IN RE APPLICATION OF DUKE ENERGY OHIO, INC., FOR AN INCREASE IN ITS NATURAL GAS DISTRIBUTION RATES; OFFICE OF THE OHIO CONSUMERS’ COUNSEL ET AL., APPELLANTS; DUKE ENERGY OHIO, INC., ET AL., INTERVENING APPELLEES; PUBLIC UTILITIES COMMISSION, APPELLEE.
No. 2014-0328
Supreme Court of Ohio
June 29, 2017
2017-Ohio-5536 | 150 Ohio St. 3d 437
FRENCH, J.
Submitted February 28, 2017
{¶ 1} Appellants, the Office of the Ohio Consumers’ Counsel, the Ohio Manufacturers’ Association, Ohio Partners for Affordable Energy, and the Kroger Company, appeal an order of the Public Utilities Commission that authorized intervening appellee Duke Energy Ohio, Inc., to recover costs associated with the environmental remediation of two manufactured-gas-plant (“MGP“) sites near downtown Cincinnati.
{¶ 2} Appellants raise five propositions of law, but we have already resolved proposition Nos. 4 and 5. Of the three that remain, none warrants reversal. Therefore, we affirm the commission‘s order.
Facts and procedural background
{¶ 3} MGPs were common in the United States from the middle of the 19th century until the middle of the 20th century. By burning coal, oil, and other fossil fuels, MGPs produced gas that consumers used for lighting, heating, and cooking. The process of manufacturing gas created residual byproducts, including coal tar, sulfur, and ammonia. These residuals often became waste products that were buried at the plant sites, an accepted industry practice at the time. By 1970, nearly all MGPs had become obsolete for various reasons, including the prevalence of natural gas. But the disposal of waste products at the sites of
{¶ 4} Duke‘s predecessor companies operated one or both of two MGPs near downtown Cincinnati for over a century. Manufactured-gas operations ceased at these plants in 1928 and 1963. The two sites—now known as the East End and West End sites—contain waste products and contaminants that federal law defines as hazardous substances. As the current owner or operator of facilities from which there is a release or threatened release of hazardous material, Duke is liable for remediation of the MGP sites under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA“),
{¶ 5} The East End and West End sites have undergone changes in operations and equipment since the two MGPs closed. They currently contain certain infrastructure and facilities that Duke uses to provide utility service to customers. Duke has been aware of its environmental obligations at the MGP sites since 1988, but the sites were considered low priorities because (1) public access to the properties was limited, (2) the groundwater is not used as a source of drinking water, and (3) the hazardous materials were capped with asphalt, concrete, and soil. The risk of exposure changed, however, in 2006 and again in 2009, when two new construction projects were planned on land adjacent to the MGP sites. In 2006, a real-estate developer purchased land adjacent to the East End site and announced plans to construct a residential development on the newly acquired property. And in 2009, Ohio and Kentucky finalized plans for a new bridge spanning the Ohio River that directly crosses the West End site.
{¶ 6} As a result, Duke initiated remediation of both MGP sites. Duke is remediating the sites through the Voluntary Action Program developed by the Ohio Environmental Protection Agency. See generally
{¶ 7} Once the environmental investigation began, Duke applied to the commission for authority to defer its future remediation costs. See
{¶ 9} In November 2013, the commission issued an order adopting the stipulation and authorizing Duke to recover its remediation costs. The commission found that the costs of remediating the MGP sites were recoverable under
{¶ 10} The commission set the amount of Duke‘s prudent costs at approximately $55.5 million, which Duke could recover from customers over a five-year period—approximately $925,000 a month. The parties had stipulated that if the commission allowed MGP costs, recovery would be through a rider and not base rates. The commission therefore ordered Duke to implement “Rider MGP” to recover costs from ratepayers on a per-bill basis. The commission required Duke to file annual updates of Rider MGP to reflect the costs Duke incurred for the preceding year.
{¶ 11} In addition, the commission found that Duke‘s shareholders should bear some responsibility for the environmental-remediation costs. To that end, the commission denied the company‘s request that ratepayers pay carrying costs on the deferred amounts. The commission also ordered Duke to continue efforts to recover costs from insurers and other third parties that may be liable for remediation costs and ordered that any proceeds recovered be returned to ratepayers, less the company‘s costs to achieve the recovery (e.g., litigation costs).
