In re Determination of Existence of Significantly Excessive Earnings for 2017 Under the Elec. Sec. Plan of Ohio Edison Co. (Slip Opinion)
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. 2020-OHIO-5450
Public Utilities—
{¶ 1}
{¶ 2} In this case, the commission found that intervening appellee Ohio Edison Company‘s 2017 earnings were not significantly excessive.
{¶ 3} Appellant, the Office of the Ohio Consumers’ Counsel (“OCC“), appeals from the orders making that finding, challenging the commission‘s decision to exclude revenue resulting from Ohio Edison‘s Distribution Modernization Rider (“DMR“) from the earnings test. We conclude that the commission‘s decision to exclude revenue resulting from the DMR, which was approved as part of the company‘s electric security plan, was not reasonable. Accordingly, we reverse the commission‘s orders and remand the cause for further proceedings.
I. FACTS AND PROCEDURAL BACKGROUND
{¶ 4} On March 31, 2016, the commission approved the fourth electric security plan (“ESP“) of the FirstEnergy companies, which includes Ohio Edison. The plan runs for eight years, ending on May 31, 2024. In re Application of Ohio Edison Co., Pub. Util. Comm. No. 14-1297-EL-SSO, 2016 Ohio PUC LEXIS 270 at *33 (Mar. 31, 2016) (“ESP Case“). As part of the ESP, the commission authorized the DMR, which was intended to serve as an incentive for the companies to modernize their distribution systems. Pub. Util. Comm. No. 14-1297-EL-SSO, 2016 Ohio PUC LEXIS 920, Fifth Entry on Rehearing, ¶ 185-213 (Oct. 12, 2016) (“ESP Fifth Entry on Rehearing“).
With regard to the provisions that are included in an electric security plan under this section, the commissiоn shall consider, following the end of each annual period of the plan, if any such adjustments resulted in excessive earnings as measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate. Consideration also shall be given to the capital requirements of future committed investments in this state.
The utility bears the “burden of proof for demonstrating that significantly excessive earnings did not occur,” and if the commission finds that “such adjustments“—referring to provisions of the electric security plan—“in the aggregate, did result in significantly excessive earnings, it shall require the electric distribution utility to return to consumers the amount of the excess by prospective adjustments.” Id.
{¶ 6} On May 15, 2018, FirstEnergy filed an application with the commission to conduct the significantly-excessive-earnings test (“SEET“) for each of its companies for 2017 (the “SEET case“). FirstEnergy and the commission‘s staff argued that DMR revenue should be excluded from the SEET calculation for 2017, consistent with the сommission‘s determination of this issue in the ESP case.
{¶ 7} The commission held that revenue that Ohio Edison had collected under the DMR in 2017 should be excluded from the SEET review because that was the methodology approved in the ESP case. Pub. Util. Comm. No. 18-0857-EL-UNC, 2019 Ohio PUC LEXIS 330, at ¶ 26 (Mar. 20, 2019) (“SEET Order“), citing ESP Fifth Entry on Rehearing, 2016 Ohio PUC LEXIS 920, at ¶ 212 and Pub. Util. Comm. No. 14-1297-EL-SSO, 2017 OHIO PUC LEXIS 719, Eighth Entry on Rehearing, ¶ 81 (Aug. 16, 2017) (“ESP Eighth Entry on Rehearing“). In the ESP proceedings, the commission found that “DMR revenues should be excluded from SEET calculations,” at least during the initial three-year period of the DMR, because including that revenue “would introduce an unnecessary element of risk to [Ohio Edison] and undermine the purpose of providing credit support for the Compan[y].” ESP Fifth Entry on Rehearing at ¶ 212. The commission affirmed this ruling in the ESP Eighth Entry on Rehearing and also found that the arguments against excluding the DMR revenue from the 2017 SEET were premature. Id. at ¶ 81.
{¶ 8} OCC filed an application for rehearing in the SEET case, arguing that the commission violated
{¶ 9} One month later, on June 19, 2019, we held that the DMR was unlawful and ordered it removed from the ESP. In re Application of Ohio Edison Co., 157 Ohio St.3d 73, 2019-Ohio-2401, 131 N.E.3d 906. We declined to rule on whether the commission erred in excluding DMR revenue from the SEET, finding that the issue could be raised in the annual SEET review. Id. at ¶ 33-34.
{¶ 10} On July 15, 2019, OCC filed this appeal, challenging the commission‘s decision to exclude the DMR revenue from the SEET.
{¶ 11} ”
{¶ 12} Although this court has “complete and independent power of review as to all questions of law” in appeals from the Public Utilities Commission, 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).
