IN RE APPLICATION OF OHIO POWER COMPANY TO UPDATE ITS TRANSMISSION COST RECOVERY RIDER RATES; INDUSTRIAL ENERGY USERS-OHIO, APPELLANT; OHIO POWER COMPANY ET AL., APPELLEES.
No. 2013-0154
Supreme Court of Ohio
October 7, 2014
140 Ohio St.3d 509, 2014-Ohio-4271
KENNEDY, J.
Submitted July 9, 2014
PFEIFER and O‘NEILL, JJ., concur in part and dissent in part and would impose a civil penalty of $4,000 instead of $20,000.
D. Chris Cook, Lorain County Bar Counsel, for relator.
King Ayettey Zubaidah, pro se.
KENNEDY, J.
SUMMARY
{¶ 1} In the case below, the Public Utilities Commission authorized the Ohio Power Company to recover costs associated with providing transmission service to its standard-service-offer customers (those who take generation service from the incumbent distribution utility instead of buying it on the market). The cost of transmission service is set by the Federal Energy Regulatory Commission (“FERC“). Under Ohio law, electric-distribution utilities are allowed to recover from their retail customers all transmission-related costs imposed on the utility
{¶ 2} During the period under review in this case, Ohio Power reported that it had underrecovered $36 million in transmission costs. The commission‘s order determined that Ohio Power could collect the underrecovered costs from both shopping and nonshopping customers. The commission found that a large percentage of shopping customers who were receiving transmission service from Ohio Power at the time the underrecovery was created had since decided to take service from an alternative generation provider. Although these shopping customers would normally be able to avoid paying the TCRR, the commission reasoned that it would be unfair to require nonshopping customers to shoulder the entire burden of paying for the underrecovery, since the underrecovery was caused in part by these shopping customers.
{¶ 3} Industrial Energy Users-Ohio (“IEU“) challenges the commission‘s decision to allow the company to recover the underrecovered transmission costs from shopping customers. For the reasons discussed in detail below, we affirm the commission.
FACTS AND PROCEDURAL BACKGROUND
{¶ 4} Since competition began in the provision of electric-generation service, the law has required incumbent electric-distribution utilities to transfer control of their transmission assets to “one or more qualifying transmission entities.”
{¶ 5} Ohio Power, as a member of PJM, is charged for securing transmission service through the organization. Currently, PJM bills Ohio Power based on rates set by FERC for transmission service associated with serving the company‘s customer load. In turn, Ohio law permits Ohio Power (and all other electric-
{¶ 6} Consistent with this statutory provision, Ohio Power asked the commission to approve the TCRR to recover such costs as part of the company‘s first Electric Security Plan (“ESP“). The commission approved the TCRR as proposed by the company. See In re Application of Columbus S. Power Co. for Approval of Elec. Sec. Plan, Pub. Util. Comm. Nos. 08-917-EL-SSO and 08-918-EL-SSO, 49-50 (Mar. 18, 2009). The TCRR was then carried over as part of Ohio Power‘s second and current ESP, covering 2012 through 2014. See Pub. Util. Comm. Nos. 11-346-EL-SSO, 5, 63-64 (Aug. 8, 2012).
{¶ 7} The TCRR is structured as a pass-through mechanism, meaning that it is designed so that Ohio Power can recover the same amount in transmission costs from its customers as the amount billed by PJM. Once a year Ohio Power projects the amount of transmission costs it expects to be billed by PJM, and those costs are used as a revenue requirement to calculate the TCRR rate over the next 12-month period. Because the costs included in the TCRR are based on projections that will vary from actual costs, the TCRR contains a true-up mechanism to reconcile any over- or underrecovered charges from the preceding 12-month period.
{¶ 8} Pursuant to Ohio Adm.Code 4901:1-36-03(B), Ohio Power files an application each year with the commission to update the rates charged under the TCRR and to reconcile any over- or underrecoveries stemming from the prior period.
