In re Application of Ohio Edison Co. (Slip Opinion)
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In re Application of Ohio Edison Co., Slip Opinion No. 2019-Ohio-4196.]
NOTICE
This slip opinion is subject to formal revision before it is published in an advance sheet of the Ohio Official Reports. Readers are requested to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65 South Front Street, Columbus, Ohio 43215, of any typographical or other formal errors in the opinion, in order that corrections may be made before the opinion is published.
SLIP OPINION NO. 2019-OHIO-4196
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In re Application of Ohio Edison Co., Slip Opinion No. 2019-Ohio-4196.]
Public Utilities—
{¶ 1} Since 2009, Ohio electric-distribution utilities have been required to implement programs to increase energy efficiency and reduce energy demand to meet specific annual targets or benchmarks.
{¶ 2} In this case, appellants Ohio Edison Company, the Cleveland Electric Illuminating Company, and the Toledo Edison Company (collectively, “FirstEnergy“) submitted an application in April 2016 for approval of their portfolio plans for 2017 through 2019. Appellee, the Public Utilities Commission, ultimately approved the plans in November 2017, but with a modification to include a “cost cap“—an annual cap on FirstEnergy‘s recovery of costs incurred in implementing the energy-efficiency, peak-demand-reduction, and shared-savings programs1 not to exceed 4 percent of its reported 2015 total revenues.
{¶ 3} FirstEnergy and appellants Environmental Law & Policy Center, Environmental Defense Fund, Natural Resources Defense Council, and Ohio Environmental Council (collectively, “environmental groups“), filed this appeal challenging the cost cap. Appellants have demonstrated reversible error, and therefore, we reverse and remand for further consideration.
Facts and Procedural Background
{¶ 4}
{¶ 5} On April 15, 2016, FirstEnergy filed an application seeking approval of three-year-program portfolio plans for each of the companies. The plans, among other things, described how the companies intended to meet their energy-efficiency and peak-demand-reduction benchmarks for 2017 through 2019. The application noted that the commission had already approved the cost-recovery mechanism for the plans as a rider in FirstEnergy‘s electric-security plan.
{¶ 6} On December 9, 2016, FirstEnergy filed a stipulation to “set forth the understanding and agreement of the Signatory Parties and to recommend that the Commission approve and adopt” the plan as modified by the stipulation. Intervening appellee, the Office of Ohio Consumers’ Counsel (“OCC“), and the commission‘s staff opposed the stipulation. Relevant here, the commission‘s staff proposed an annual cap of 3 percent of the companies’ 2015 operating revenues on FirstEnergy‘s recovery of costs incurred in implementing the programs to meet the benchmarks. The commission‘s staff and OCC argued that the portfolio plans would not benefit ratepayers or the public interest without the cost cap.
{¶ 7} FirstEnergy and the environmental groups opposed the cap, arguing that the plans still benefitted ratepayers and the public interest without the 3 percent limitation on recovery of FirstEnergy‘s costs. Specifically, they noted that the plans included an annual budget targeted to achieve the benchmarks in a cost-effective manner. They also noted that customers were protected under a bill-mitigation provision that the commission had approved in FirstEnergy‘s fourth electric-security plan. Further, they argued that the plans were projected to generate benefits to customers that exceeded the costs of the programs. Finally, they argued that the cost-cap proposal did not have a basis in the applicable rules or statutory language.
{¶ 8} A hearing was held over five days, after which the commission issued an order approving the stipulation, but with modifications, including a cost-recovery cap. Although the commission rejected the staff‘s recommended 3 percent cap, it adopted a 4 percent cap. According to the commission, imposing a 3 percent cap on FirstEnergy would be unfair in light of the 4 percent caps recently imposed in the other Ohio electric-distribution-utilities’ portfolio-plan cases. Pub. Util. Comm. No. 16-0743-EL-POR, ¶ 55 (Nov. 21, 2017). The commission also found that it was unclear from the record evidence whether the companies could meet their benchmarks with a 3 percent cost cap. Id. at ¶ 56.
{¶ 9} FirstEnergy and the environmental groups filed applications for rehearing, which the commission denied on January 10, 2018. This appeal followed.