III. ANALYSIS
{¶ 13} OCC argues that the commission acted unreasonably and unlawfully when it excluded the DMR revenue from the annual SEET review. According to OCC,
A. This court will defer to the commission‘s interpretation of R.C. 4928.143(F) , but only if it is reasonable
{¶ 14} While we generally review questions of law de novo, we will defer to the commission‘s interpretation of a statute when “there exists disparate competence between the respective tribunals in dealing with highly specialized issues.” Consumers’ Counsel at 110. “One area in which this court has consistently deferred to the expertise of the commission is in determining rate-of-return matters.” In re Comm. Rev. of Capacity Charges of Ohio Power Co., 147 Ohio St.3d 59, 2016-Ohio-1607, 60 N.E.3d 1221, ¶ 41, citing Ohio Edison Co. v. Pub. Util. Comm., 63 Ohio St.3d 555, 561, 589 N.E.2d 1292 (1992), fn. 3. “Limited judicial review of a rate of return determination is sound” because ” ‘cost of capital analyses * * * are fraught with judgments and assumptions.’ ” (Ellipsis sic.) Consumers’ Counsel v. Pub. Util. Comm., 64 Ohio St.2d 71, 79, 413 N.E.2d 799 (1980), quoting Dayton Power & Light Co., Pub. Util. Comm. No. 78-92-EL-AIR, at 26 (Mar. 9, 1979).
{¶ 15} In 2012, we held that
{¶ 16} In this case, the commission‘s interpretation of
1. The commission‘s orders cite no language in R.C. 4928.143(F) that justifies excluding DMR revenue from the SEET
{¶ 17} Whether an ESP “resulted in excessive earnings” must be
measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate.
{¶ 18} In the SEET proceeding, the commission ruled that excluding DMR revenue from the annual earnings review was appropriate because that was the methodology that the commission had approved in Ohio Edison‘s fourth ESP case. The commission‘s analysis of this issue is contained in the ESP Fifth Entry on Rehearing:
[T]he Commission finds that Rider DMR2 revenues should be excluded from SEET calculations. Including the revenue in SEET would introduce an unnecessary element of risk to the Companies and undermine the purpose of providing credit support for the Companies. However, we will reconsider whether to exclude Rider DMR revenues from SEET when we rule upon any possible extension of Rider DMR.3
{¶ 19} The commission affirmed this ruling in the ESP Eighth Entry on Rehearing but added little to its analysis:
Thе commission affirms our ruling that the revenue collected under Rider DMR should be excluded from SEET for the initial three-year period. At the time we issued the Fifth Entry on Rehearing, we found the arguments made by the Companies to be persuasive and continue to do so today, to the extent such arguments are relating to the initial three-year period of Rider DMR. Intervenors have raised no new arguments for our consideration, and we fully considered those arguments in the Fifth Entry on Rehearing. * * * Moreover, intervenors’ arguments raise hypothetical concerns in any event and, thus, are also premature. Accordingly, we find that rehearing on these assignments of error should be denied.
Id., 2017 OHIO PUC LEXIS 719, at ¶ 81.
{¶ 20} The commission is a creature of statute and may act only under the authority conferred on it by the General Assembly. Tongren v. Pub. Util. Comm., 85 Ohio St.3d 87, 88, 706 N.E.2d 1255 (1999). The commission‘s justification for excluding the DMR was that including its revenue “would introduce an unnecessary element of risk to the Companies and undermine the [DMR‘s] purpose of providing credit support.” ESP Fifth Entry on Rehearing at ¶ 212. But the commission failed to even cite
{¶ 21} The commission‘s finding that Ohio Edison would face “an unnecessary element of risk” if DMR revenue were included, ESP Fifth Entry on Rehearing, 2016 Ohio PUC LEXIS 920, at ¶ 212, does not provide the necessary support. In making that finding, the commission appears to have accepted Ohio Edison‘s claim that including the revenue in the SEET calculation would defeat the DMR‘s purpose of supporting future grid-modernization projects by increasing the risk to the company of having to refund that revenue. See id. at ¶ 181 (setting forth Ohio Edison‘s argument and citing an exhibit submitted by Ohio Edison). But electric utilities face the risk of a refund in every SEET case. See
2. The commission‘s orders are contrary to precedent
{¶ 22} OCC also argues that the commission‘s decision is contrary to our interpretation of
{¶ 23} In Columbus S. Power, we considered the commission‘s ability to exclude certain revenue from the utility‘s earnings before determining whether the utility‘s earnings were significantly excessive. The commission had excluded from the utility‘s earnings certain revenue from off-system sales—wholesale sales by the
With regard to the provisions that are included in an electric security plan under this section, the commission shall consider, following the end of each annual period of the plan, if any such adjustments resulted in excessive earnings * * *.