{¶ 9} The amount of underrecovered transmission costs was approximately $36 million. According to Ohio Power, these underrecovered costs were caused primarily by (1) the difference between the costs projected in the company‘s most recent TCRR update case and the actual costs incurred to provide transmission service over that period (i.e., transmission charges billed to Ohio Power by PJM from July 2011 through June 2012) and (2) a substantial increase (from less than
{¶ 10} Ohio Power would normally recoup any underrecovered amounts through the TCRR over the next 12-month period. But to mitigate the impact of the rate increase on customers, Ohio Power proposed to collect the underrecovery balance with carrying charges over a three-year period. By commission rule, the TCRR is imposed on Ohio Power‘s standard-service-offer customers since these customers are the ones who were provided the transmission service. Ohio Adm.Code 4901:1-36-04(B). Therefore, customers can avoid paying the TCRR by choosing to shop for generation service from a competitive supplier.2 Ohio Power proposed that the rate impact could be further mitigated by collecting the underrecovered costs from all customers (shopping and nonshopping) pursuant to
{¶ 11} As an initial matter, the commission determined that it was not necessary to hold an evidentiary hearing in the case. In re Application of Ohio Power Co. to Update the Co.‘s Transmission Cost Recovery Rider, Pub. Util. Comm. No. 12-1046-EL-RDR, 6 (Oct. 24, 2012) (the “TCRR Order“). The commission has discretion under Ohio Adm.Code 4901:1-36-05 to decide whether a hearing on the application is necessary.3 No party challenged the commission‘s decision not to conduct a hearing.4
{¶ 12} As to the merits, the commission‘s opinion and order approved Ohio Power‘s proposed TCRR rates for the next annual period. The commission also agreed with Ohio Power that it was necessary to minimize the rate impact that would otherwise occur if Ohio Power were to collect $36 million in transmission costs in just one year. The commission therefore ordered Ohio Power to collect the underrecovered transmission costs over a three-year period, with carrying
{¶ 13} IEU timely applied for rehearing, which was denied. In re Application of Ohio Power Co. to Update its Transmission Cost Recovery Rider Rates, Pub. Util. Comm. No. 12-1046-EL-RDR (Dec. 12, 2012) (“TCRR Rehearing Entry“). IEU then filed the instant appeal challenging the commission‘s orders.
STANDARD OF REVIEW
{¶ 14} ”
{¶ 15} Although we have “complete and independent power of review as to all questions of law” in appeals from the PUCO, Ohio Edison Co. v. Pub. Util. Comm., 78 Ohio St.3d 466, 469, 678 N.E.2d 922 (1997), we may rely on the expertise of a state agency 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.” Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108, 110, 388 N.E.2d 1370 (1979).
DISCUSSION
{¶ 16} IEU challenges the order on three grounds: (1) the commission engaged in unlawful retroactive ratemaking, (2) the commission erred in relying on
R.C. 4928.144 to authorize Ohio Power to collect the underrecovery balance on a nonbypassable basis
{¶ 17} In its second proposition of law, IEU argues that the commission erred when it relied on its statutory phase-in authority to allow the collection of Ohio Power‘s underrecovered transmission costs on a nonbypassable basis. The statute at issue here is
The public utilities commission by order may authorize any just and reasonable phase-in of any electric distribution utility rate or price established under sections 4928.141 to 4928.143 of the Revised Code * * * as the commission considers necessary to ensure rate or price stability for consumers. If the commission‘s order includes such a phase-in, the order also shall provide for the creation of regulatory assets pursuant to generally accepted accounting principles, by authorizing the deferral of incurred costs equal to the amount not collected, plus carrying charges on that amount. Further, the order shall authorize the collection of those deferrals through a nonbypassable surcharge on any such rate or price so established for the electric distribution utility by the commission.
{¶ 18} IEU raises three arguments under the second proposition: (1) the commission could not utilize
A. The plain language of R.C. 4928.144 does not support IEU‘s argument that the statute applies only to standard-service-offer proceedings
{¶ 19} IEU first argues that the commission‘s phase-in authority under
{¶ 20} We begin our analysis of this issue with the language of the statute. See e.g., State v. Hanning, 89 Ohio St.3d 86, 91, 728 N.E.2d 1059 (2000).