{¶ 12} Appellants filed a joint appeal to this court, challenging the commission‘s order. The commission and Duke have filed briefs in defense of the order.
{¶ 13}
{¶ 14} Although this court has “complete and independent power of review as to all questions of law” in appeals from the commission, Ohio Edison Co. v. Pub. Util. Comm., 78 Ohio St.3d 466, 469, 678 N.E.2d 922 (1997), we may rely on a state agency‘s expertise in interpreting a law when “highly specialized issues” are involved and when “agency expertise would, therefore, be of assistance in discerning the presumed intent of our General Assembly.” Office of Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108, 110, 388 N.E.2d 1370 (1979).
Analysis
{¶ 15} Appellants raise five propositions of law, but we settled the issues raised in the fourth and fifth propositions when we decided all matters concerning appellants’ joint motion for a stay of the commission‘s order. The remaining propositions assert that the commission exceeded its authority when it allowed Duke to recover the costs incurred to remediate the MGP sites. Specifically, appellants maintain that the commission erred by authorizing Duke to charge customers for the remediation costs because the costs did not relate to property that was “used and useful,” were not a normal recurring expense, and were not expenses for Duke‘s public-utility-distribution service. Appellants have not carried their burden of demonstrating reversible error. Therefore, we affirm the commission‘s decision.
{¶ 16} We begin with
The public utilities commission, when fixing and determining just and reasonable rates, fares, tolls, rentals, and charges, shall determine:
(1) The valuation as of the date certain of the property of the public utility used and useful * * * in rendering the public utility service for which rates are to be fixed and determined. * * *
* * *
(2) A fair and reasonable rate of return to the utility on the valuation as determined in division (A)(1) of this section;
* * *
(4) The cost to the utility of rendering the public utility service for the test period * * *.
Proposition of law No. 1: The commission erred when it refused to apply the “used and useful” standard in R.C. 4909.15(A)(1)
{¶ 17} In their first proposition of law, appellants argue that expenses are not recoverable in rates under
{¶ 18} We conclude that appellants have misread
{¶ 19} As with any question involving statutory construction, we begin our analysis with the statutory language. See In re Application of Ohio Power Co., 140 Ohio St.3d 509, 2014-Ohio-4271, 20 N.E.3d 699, ¶ 20. As we noted above,
{¶ 20} Although appellants’ interpretation of
The commission did not create an exception to the used-and-useful standard
{¶ 21} Appellants first argue that the commission effectively created an unlawful “exception” to the used-and-useful standard in
The commission explained why it did not follow its prior decisions in allowing Duke to recover costs
{¶ 22} Appellants’ second argument made in their first proposition is that the commission departed from its own precedents without justification when it allowed Duke to recover environmental-remediation costs. Appellants cite two prior commission decisions in which, appellants contend, the commission disallowed cost recovery because the requested costs were tied to property that was not used and useful in rendering utility service. See In re Application of Ohio Edison Co., Pub. Util. Comm. No. 89-1001-EL-AIR, 1990 WL 10650394 (Aug. 16,
{¶ 23} We have instructed the commission to “respect its own precedents in its decisions to assure the predictability which is essential in all areas of the law, including administrative law.” Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 42 Ohio St.2d 403, 431, 330 N.E.2d 1 (1975), superseded on other grounds by statute as recognized in Babbit, 59 Ohio St.2d at 89-90. If the commission departs from precedent, it must explain why. See In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 52. But in this case, the commission did not depart from the Ohio Edison cases; it distinguished those cases on their facts.
{¶ 24} The commission explained that the facts of the Ohio Edison cases are distinguishable and that therefore, the orders in those cases are not dispositive of the cost-recovery issues raised in this case. Specifically, the commission stated that Duke, unlike the utility in the Ohio Edison cases that sought recovery of discretionary maintenance costs, is under a statutory mandate to remediate the contamination stemming from the production of manufactured gas on the MGP sites. The commission noted that the MGP sites required remediation because Duke still had ongoing utility operations on the sites and that a nearby planned residential development and bridge-relocation project required Duke to address potentially increased exposure. In contrast, the commission noted, the Ohio Edison cases involved maintenance costs for facilities that the utility no longer used to provide service to its customers. Pub. Util. Comm. Nos. 12-1685-GA-AIR, 12-1686-GA-ATA, 12-1687-GA-ALT, and 12-1688-GA-AAM, 2013 Ohio PUC LEXIS 259, * 127–128 (Nov. 13, 2013).