{¶ 24} We explained that this language requires the commission to determine whether “such adjustments“—referring to provisions of the ESP—resulted in excessive earnings. Columbus S. Power at ¶ 40. And we concluded that, by implication, earnings not caused by the ESP may be excluded from consideration. We therefore held that the commission‘s interpretation of
{¶ 25} OCC maintains that the DMR is a provision of the ESP and constitutes an “adjustment” under
{¶ 26} OCC is correct. To be sure, we did not directly decide in Columbus S. Power whether earnings caused by the ESP may be excluded from consideration before determining whether the utility‘s earnings were significantly excessive. But we did say that
{¶ 27} There is no question that the DMR constituted a change in rates when compared to the rates in the electric utility‘s preceding rate plan. The commission‘s approval of the DMR authorized the FirstEnergy companies to collect an additional $168 million to $204 million in revenue in each of the first three years of the companies’ fourth ESP. See In re Application of Ohio Edison, 157 Ohio St.3d 73, 2019-Ohio-2401, 131 N.E.3d 906, at ¶ 1, 6. Therefore, the DMR constitutes an “adjustment” under
{¶ 28} Accordingly, we hold that the commission‘s action in this case—removing DMR revenue from the calculation used to determine whether the ESP resulted in excessive earnings—violated
3. The court lacks jurisdiction over the alleged violation of R.C. 4903.09
{¶ 29} The opinion concurring in judgment only in part and dissenting in part (hereafter, “concurring and dissenting opinion” or “dissent“) concurs in the judgment reversing the commission‘s order but dissents from our determination that the commissiоn must include the DMR revenue in the SEET calculation on remand. The dissent is based on the view that the commission violated
{¶ 30} The dissent overlooks the fact that OCC did not allege a violation of
{¶ 31} Moreover, in concluding that the commission violated
B. The counterarguments
{¶ 32} Ohio Edison and the commission both argue that the plain language of
1. The commission‘s counterarguments
{¶ 33} The commission claims that it has discretion under
measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate. Consideration also shall be given to the capital requirements of future committed investments in this state.
(Emphasis added.) According to the commission, in removing the DMR from the SEET, the commission merely made “an adjustment for improving the company‘s capital structure appropriately to support the large commitments needed for grid modernization.” And because the adjustment to Ohio Edison‘s capital structure under
{¶ 34} The commission, however, never said it was making an adjustment for capital structure when it removed the DMR revenue. As noted, the commission cited no language in
{¶ 36} While we generally defer to the commission in matters involving its expertise, we cannot defer to a determination the commission never made. See Rich‘s Dept. Stores, Inc. v. Levin, 125 Ohio St.3d 15, 2010-Ohio-957, 925 N.E.2d 951, ¶ 23-24 (although we acknowledged that the Board of Tax Appeals’ “factual findings merit utmost deference when supported by the record,” we declined the taxpayer‘s request that we “defer to a finding that the [Board of Tax Appeals] did not make“). For these reasons, our practice is not to uphold a commission‘s discretionary decision when the commission offers a different justification on appeal than it provided in its order. Duke Energy at ¶ 23-26. We therefore reject the commission‘s attempt to recast its decision.
2. Ohio Edison‘s counterarguments
a. The commission did not adopt Ohio Edison‘s comparable-risk argument
{¶ 37} Ohio Edison argues that the plain language of
{¶ 38} Ohio Edison did argue in the ESP case that DMR revenue should be excluded to allow the commission to conduct a valid comparison of the earned returns on equity. But Ohio Edison‘s witness never mentioned risk to the company in making the valid-comparison argument to the commission. Rather, Ohio Edison‘s risk claim was made in relation to having to refund DMR revenue. The commission found this argument persuasive. However, in the end, the commission never mentioned the comparable-risk clause in
b. The commission did not exclude DMR revenue based on similar exclusions in the SEET Test Case
{¶ 39} Under
{¶ 40} Ohio Edison argues that the commission “relied on testimonial evidence” to properly remove DMR revenue when it calculated the earned return based on this definition. Specifically, Ohio Edison claims that the commission excluded the revenue because the DMR (1) constituted an “extraordinary item” and (2) was “associated with an[] additional liability or write-off of regulatory assets due to implementing” the fourth ESP.
{¶ 41} Ohio Edison made this argument in the ESP case, but the commission did not rely on it when it excluded the DMR revenue. Even though
{¶ 42} The commission resolved Ohio Edison‘s argument in the ESP Eighth Entry on Rehearing, as follows:
The Commission affirms our ruling that the revenue collected under Rider DMR should be excluded from SEET for the initial three-year period. At the time we issued the Fifth Entry on Rehearing, we found the arguments made by the Companies to be persuasive and continue to do so today, to the extent such arguments are relating to the initial three-year period of Rider DMR.