Standard of Review
{¶ 10} ”
Analysis
{¶ 11} FirstEnergy argues under its first proposition of law that the commission lacked statutory authority to adopt and implement a cost cap under
{¶ 12} In its opinion and order the commission stated:
[A]doption of a cost cap in this proceeding does not constitute a new legal standard or rule as defined under
R.C. 111.15 , but is a permissible exercise of this Commission‘s broad authority to administer and enforce the provisions of R.C. Title 49, and to regulate a utility‘s portfolio plan underR.C. 4928.66 , since the General Assembly did not specifically prohibit a cost cap.
Pub. Util. Comm. No. 16-0743-EL-POR, at ¶ 56, citing Kazmaier Supermarket, Inc. v. Toledo Edison Co., 61 Ohio St.3d 147, 150, 573 N.E.2d 655 (1991).
{¶ 13} On rehearing, the commission reiterated:
As noted in the Commission‘s decision, the 4% Cap is a reasonable measure to moderate the bill impacts of rising [energy efficiency/peak-demand reduction] rider charges on FirstEnergy customers under this Commission‘s broad authority to administer and enforce the provisions of R.C. Title 49, which has been recognized by the Court.
Pub. Util. Comm. No. 16-0743-EL-POR, Rehearing entry, ¶ 11 (Jan. 10, 2018), citing Kazmaier at 150.
{¶ 14} FirstEnergy asserts that
provision in
{¶ 16} Neither the commission‘s order nor its rehearing entry cites any language in
{¶ 17} “The [Public Utilities Commission], as a creature of statute, has no authority to act beyond its statutory powers.” Discount Cellular, Inc. v. Pub. Util. Comm., 112 Ohio St.3d 360, 2007-Ohio-53, 859 N.E.2d 957, ¶ 51. Accordingly, we decline to assume that the General Assembly implicitly granted authority to the commission to impose the cost-recovery cap here under
{¶ 18} The General Assembly‘s inclusion of cost-cap language in
producing or acquiring the requisite electricity by three percent or more.” This provision, enacted at the same time as
{¶ 19} The commission‘s own rules also reflect the lack of statutory authority to implement a cost-recovery cap for the energy-efficiency and peak-demand-reduction programs in
Conclusion
{¶ 21} We hold that the commission lacked authority under
Orders reversed and cause remanded.
KENNEDY, FRENCH, FISCHER, and DEWINE, JJ., concur.
DONNELLY, J., dissents in part and concurs in judgment only, with an opinion joined by STEWART, J.
DONNELLY, J., dissenting in part and concurring in judgment only.
{¶ 22} The annual “cost cap” in this case limits the amount of costs that Ohio Edison Company, the Cleveland Electric Illuminating Company, and the Toledo Edison Company (collectively, “FirstEnergy” or “the companies“) can recover for implementing energy-efficiency, peak-demand-reduction, and shared-savings programs under
Imposing an annual cost cap in this case was lawful and reasonable
{¶ 23} The commission‘s imposition of a cap on FirstEnergy‘s recovery of its costs is proper for two reasons. First,
{¶ 24} In reaching its decision, the majority points to the absence of language in
{¶ 25} Second, the commission‘s decision to impose a cap on cost recovery in this case was reasonable and supported by the record. See
explanation). The commission cited the commission staff‘s testimony in finding that “a cost cap on the potential [energy-efficiency/peak-demand-reduction] program costs and shared savings to be borne by ratepayers is [a] reasonable measure given the rising [energy-efficiency/peak-demand-reduction] rider amounts billed to customers.” Pub. Util. Comm. No. 16-0743-EL-POR, ¶ 55 (Nov. 21, 2017). Staff witness Donlon testified that residential customers were paying between $1.98 and $2.90 each month through the rider. Donlon further testified that the commission staff believed that an annual cap on FirstEnergy‘s spending on energy-efficiency and peak-demand-reduction programs was necessary and would provide “some price assurances to customers” because the rider collecting those costs “has become one of the highest riders on residential customers’ bills.”
