In re Determination of Existence of Significantly Excessive Earnings for 2017 Under the Elec. Sec. Plan of Ohio Edison Co. (Slip Opinion), 2020 Ohio 5450

Background

R.C. 4928.143(F) requires the PUCO to conduct an annual SEET (significantly-excessive-earnings test) for utilities operating under an electric security plan (ESP), comparing the utility’s earned return on common equity to that of publicly traded companies with comparable business/financial risk, with appropriate adjustments for capital structure.
In 2016 the PUCO approved FirstEnergy’s (including Ohio Edison) fourth ESP and authorized a three-year Distribution Modernization Rider (DMR) to finance grid modernization; the PUCO also ruled in the ESP proceedings that DMR revenue should be excluded from SEET calculations for the initial three-year period.
OCC (Ohio Consumers’ Counsel) challenged the PUCO’s exclusion of Ohio Edison’s 2017 DMR revenue from the SEET in the 2017 SEET proceeding; the PUCO denied rehearing and maintained the exclusion.
The Supreme Court of Ohio held the PUCO’s statutory authority for excluding DMR revenue was unreasonable: the DMR was an ESP “adjustment” under R.C. 4928.143(F) (a change in rates versus the prior rate plan) and therefore the revenue must be included in the SEET analysis.
The Court reversed the PUCO orders and remanded, instructing the PUCO to run a new SEET including DMR revenue, determine the SEET threshold, consider appropriate adjustments under R.C. 4928.143(F), and make other necessary determinations.

Issues

Issue	Plaintiff's Argument (OCC)	Defendant's Argument (PUCO/Ohio Edison)	Held
Whether PUCO lawfully excluded DMR revenue from the 2017 SEET under R.C. 4928.143(F)	Statute does not allow exclusion of revenue collected under an ESP provision; DMR is an "adjustment" that must be considered	PUCO relied on its ESP rulings and methodology approving exclusion; exclusion preserves DMR purpose and avoids unfair risk	Exclusion was unreasonable and violated R.C. 4928.143(F); DMR revenue must be included on remand
Whether court should defer to PUCO’s statutory interpretation	Deference not dispositive; statutory text controls	PUCO: deference appropriate for rate-of-return matters and expertise-based adjustments	Court will defer to PUCO only if interpretation is reasonable; here PUCO’s interpretation was unreasonable
Whether PUCO’s failure to explain statutory/evidentiary bases (R.C. 4903.09) requires remand for explanation before addressing merits	PUCO failed to articulate statutory authority/evidentiary support—remand to allow PUCO to justify decision	PUCO/Ohio Edison contended merits could be reached and argues other statutory bases on appeal	Majority: OCC did not raise R.C. 4903.09 on rehearing so Court lacks jurisdiction to entertain that claim on appeal; Court nevertheless reversed on statutory grounds. Concurring/dissent would remand for PUCO explanation first
Whether remand is appropriate given alleged lack of prejudice and absence of an established SEET threshold	OCC shown prejudice because it was denied a valid SEET including DMR revenue; commission did not set a definitive SEET threshold below which earnings would not be excessive	Ohio Edison argued OCC failed to show harm and that no jurisdiction to remand because OCC’s ROE (including DMR) remained below a claimed 19.20% threshold	Court: OCC demonstrated prejudice (right to a valid SEET); record does not show PUCO adopted a specific 19.20% threshold; remand ordered for new SEET including DMR revenue

Key Cases Cited

In re Application of Columbus S. Power Co., 983 N.E.2d 276 (Ohio 2012) (R.C. 4928.143(F) treated as rate-of-return statute; ESP "adjustments" must be considered)
In re Application of Ohio Edison Co., 131 N.E.3d 906 (Ohio 2019) (Supreme Court later held the DMR unlawful in the ESP itself)
Constellation NewEnergy, Inc. v. Pub. Util. Comm., 820 N.E.2d 885 (Ohio 2004) (standard for reversing PUCO orders under R.C. 4903.13)
Consumers’ Counsel v. Pub. Util. Comm., 388 N.E.2d 1370 (Ohio 1979) (agency expertise may inform rate-of-return matters)
In re Application of Duke Energy Ohio, Inc., 71 N.E.3d 997 (Ohio 2016) (court will not uphold agency decision on a new justification raised for the first time on appeal)
Monongahela Power Co. v. Pub. Util. Comm., 820 N.E.2d 921 (Ohio 2004) (deference to PUCO’s factual findings unless against the manifest weight of evidence)