(Emphasis added.) Id. at ¶ 81.
{¶ 43} Ohio Edison cites this paragraph as proof that the commission adopted these additional grounds to support its decision to remove the revenue. For the following reasons, we decline to read this decision in the manner that Ohio Edison suggests.
{¶ 44} First, the commission made no express or implicit finding that the DMR constituted an “extraordinary item” or an “additional liability or write-off of [a] regulatory asset[].” Although the commission found Ohio Edison‘s arguments “persuasive,” the commission never identified which arguments were persuasive. And the fact remains that the commission adopted only Ohio Edison‘s increased-risk argument in support of removing DMR revenue. See ESP Fifth Entry on Rehearing, 2016 Ohio PUC LEXIS 920, at ¶ 212; ESP Eighth Entry on Rehearing, 2017 OHIO PUC LEXIS 719, at ¶ 81.
{¶ 45} Second, Ohio Edison ignores that its SEET application did not mention that the DMR was being excluded as an “extraordinary item.” Ohio Edison
{¶ 46} The dissent fаults the lead opinion for discarding Ohio Edison‘s arguments construing
{¶ 47} We have previously explained that our practice is not to uphold a commission‘s decision based on a justification asserted by a party on appeal that is different from the justification the commission provided in its order. See In re Application of Duke Energy Ohio, Inc., 148 Ohio St.3d 510, 2016-Ohio-7535, 71 N.E.3d 997, ¶ 23-26. Because the dissent cites no authority that undermines our adherence to that rule in this appeal, we see no need to reconsider that rule here.
{¶ 48} Likewise, we are not required to consider arguments on appeal that could have been but were not raised in earlier administrative proceedings. Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, 279, 617 N.E.2d 1075 (1993); Independence v. Office of the Cuyahoga Cty. Executive, 142 Ohio St.3d 125, 2014-Ohio-4650, 28 N.E.3d 1182, ¶ 30. Quite simply, the failure to present an argument to the commission constitutes a waiver of that argument on appeal. Parma v. Pub. Util. Comm., 86 Ohio St.3d 144, 148, 712 N.E.2d 724 (1999); Ohio Consumers’ Counsel v. Pub. Util. Comm., 127 Ohio St.3d 524, 2010-Ohio-6239, 941 N.E.2d 757, ¶ 18. And although there may be exceptions, as a matter of basic fairness, we do not accept objections when a party has deprivеd the commission of an opportunity to correct the error, Parma at 148; Ohio Consumers’ Counsel at ¶ 18; In re Application of Columbus S. Power Co., 129 Ohio St.3d 271, 2011-Ohio-2638, 951 N.E.2d 751, ¶ 19.
{¶ 50} Ohio Edison, however, did not argue in this appeal that the DMR revenue should be excluded from the SEET either as an adjustment for the company‘s capital structure or due to its capital requirements for future committed investments. Hence, it is improper for us to consider these arguments at this time. As for whether the DMR revenue may be excluded from the SEET based on increased business and financial risk to the utility, we note that the dissent‘s argument is based on its erroneous claim that the commission found that including the DMR revenue in the SEET increased Ohio Edison‘s business and financial risk. The dissent concedes that the commission made no such finding by observing that the commission‘s risk finding was “presumably” referring to the company‘s business and financial risk. Concurring and dissenting opinion at ¶ 111.
c. Ohio Edison‘s lack-of-prejudice and lack-of-jurisdiction-to-remand claims
{¶ 51} Ohio Edison asserts that we should dismiss this appeal because OCC has not demonstrated prejudice stemming from the commission‘s SEET order. Ohio Edison also contends that we lack jurisdiction to remand this case for a new SEET proceeding. We reject both arguments.
i. OCC has demonstrated prejudice
{¶ 52} We “will not reverse an order of the commission upon an assignment of error without a showing of concomitant harm or prejudice.” Ohio Commt. of Cent. Station Elec. Protection Assn. v. Pub. Util. Comm., 50 Ohio St.2d 169, 174, 364 N.E.2d 3 (1977). Ohio Edison contends that OCC has not shown harm to
{¶ 53} Contrary to Ohio Edison‘s claim, OCC was not required to show that ratepayers were entitled to a refund to establish harm.
ii. This court has jurisdiction to remand this case for new SEET proceeding
{¶ 54} Ohio Edison also alleges that we lack jurisdiction to remand this case to the commission for a new SEET proceeding.