{¶ 25} Appellants make a blanket assertion that the Ohio Edison cases “presented the same legal analysis based on the same determinative factual circumstances that the [commission] was presented with in the instant proceeding.” But this is not true; the commission cited specific facts that distinguish the cases. At no point do appellants even purport to challenge the commission‘s explanation why the Ohio Edison cases are factually distinguishable. Appellants cannot prevail when they fail to directly challenge the commission‘s decision as substantively unreasonable or unlawful.
The in pari materia rule of construction is not applicable
{¶ 26} Appellants’ final argument made in their first proposition of law is that the commission erred when it failed to construe
Proposition of law No. 2: R.C. 4909.15(A)(4) requires that expenses be normal and recurring in order to be recovered in rates
{¶ 28} In their second proposition of law, appellants argue that this court held in Office of Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio St.2d 153, 164, 423 N.E.2d 820 (1981), that a public utility may recover only “normal, recurring expenses” under
{¶ 29} In Consumers’ Counsel, the commission allowed the utility to recover as service-related costs under
{¶ 30} Our opinion did state that ”
Proposition of law No. 3: The commission failed to find that the investigation and remediation costs were related to Duke‘s provision of distribution service
{¶ 31} Appellants argue in their third proposition of law that Duke failed to demonstrate a nexus between the MGP-remediation costs and the company‘s
{¶ 32} So far as appellants are concerned, the commission would have fully satisfied Ohio‘s ratemaking laws if it had found a relationship between Duke‘s recovery of MGP-remediation costs and the company‘s current provision of distribution service. But the commission did just that. It found that Duke was currently using the MGP sites for gas-distribution operations and that remediation was necessary for Duke to continue operations at the properties. See 2013 Ohio PUC LEXIS 259 at * 141-142. Appellants point to no evidence that Duke was not using the MGP sites for current distribution operations or otherwise show that the commission erred in this determination. In short, the commission did exactly what appellants say that it failed to do. Therefore, this argument lacks merit.
Proposition of law No. 4: The bond requirement set forth in R.C. 4903.16 is unconstitutional and Proposition of law No. 5: R.C. 2505.12 exempts the Consumers’ Counsel from the bond requirement in R.C. 4903.16
{¶ 33} In their fourth and fifth propositions of law, appellants challenge the bond requirement for obtaining a stay of a commission order. See
{¶ 34} Appellants’ arguments here are identical to the arguments they raised in their joint motion for a stay. We effectively rejected these arguments when we issued the entry requiring appellants to post a bond to stay the commission‘s order. Therefore, we dismiss proposition Nos. 4 and 5 as moot. See Verizon N., Inc. v. Pub. Util. Comm., 101 Ohio St.3d 91, 2004-Ohio-44, 801 N.E.2d 456.
{¶ 35} Appellants have the burden of demonstrating that the commission‘s order was unjust, unreasonable or unlawful.
Order affirmed.
O‘CONNOR, C.J., and FISCHER and DEWINE, JJ., concur.
O‘DONNELL, J., dissents, with an opinion joined by KENNEDY and O‘NEILL, JJ.
O‘DONNELL, J., dissenting.
{¶ 36} Respectfully, I dissent.
{¶ 37} In my view, the order of the Public Utilities Commission that authorized Duke Energy Ohio, Inc., to recover costs associated with the environmental remediation of two former manufactured gas plant (“MGP“) sites is unlawful because the commission failed to consider whether Duke incurred the costs to remediate property that was used and useful in rendering the public utility service for the test period.
{¶ 38}
The public utilities commission, when fixing and determining just and reasonable rates, * * * shall determine:
(1) The valuation as of the date certain of the property of the public utility used and useful * * * in rendering the public utility service for which rates are to be fixed and determined. * * *
* * *
(2) A fair and reasonable rate of return to the utility on the valuation as determined in division (A)(1) of this section;
* * *
(4) The cost to the utility of rendering the public utility service for the test period * * *.