{¶ 26} In deciding whether to impose a cost cap, the commission also weighed the benefits of FirstEnergy‘s energy-efficiency and peak-demand-reduction programs against the programs’ costs over the entire three-year portfolio plan. Specifically, the commission found that it was necessary to “weigh the potential ultimate program benefits against the bill impacts to customers in the 2017-2019 Portfolio Plan period.” Pub. Util. Comm. No. 16-0743-EL-POR, at ¶ 55. On rehearing, the commission reiterated that it must balance the current costs of the companies’ riders against the potential future cost savings to customers from the energy-efficiency and peak-demand-reduction programs. Pub. Util. Comm. No. 16-0743-EL-POR, Rehearing entry, ¶ 9 (Jan. 10, 2018). That is, the commission placed more weight on the short-term costs that customers would pay for energy-efficiency and peak-demand-reduction programs than the potential long-term energy savings for customers from those programs.
{¶ 27} We have consistently held that the commission possesses “broad discretion” over designing rates and other rate-related matters. Ohio Consumers’ Counsel v. Pub. Util. Comm., 125 Ohio St.3d 57, 2010-Ohio-134, 926 N.E.2d 261, ¶ 20; see also Citywide Coalition for Util. Reform v. Pub. Util. Comm., 67 Ohio St.3d 531, 534, 620 N.E.2d 832 (1993). Contrary to the holding of the majority
opinion, the commission did not abuse its discretion when it imposed the annual cap on cost recovery.
R.C. 4928.64(C)(3) protects utilities and does not evince the General Assembly‘s intent to prohibit the use of a cap on cost recovery to protect customers under R.C. 4928.66
{¶ 28} The majority further maintains that the existence of a cost cap in
{¶ 29} The cost cap authorized by
from the commission that its reasonably expected cost of compliance with a renewable energy resource benchmark * * * would exceed its reasonably expected cost of generation to customers by three per cent or more“).
{¶ 30} Conversely, the cost cap adopted by the commission under
Reversal is appropriate on separate, narrow grounds
{¶ 31} Although I believe the commission has statutory authority to impose a cap on cost recovery under
{¶ 32} During the proceedings below, the commission staff proposed a 3 percent cap on FirstEnergy‘s program costs and shared savings. The 3 percent cap was calculated based on the companies’ 2015 total annual operating revenues as reported to the Federal Energy Regulatory Commission (“FERC“).
{¶ 33} According to the commission staff, this baseline was chosen for two reasons. One, a 3 percent cap on FirstEnergy‘s recovery of program costs and shared savings would provide price security for all customers. Two, staff projected that FirstEnergy would still be able to meet its energy-efficiency and peak-demand-reduction benchmarks under a 3 percent cap. On the latter point, staff relied
specifically on data from the companies’ 2012-2014 annual status reports, which showed that on average they had underspent their budgets by 21 percent
{¶ 34} The commission approved a cost cap based on the commission staff‘s proposal, but rejected the 3 percent cap in favor of a 4 percent cap. This is the commission‘s discussion of why it adopted a 4 percent cap:
We agree that a 3% Cap would be unfair to impose on FirstEnergy in light of the caps recently approved in the other Ohio [electric-distribution-utility] Portfolio Plan decisions cited above. As noted in our recent decisions involving the other Ohio [electric-distribution-utility] Portfolio Plan cases referenced above, we find that a cost cap on the potential [energy-efficiency/peak-demand-reduction] program costs and shared savings to be borne by ratepayers is [a] reasonable measure given the rising [energy-efficiency/peak-demand-reduction] rider amounts billed to customers, as reported by [staff witness] Mr. Donlon. (Staff Ex. 1, at 5-7, Tr. II at 328, Tr. III at 446-447). * * *
* * * While the evidence of record is unclear whether the Companies will be able to meet their statutory mandates within Staff‘s proposed cost cap, we will raise the cap on recovery of [energy-efficiency/peak-demand-reduction] programs and shared savings to four percent of the Companies’ 2015 FERC reported revenues to align FirstEnergy‘s cost caps with those of the other Ohio utilities. * * * Moreover, the Companies may request that the Commission amend their benchmarks pursuant to
R.C. 4928.66(A)(2)(b) .