{¶ 55} In the SEET proceeding, the commission found that Ohio Edison‘s calculation of 12.22 percent for the return on equity should be used for the 2017 SEET analysis. The commission rejected OCC‘s calculation of the company‘s return on equity of 17.39 percent because OCC had included the DMR revenue in this calculation.
{¶ 56} In addition to determining Ohio Edison‘s return on equity, the commission needed to determine an appropriate SEET threshold, which is the point
{¶ 57} The commission, however, did not settle on a specific SEET threshold. Instead, the commission found that the methodologies of Ohio Edison and the commission‘s staff were appropriate.
{¶ 58} Against this backdrop, Ohio Edison maintains that the only issue OCC preserved for appeal was a challenge to the commission‘s calculation of the company‘s return on equity. According to Ohio Edison, even if OCC were to prevail on its challenge to the return-on-equity calculation, OCC‘s calculated return on equity of “17.39 percent is substantially below the 19.20 percent SEET threshold approved by the Commission.” Ohio Edison claims that OCC never challenged the 19.20 percent SEET threshold that was approved by the commission either on rehearing at the commission or on appeal. As a result, Ohio Edison argues, OCC waived the issue whether Ohio Edison had significantly excessive earnings for 2017 and this court lacks jurisdiction to consider the issue.
{¶ 59} OCC responds that the commission never established the SEET threshold in the case below. Therefore, OCC asserts, the court has jurisdiction to remand the cause to the commission with instructions that it conduсt the SEET with the DMR revenue included and establish the SEET threshold. We agree with OCC.
{¶ 60} Although the commission found that the methodologies of Ohio Edison and the commission‘s staff were “appropriate,” the commission did not determine a specific SEET threshold. Instead, the commission found that Ohio Edison‘s earnings were not significantly excessive, because the “properly calculated” return on equity for Ohio Edison of 12.22 percent (which excluded DMR revenue) fell well below all of the recommended thresholds. Thus, while
{¶ 61} In sum, the record does not support Ohio Edison‘s claim that the commission approved a 19.20 percent SEET threshold. Therefore, we reject Ohio Edison‘s claim that we lack jurisdiction to remand this case for a new SEET proceeding.
d. OCC did not waive its challenge to the approved stipulation
{¶ 62} Ohio Edison‘s final argument is that OCC waived any challenge to the commission‘s approval of the stipulation entered into by Ohio Edison, the commission‘s staff, and Ohio Energy Group in the SEET proceeding. The stiрulation purported to resolve all outstanding issues in the SEET proceeding and recommended that the commission find that Ohio Edison did not have significantly excessive earnings for 2017. After review, the commission modified and approved the joint stipulation.
{¶ 63} Ohio Edison claims that because OCC did not argue on appeal that the stipulation did not meet the three criteria necessary for approval of a stipulation, the commission‘s approval of the stipulation must stand. See Constellation NewEnergy, 104 Ohio St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885, at ¶ 8 (setting forth the three criteria). We disagree.
{¶ 64} A stipulation presented to the commission is entitled to the force of law only if it is approved by a commission order. Consumers’ Counsel v. Pub. Util. Comm., 114 Ohio St.3d 340, 2007-Ohio-4276, 872 N.E.2d 269, ¶ 16. OCC argues on appeal that the commission‘s orders are unlawful and unreasonable because it removed DMR revenue in violation of
IV. CONCLUSION
{¶ 65} For the foregoing reasons, we reverse the orders on appeal and remand the case to the commission fоr further review consistent with this opinion. On remand, we instruct the commission to conduct a new SEET proceeding in which it includes the DMR revenue in the analysis, determines the SEET threshold, considers whether any adjustments under
Orders reversed and cause remanded.
O‘CONNOR, C.J., and DONNELLY, J., concur.
DEWINE, J., concurs in judgment only, with an opinion.
KENNEDY, J., concurs in judgment only in part and dissents in part, with an opinion joined by FRENCH, J.
FISCHER, J., dissents.
DEWINE, J., concurring in judgment only.
{¶ 66} I agree with the majority‘s holding that the Public Utilities Commission of Ohio could not exclude revenue from Ohio Edison Company‘s “Distribution Modernization Rider” (“DMR“)4 in its annual earnings review of Ohio Edison‘s electric security plan. The lead opinion reasons, correctly, that the statute laying out the framework by which the commission determines whether an electric security plan resulted in excessive earnings does not authorize the
{¶ 67} As a creation of statute, the commission cannot act beyond the powers given to it by the General Assembly. Discount Cellular, Inc. v. Pub. Util. Comm., 122 Ohio St.3d 360, 2007-Ohio-53, 859 N.E.2d 957, ¶ 51.
resulted in excessive earnings as measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate. * * * Consideration also shall be given to the capital requirements of future committed investments in this state.