{¶ 21}
{¶ 22}
{¶ 23} “The public utilities commission by order [under sections 4928.141 to 4928.143 of the Revised Code] may authorize any just and reasonable phase-in of any electric distribution utility rate or price* * * * ”
{¶ 24} But
{¶ 25} The statute imposes few other restrictions on the commission‘s authority over the design of the phase-in.
{¶ 27} In the end, IEU‘s interpretation fails on the plain language of the statute. The statutory language not only supports the commission‘s reading, but no other part of the statute expressly contradicts it. The commission‘s interpretation of
B. The commission properly invoked R.C. 4928.144
{¶ 28} IEU next argues that the commission failed to state that it relied on
{¶ 29} First, the commission by clear implication did rely on
{¶ 30} Moreover, even leaving aside the commission‘s initial order, the commission expressly stated on rehearing that a phase-in of the recovery of the underrecovered TCRR balance is appropriate under
{¶ 31} Second, IEU overlooks a basic point of procedure that is necessary to reverse a commission order: this court “will not reverse an order of the commission absent a showing of prejudice by the party seeking reversal.” Myers v. Pub. Util. Comm., 64 Ohio St.3d 299, 302, 595 N.E.2d 873 (1992). See also Parma v. Pub. Util. Comm., 86 Ohio St.3d 144, 149, 712 N.E.2d 724 (1999); and Ohio Commt. of Cent. Station Elec. Protection Assn. v. Pub. Util. Comm., 50 Ohio St.2d 169, 174, 364 N.E.2d 3 (1977). Moreover, IEU does not even attempt to show how it or its constituents suffered harm from the commission‘s failure to expressly rely on
{¶ 32} In sum, IEU failed to show reversible error. We therefore reject this argument.
C. IEU‘s argument regarding R.C. 4928.143 lacks a coherent legal theory
{¶ 33} Finally, IEU argues that the commission cannot authorize recovery of the TCRR on a nonbypassable basis because the TCRR was not a “rate or price established under sections 4928.141 to 4928.143 of the Revised Code,” as required by
{¶ 34}
{¶ 35} IEU does not dispute that
II. IEU‘s Proposition of Law No. 3: Without a lawful and reasonable justification for its change of direction, the commission departed from commission precedent requiring that the TCRR remain fully bypassable
{¶ 36} In its third proposition of law, IEU argues that the commission declined to follow precedent, namely, In re Application of Duke Energy Ohio, Inc. for Approval of a Market Rate Offer, Pub. Util. Comm. No. 10-2586-EL-SSO (Feb. 23, 2011). IEU maintains that the commission established the following precedent in Duke: reconcilable riders (such as the TCRR) that are originally avoidable by shopping customers must remain so and can never be collected from shopping customers. We disagree.
{¶ 37} The rider at issue in Duke—Rider SCR—was designed to be avoidable for customers taking generation service from a competitive supplier. Duke had proposed to make the rider unavoidable to such customers if amounts underrecovered through the rider reached a certain threshold. The commission rejected Duke‘s proposal with the following statement:
In considering Duke‘s request to include a “circuit breaker” provision in Rider SCR, the Commission does not believe that such a provision would advance the policy of the state as articulated in Section 4928.02, Revised Code. Specifically, [
R.C. 4928.02(H) ] provides that it is the policy of the state to avoid anticompetitive subsidies flowing from a noncompetitive retail electric service to a competitive retail electric service and vice versa. If Duke were permitted to recover the costs included in Rider SCR from shopping customers, under any circumstances, we believe that it would create an anticompetitive subsidy. * * * Accordingly, the Commission does not believe that Rider SCR could be approved as a potentially unavoidable charge.
Pub. Util. Comm. No. 10-2586-EL-SSO, at 63-64.
{¶ 38} According to IEU, the commission held in Duke that a true-up of a bypassable rider cannot be collected on a nonbypassable basis “under any
III. IEU‘s Proposition of Law No. 1: The commission engaged in retroactive ratemaking when it authorized the collection of the TCRR under-recovery balance on a nonbypassable basis
{¶ 39} IEU argues in proposition of law No. 1 that the commission engaged in unlawful retroactive ratemaking when it allowed Ohio Power to collect under-recovered transmission costs from shopping customers. IEU asserts that the commission‘s TCRR Order is unlawful because it makes shopping customers—who avoided paying the TCRR before the order—retroactively responsible for paying transmission costs that Ohio Power had incurred to serve nonshopping customers. For the reasons that follow, we find that the commission did not engage in unlawful retroactive ratemaking.