{¶ 39} After conducting an investigation, the commission‘s staff determined that most of the $62.8 million in environmental remediation costs Duke sought to recover “were incurred in areas of the former MGP sites that are not currently used and useful for natural gas distribution service and are thus not recoverable
{¶ 40} The commission, however, rejected the recommendation and concluded ”
{¶ 41} The majority agrees with the position of the commission because
{¶ 42} But not all business costs are recoverable pursuant to
{¶ 43} The principle that property related expenses must be associated with property that is used and useful is reflected in the commission‘s decisions in In re Application of Ohio Edison Co., Pub. Util. Comm. No. 89-1001-EL-AIR, 1990 WL 10650394 (Aug. 16, 1990) (“Ohio Edison I“), and In re Application of Ohio
{¶ 44} In Ohio Edison I, Ohio Edison Company sought to increase its electric rate based on costs associated with maintaining a plant that had been removed from service in a cold standby status. Ohio Edison claimed its customers would benefit from the expenditures because it planned to return the plant to service in the near future and maintaining the plant would “reduce the costs of bringing the plant back on-line.” Ohio Edison I at *143. In rejecting this argument, the commission stated:
There is no dispute that the West Lorain plant was not in operation during the test year and the company has indicated that it will not be placed into service for at least two to three years * * *. * * * Given these facts, we are not inclined to deviate from the concept of matching test-year expenses to used and useful plant and equipment.
(Emphasis added.) Id. at *143-144.
{¶ 45} In Ohio Edison II, three electric companies sought recovery of expenses associated with securing and maintaining retired generation facilities that did not render any utility service during the test year. The commission found the expenses did “not reflect costs to the utility of rendering public utility service for the test period in accordance with
{¶ 46} As the majority acknowledges, this court has “instructed the commission to ‘respect its own precedents in its decisions to assure the predictability which is essential in all areas of the law, including administrative law.‘” Majority opinion at ¶ 23, quoting Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 42 Ohio St.2d 403, 431, 330 N.E.2d 1 (1975), superseded on other grounds by statute as recognized in Babbit v. Pub. Util. Comm., 59 Ohio St.2d 81, 89, 391 N.E.2d 1376 (1979). However, the majority concludes that “in this case, the commission did not depart from the Ohio Edison cases; it distinguished those cases on their facts.” Majority opinion at ¶ 23. Specifically, according to the majority, the Ohio Edison cases involved “discretionary maintenance costs” for “facilities that the utility no longer used to provide service to its customers,” whereas here, Duke is “under a statutory mandate to remediate the contamination” on the former MGP sites and those sites “required remediation because Duke still had ongoing utility operations on the sites and * * * a nearby planned residential development and bridge-relocation project required Duke to address potentially increased exposure.” Majority opinion at ¶ 24.
{¶ 48} For the foregoing reasons, I would reverse the order of the commission and remand this case to the commission to consider whether all, part, or none of the remediation costs were incurred to remediate property that was used and useful in rendering the public utility service for the test period.
KENNEDY and O‘NEILL, JJ., concur in the foregoing opinion.
Bruce J. Weston, Consumers’ Counsel, and Larry S. Sauer and Joseph P. Serio, Assistant Consumers’ Counsel; and Isaac, Wiles, Burkholder & Teetor and Mark R. Weaver, for appellant Office of the Ohio Consumers’ Counsel.
Carpenter, Lipps & Leland, Kimberly W. Bojko, and Mallory M. Mohler, for appellant Kroger Company.
Robert A. Brundrett, for appellant Ohio Manufacturers’ Association.
Colleen L. Mooney, for appellant Ohio Partners for Affordable Energy.
Michael DeWine, Attorney General, and William L. Wright, Thomas W. McNamee, Devin D. Parram, and Katie L. Johnson, Assistant Attorneys General, for appellee, Public Utilities Commission of Ohio.
Amy B. Spiller, Deputy General Counsel, and Elizabeth H. Watts, Associate General Counsel, for intervening appellee Duke Energy Ohio, Inc.
Whitt Sturtevant, L.L.P., Mark A. Whitt, Andrew J. Campbell, and Gregory L. Williams, for intervening appellees East Ohio Gas Company, d.b.a. Dominion East Ohio, and Vectren Energy Delivery of Ohio, Inc.
Stephen B. Seiple, for intervening appellee Columbia Gas of Ohio, Inc.