{¶ 68} The statute requires the commission to perform a two-part task. First, the commission must select companies that “face comparable business and financial risk” to the utility and determine the return on equity of the utility and the comparable companies. When it comes to this determination, the statute permits only one type of adjustment—“adjustments for capital structure as may be appropriate.” Once the commission has completed this step, then it must compare the return on equity of the utility and the comparable companies and determine whether the utility‘s return on equity is substantially in excess of the comparable companies. This step is less circumscribed: the statute does not define “significantly in exсess,” and in making its determination, the commission is also
{¶ 69} By its plain terms, the statute does not allow for the commission‘s adjustment to remove DMR revenues from the utility‘s return on equity. It is not an “adjustment[] for capital structure” under any plausible understanding of the phrase. Thus, the plain text of the statute compels us to conclude that the commission lacked statutory authority for its actions. See In re Application of Ohio Edison Co., 158 Ohio St.3d 27, 2019-Ohio-4196, 139 N.E.3d 875, ¶ 17 (“we decline to assume that the General Assembly implicitly granted authority to the commission * * * without any clear indication in the statutory language to that effect“).
{¶ 70} That should be where the court‘s analysis begins and ends. But the lead opinion takes a different path. First, the lead opinion announces that because
{¶ 71} As I have written before, I am skeptical of deferring to an agency‘s statutory interpretation. Such deference blurs the separation-of-powers principles that underpin our constitutional order. See, e.g., State ex rel. McCann v. Delaware Cty. Bd. of Elections, 155 Ohio St.3d 14, 2018-Ohio-3342, 118 N.E.3d 224, ¶ 30-31 (DeWine, J., concurring in judgment only). Deference to an agency‘s interpretation of a statute forces the judiciary to abandon the exercise of its independent judgment in favor of an agency‘s construction. Michigan v. Environmental Protection Agency, 576 U.S. 743, 761, 135 S.Ct. 2699, 192 L.Ed.2d674 (2015) (Thomas, J. concurring), citing Natl. Cable & Telecommunications Assn. v. Brand X Internet Servs., 545 U.S. 967, 983, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). But even without a wholesale reexamination of our deference doctrine, there are problems with the lead opinion‘s analysis that should not go unmentioned.
{¶ 72} I have two fundamental concerns. First, the lead opinion‘s formulation of the deference doctrine requires that we defer to an agency‘s reasonable interpretation of a statute, even if we have not first concluded that the statute is ambiguous. Second, in analyzing the statute at issue, the lead opinion fails to distinguish between matters over which the legislature has delegated authority to the commission and matters of purely legal interpretation.
No Deferencе Is Owed to an Agency‘s Interpretation of an Unambiguous Statute
{¶ 73} The most troubling aspect of the lead opinion is its assertion that we should defer to an agency‘s interpretation of a statute if it is reasonable. See lead opinion at ¶ 15 (“we defer to the commission‘s interpretation of
{¶ 74} The Ohio Revised Code makes this requirement explicit.
{¶ 75} The requirement that a finding of ambiguity must come before a court affords deference has some parallels to the practice in the fedеral system.
{¶ 76} For Chevron to apply, a court must find that Congress has delegated an agency the authority to promulgate rules with the force of law and “the agency interpretation claiming deference was promulgated in the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 226-227, 121 S.Ct 2164, 150 L.Ed.2d 292 (2001). If a court finds that Congress has delegated such authority to the agency, it must then engage in a two-step process.
{¶ 77} First, the court must determine whether the statute is ambiguous. “[D]eference is not due unless a ‘court, employing traditional tools of statutory construction,’ is left with an unresolved ambiguity.” Epic Sys. Corp. v. Lewis, ___ U.S. ___, 138 S.Ct. 1612, 1630, 200 L.Ed.2d 889 (2018), quoting Chevron at 843, fn. 9. Only when the statute has been found to be genuinely ambiguous does the court move to the second step of the process and determine whether the agency‘s interpretation is reasonable. Chevron at 843.
{¶ 78} The lead opinion‘s confusion today is somewhat understandable. This court‘s precedent is far from consistent when it comes to the requirement that a statute be found ambiguous before consideration may be given to an agency‘s construction. At times, we have followed the Chevron model and first asked whether the statute was ambiguous. See, e.g., Cleveland Clinic Found. v. Cleveland Bd. of Zoning Appeals, 141 Ohio St.3d 318, 2014-Ohio-4809, 23 N.E.3d 1161, ¶ 29; Lang v. Dir., Ohio Dept. of Job & Family Servs., 134 Ohio St.3d 296, 2012-Ohio-5366, 982 N.E.2d 636, ¶ 14-15 (concluding that because the federal statute at issue was ambiguous, the court would defer to the Ohio agency‘s interpretation of the statute). More often, though, we have simply said that we will defer to an agency‘s interpretation as long as it is reasonable. See, e.g., State ex rel. Lucas Cty. Republican Party Executive Commt. v. Brunner, 125 Ohio St.3d 427, 2010-Ohio-1873, 928 N.E.2d 1072, ¶ 23; In re Columbus S. Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶ 29.
