEP to defer the difference (with carrying charges) to be recovered later via a Retail Stability Rider (RSR) approved in AEP’s ESP proceeding.
- OCC appealed PUCO’s orders raising procedural and statutory challenges (R.C. 4905.26, R.C. 4928 provisions, double payment/subsidy, ripeness), and AEP cross‑appealed contesting the energy-credit calculation and asserting a regulatory‑takings claim.
- FERC later accepted an appendix consistent with PUCO’s state compensation mechanism (without endorsing any cost-based charge above auction pricing), and AEP withdrew its pending FERC filing for a cost‑based charge.
- The Ohio Supreme Court affirmed the PUCO orders in part, reversed in part, and remanded — reversing as to PUCO’s analysis of the energy‑credit inputs (remand required to address AEP’s input-specific challenges) but otherwise upholding PUCO’s authority and disposition.
Issues
| Issue | Plaintiff's Argument (OCC/AEP as applicable) | Defendant's Argument (PUCO/AEP/OCC as applicable) | Held |
|---|---|---|---|
| PUCO authority under R.C. 4905.26 to open investigation and set rates | OCC: PUCO failed to comply with R.C. 4905.26 procedural requirements (didn't find existing rate unjust/unreasonable; didn't establish reasonable grounds before hearing) | PUCO: statute requires only initiation/allegation and notice/hearing; PUCO gave reasonable‑grounds entries and held hearings | Held: PUCO acted within R.C. 4905.26; entries and hearing satisfied statute; OCC failed to show prejudice |
| Deferral of recovery / alleged subsidy and violation of R.C. 4928 policies | OCC: Deferral causes customers to pay twice and creates anticompetitive subsidy to CRES; violates R.C. 4928.02 (H, L) and 4928.06 | PUCO: Recovery mechanism (RSR) and rate design issues were outside scope of capacity case and were properly addressed in ESP case; arguments were unripe or not preserved | Held: PUCO did not err in deferring recovery here; OCC’s arguments were premature or not preserved for this appeal |
| Calculation of the energy credit (inputs and model calibration) | AEP: Staff/EVA model used flawed inputs (calibration, off‑system margins, pool agreement treatment, price forecasts, fuel costs, heat rates), overstating the energy credit and understating capacity rate | PUCO: Adopted EVA/staff approach; characterized dispute as methodological and found EVA’s approach reasonable | Held: Court found PUCO failed to address AEP’s specific input challenges and failed to cite record support; reversed on this point and remanded for PUCO to substantively address input objections |
| Regulatory‑taking claim for disallowing recovery above auction rate | AEP: If denied recovery of full cost, that would be a regulatory taking requiring just compensation | PUCO: Issue is hypothetical because PUCO (and this decision) permit recovery of actual costs; no ripe taking | Held: Court declined to reach takings claim as hypothetical and unripe |
Key Cases Cited
- Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530 (standard for reversing PUCO order on record review)
- Monongahela Power Co. v. Pub. Util. Comm., 104 Ohio St.3d 571 (deference to PUCO on factual determinations; manifest‑weight standard)
- Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108 (agency expertise and deference for specialized regulatory issues)
- MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St.3d 306 (R.C. 4903.09 requires PUCO to explain decisions and record support)
- Industrial Energy Users‑Ohio v. Pub. Util. Comm., 117 Ohio St.3d 486 (PUCO must have record support; commission may abuse discretion if deciding issues without record support)
- Elyria Foundry Co. v. Pub. Util. Comm., 114 Ohio St.3d 305 (appellate court will not reweigh evidence; defer to PUCO factfinding)
- Allnet Communications Servs., Inc. v. Pub. Util. Comm., 32 Ohio St.3d 115 (reasonable‑grounds requirement under R.C. 4905.26 satisfied by allegations warranting hearing)
- Myers v. Pub. Util. Comm., 64 Ohio St.3d 299 (reversal requires showing of prejudice)
- Cincinnati Gas & Elec. Co. v. Pub. Util. Comm., 103 Ohio St.3d 398 (notice‑of‑appeal must set forth errors complained of)