Pub. Util. Comm. No. 16-0743-EL-POR, at ¶ 55-56.
{¶ 35} The commission added little to this analysis on rehearing. In response to FirstEnergy‘s argument that the 4 percent cap was unsupported by evidence, was inherently unfair, and resulted in significant inequities among Ohio‘s electric-distribution utilities, the commission stated:
These argument[s] were raised and fully considered in the Opinion and Order at ¶¶ 52-57. As discussed above, the 4% Cap was adopted as a reasonable measure to limit the rate impact on FirstEnergy customers in response to credible Staff testimony regarding the Companies’ increasing [energy-efficiency/peak-demand-reduction] riders. While the impact of the 4% Cap may affect each of the Ohio [electric-distribution utilities] somewhat differently, the application of a four percent cap based on each [utility‘s] reported total sales to ultimate customers should mitigate any unfairness to FirstEnergy shareholders.
Pub. Util. Comm. No. 16-0743-EL-POR, Rehearing entry, at ¶ 19.
{¶ 36}
{¶ 37} First, the commission‘s order cites no evidence that would support the adoption of a 4 percent cap. Instead, the commission capped FirstEnergy‘s recovery of program costs at 4 percent based solely on the fact that it had imposed
a 4 percent cap on the other Ohio utilities.
{¶ 38} Donlon, however, testified in favor of a 3 percent cost cap, which the commission rejected, in part because “the evidence of record [was] unclear whether the companies [would] be able to meet their statutory mandates” under a 3 percent cap on recovery. Id. at ¶ 56. But the commission inexplicably made no finding that the companies would be able to meet their energy-efficiency and peak-demand-reduction mandates under a 4 percent cap. Instead, the commission cited
{¶ 39} Second, the commission raised the commission staff‘s 3 percent cap to 4 percent without specifically addressing any of FirstEnergy‘s challenges to the methodology the staff used to calculate the amount of the cap. Among other challenges, FirstEnergy claimed that the commission staff (1) relied on obsolete historical data and assumptions, i.e., the 2012-2014 annual status reports, (2) ignored FirstEnergy‘s actual pricing data, and (3) failed to consider the impact of “switch rates” among all Ohio utilities when using the operating revenues to calculate the cap on cost recovery. The commission adopted a 4 percent cap in this case solely “to align FirstEnergy‘s cost caps with those of the other Ohio utilities.”
Pub. Util. Comm. No. 16-0743-EL-POR, at ¶ 56. On rehearing, the commission stated that “a four percent cap based on each [company‘s] reported sales to ultimate customers should mitigate any unfairness to FirstEnergy‘s shareholders.” (Emphasis added.) Pub. Util. Comm. No. 16-0743-EL-POR, Rehearing entry, at ¶ 19.
{¶ 40}
{¶ 41}
{¶ 42} The error is clear and prejudicial. If the cost cap is understated, it results in less money for FirstEnergy to spend on programs to comply with statutory
benchmarks. For these reasons, this part of the commission‘s order should be remanded for further proceedings.
Conclusion
{¶ 43} For the reasons stated, I would reverse the commission‘s order based on its failure to adequately explain its decision to impose a 4 percent annual cap on cost recovery in this case, and I would remand for further proceedings limited to the commission‘s decision to adopt a 4 percent cost cap.
STEWART, J., concurs in the foregoing opinion.
Jones Day, Michael R. Gladman, and Sergio A. Tostado; and FirstEnergy Service Company and Joshua R. Eckert, for appellants Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company.
Miranda R. Leppla, for appellants Environmental Law & Policy Center, Ohio Environmental Council, and Environmental Defense Fund.
Robert Dove, for appellant Natural Resources Defense Council.
Dave Yost, Attorney General, and William L. Wright, John H. Jones, and Jodi J. Bair, Assistant Attorneys General, for appellee.
Bruce Weston, Ohio Consumers’ Counsel, and Christopher Healey, Assistant Consumers’ Counsel, for intervening appellee.
Colleen L. Mooney, urging reversal for amicus curiae, Ohio Partners for Affordable Energy.