A. R.C. 4928.144 authorized the commission to defer the collection of the TCRR, and the statute mandates that deferrals be collected through a nonbypassable surcharge
{¶ 40} IEU concedes that Ohio Power is entitled to recover the $36 million in underrecovered transmission costs. IEU, however, maintains that the commission engaged in unlawful retroactive ratemaking when it allowed Ohio Power to collect these underrecovered costs from shopping customers. IEU states that before the TCRR Order, shopping customers were not responsible to Ohio Power for any transmission costs, and only nonshopping customers were required to pay the TCRR. According to IEU, the rule against retroactive ratemaking prohibits the commission from authorizing Ohio Power to collect the underrecovered transmission costs through a nonbypassable charge, because use of this mechanism imposes revenue responsibility on shopping customers for unrecovered costs incurred to serve nonshopping customers.
{¶ 41} It is true that before the TCRR Order, shopping customers were not required to pay the TCRR. But the commission‘s decision to allow Ohio Power to collect the underrecovered transmission costs from shopping customers was not
{¶ 42} For its part, IEU has not shown an abuse of discretion. IEU‘s only arguments against the commission‘s use of its phase-in authority under
B. IEU‘s remaining arguments under its first proposition of law do not compel reversal
{¶ 43} IEU raises two other arguments under proposition of law No. 1. One has been forfeited; the other lacks merit.
1. IEU‘s claim regarding the 2011 TCRR Order was not presented to the commission on rehearing
{¶ 44} IEU argues that the commission violated the prohibition against retroactive ratemaking because the commission‘s order in Ohio Power‘s 2011 TCRR case failed to include any mechanism to shift revenue responsibility to shopping customers. See In re Application of Ohio Power Co. to Update the Co.‘s Transmission Cost Recovery Rider, Pub. Util. Comm. No. 11-2473-EL-RDR (June 22, 2011) (the “2011 TCRR Order“). The 2011 TCRR Order implemented the rates that led to the $36 million underrecovery at issue in this case. According to IEU, the commission was required to approve the nonbypassable
{¶ 45} IEU has forfeited this argument by failing to present it to the commission in an application for rehearing. That jurisdictionally bars us from considering the claim.
2. Lost revenue due to regulatory delay is not at issue
{¶ 46} IEU also argues that the commission was wrong in finding that the under-recovery balance did not result from revenue lost due to regulatory delay. IEU asserts that the underrecovered transmission costs were the function of the delay inherent in the TCRR review process. According to IEU, the underrecovery balance resulted from revenue that Ohio Power was unable to collect from nonshopping customers during the prior annual review period. Therefore, IEU asserts that the commission violated the rule against retroactive ratemaking when it adjusted rates in the TCRR Order to allow Ohio Power to retroactively recover a portion of those costs from shopping customers.
{¶ 47} Contrary to IEU‘s contention, the TCRR Order does not compensate Ohio Power for revenues lost during the pendency of the commission‘s proceedings. See In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 11 (making up for revenues lost due to regulatory delay is precisely the sort of rate increase that the court ruled out in Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co., 166 Ohio St. 254, 141 N.E.2d 465 (1957)). To begin with,
{¶ 48} IEU has the burden of demonstrating that the commission‘s orders were unjust, unreasonable, or unlawful.
Orders affirmed.
O‘CONNOR, C.J., and PFEIFER, O‘DONNELL, LANZINGER, FRENCH, and O‘NEILL, JJ., concur.
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr, and Matthew R. Pritchard, for appellant.
Steven T. Nourse, Matthew J. Satterwhite, and Yazen Alami, for appellee Ohio Power Company.
Michael DeWine, Attorney General, and William L. Wright and Thomas W. McNamee, Assistant Attorneys General, for appellee Public Utilities Commission of Ohio.