{¶ 79} The lead opinion continues on this wrong path, eschewing the limitations imposed by
{¶ 80} “The judicial power of the state is vested in a supreme court, courts of appeals, courts of common pleas and divisions thereof, and such other courts inferior to the supreme court as may from time to time be established by law.”
There Is No Reason to Defer to the Commission‘s Legal Construction of “Rate of Return” Statutes
{¶ 81} The lead opinion‘s willingness to skip the ambiguity step is not the only problem with its analysis. Also troubling is its assumption that deference is owed to any agency determination of rate-of-return matters, without distinguishing between the agency‘s construction of statutory terms and its performance of a task delegated to it by the legislature.
{¶ 83} The problem, though, is that in making this broad statement, and in its subsequent analysis, the lead opinion fails to distinguish between matters over which the legislature has delegated authority to the commission (such as whether a given rаte of return is appropriate) and general matters involving the interpretation of plain statutory terms. As to the former, deference may be appropriate; but it is not for the latter.
{¶ 84} To see why, let‘s return to the statute. Under
{¶ 85} But that is not the question here. The question is whether the DMR revenue could be excluded from the excessive-earnings calculation. To answer that question, one need only determine whether the removal of DMR revenues is an “adjustment[] for capital structure,”
It Is Time to Revisit Our Caselaw on Administrative Deference
{¶ 86} The lead opinion is simply more evidence that we need to revisit our caselaw on administrative deference. This court‘s caselaw is far from consistent on the topic, is at odds with basic notions of separation of powers, and fails even to comply with our statutory charge in
Conclusion
{¶ 87} The lead opinion reaches the right result. But because I disagree with the deference it would accord to the commission‘s interpretation of the law, I concur only in its judgment.
KENNEDY, J., concurring in judgment only in part and dissenting in part.
{¶ 88} Because the Public Utilities Commission, appellee, failed to explain the statutory and evidentiary bases for its decision to exclude the Distribution Modernization Rider revenue from the significantly-excessive-earnings test required by
{¶ 89} The lead opinion, however, would make that determination and discard many of Ohio Edison‘s statutory-construction arguments as not properly before the court. But our duty is to say what the law enacted by the General Assembly is, and we cannot ignore the true meaning of a statute simply because a party failed to assert it below or raised a statutory-construction argument for the first time in this court. In addition, a party who is not aggrieved by the commission‘s decision is not required to seek a rehearing or file a cross-appeal in order to preserve its arguments for upholding the decision. And contrary to the lead
{¶ 90} For the reasons that follow, I dissent from the portion of the majority‘s judgment ordering the commission to conduct a new proceeding in which it includes the Distribution Modernization Rider revenue in the earnings test.
The Commission Is Required to Explain Its Decisions
{¶ 91}
{¶ 92} To facilitate this review,
{¶ 93}
{¶ 94} This requirement is part and parcel of our standard of review: we will reverse a decision of the commission if it unlawful or unreasonable, and a decision that contravenes
{¶ 95} This court has therefore not hesitated to reverse commission decisions that fail to sufficiently develop the record or explain the supporting rationale. In re Application of Columbus S. Power Co., 147 Ohio St.3d 439, 2016-Ohio-1608, 67 N.E.3d 734, ¶ 66; In re Application of Ohio Power Co., 155 Ohio St.3d 326, 2018-Ohio-4698, 121 N.E.3d 320, ¶ 51.
{¶ 96} The lead opinion correctly points out that in excluding the Distribution Modernization Rider revenue from the significantly-excessive-earnings test, “the commission failed to even cite
{¶ 97} Those determinations should end the analysis, and the court should reverse the commission‘s decision and return this matter to the commission to provide the evidentiary citations and statutory support needed for us to review its determination that the Distribution Modernization Rider revenue should be excluded from the significantly-excessive-earnings test.
There Is No Jurisdictional Bar to Review
{¶ 98} The lead opinion asserts that this court‘s consideration of the commission‘s compliance with
{¶ 99} Neither
{¶ 100} I recognize that it has often been said, usually by rote repetition, that the appellant‘s failure to comply with
The general term “jurisdiction” can be used to connote several distinct concepts, including jurisdiction over the subject matter, jurisdiction over the person, and jurisdiction over a particular case. * * * The often unspecified use of this polysemic word can lead to confusion and hаs repeatedly required clarification as to which type of “jurisdiction” is applicable in various legal analyses.
Bank of Am., N.A. v. Kuchta, 141 Ohio St.3d 75, 2014-Ohio-4275, 21 N.E.3d 1040, ¶ 18.
{¶ 101} Our public-utilities cases have propagated the confusion we have so often sought to clarify between the existence of subject-matter jurisdiction and the exercise of that subject-matter jurisdiction.
{¶ 102} Subject-matter jurisdiction refers to the constitutional or statutory power of a court to adjudicate a particular class or type of case. State v. Harper,160 Ohio St.3d 480, 2020-Ohio-2913, 159 N.E.3d 248, ¶ 23; Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, 806 N.E.2d 992, ¶ 11-12, 34. It “is determined without regard to the rights of the individual parties involved in a particular case.” Kuchta at ¶ 19. Rather, the focus is on whether the forum itself is competent to hear the controversy. State v. Harper at ¶ 23.
{¶ 103}
The Significantly-Excessive-Earnings Test
{¶ 104} But rather than return this matter to the commission for it to clarify the factual аnd statutory support for its decision, the lead opinion would go on to decide whether
{¶ 105} However, the meaning of a statute is a question of law that we review de novo. See Bur. of Workers’ Comp. v. Verlinger, 153 Ohio St.3d 492, 2018-Ohio-1481, 108 N.E.3d 70, ¶ 6. Our role in the exercise of the judicial power granted to us by the Ohio Constitution is to interpret and apply the statute as the General Assembly enacted it. See Slingluff v. Weaver, 66 Ohio St. 621, 64 N.E. 574 (1902), paragraph two of the syllabus. The parties may espouse arguments regarding the meaning of a statute, but in the end, it is the courts that have the authority and the duty to “say what the law is,” Marbury v. Madison, 5 U.S. 137,177, 2 L.Ed. 60 (1803). This court abdicates that responsibility if it rejects out of hand an interpretation of a statute just because it is raised for the first time in this court.
{¶ 106} The lead opinion also rejects Ohio Edison‘s plain-language arguments because the commission‘s orders did not mention them as bases for the removal of the rider‘s revenue. However, Ohio Edison did not have to apply for a rehearing or file a cross-appeal in order to get these arguments before the court. Nor was Ohio Edison aggrieved by the commission‘s order—it obtained the relief sought in this regard—and it therefore was not required to apply for a rehearing or file a cross-appeal to preserve any argument. See Internatl. Paper Co. v. Testa, 150 Ohio St.3d 348, 2016-Ohio-7454, 81 N.E.3d 1225, ¶ 33 (explaining that a protective cross-appeal was not required when the appellee is not aggrieved by the board of tax appeals’ ruling).
{¶ 107} The lead opinion relies on In re Application of Duke Energy Ohio, Inc., 148 Ohio St.3d 510, 2016-Ohio-7535, 71 N.E.3d 997, ¶ 23-26, for the assertion that “our practice is not to uphold a commission‘s decision based on a justification asserted by a party on appeal that is different from the justification the commission provided in its order.” Lead opinion at ¶ 47. However, the court in Duke Energy Ohio relied on
{¶ 108} The lead opinion therefore disregards Ohio Edison‘s arguments explaining why the commission‘s exclusion of the Distribution Modernization Rider revenue from the significantly-excessive-earnings test was lawful and reasonable. At the same time, it would not remand this matter to the commission to address those arguments in a written opinion and instead would decide that the rider‘s revenue must be included in the test. That is, the justices joining the lead opinion and the justice concurring in judgment only take an action affecting Ohio Edison‘s property interests without any tribunal having ever fully addressed its arguments in response.
{¶ 109} Nothing in
{¶ 110} Therefore, since the court decides to consider the merits of whether the commission‘s decision to exclude the Distribution Modernization Rider revenue from the significantly-excessive-earnings test is authorized by the statute, it must address all arguments regarding what the statute means.
{¶ 111} As Ohio Edison points out,
{¶ 112} And the Distribution Modernization Rider “was designed to provide credit support for the FirstEnergy Corporation—through the companies—so it could borrow capital on more reasonable terms in order to support its grid-modernization initiatives.” In re Ohio Edison Co., 157 Ohio St.3d 73, 2019-Ohio-2401, 131 N.E.3d 906, ¶ 18 (lead opinion). The rider therefore related to Ohio Edison‘s capital structure, which includes the amount of and interest rate on its debt, as well as the cost of capital. See
{¶ 113} The Distribution Modernization Rider therefore affects Ohio Edison‘s financial risk, its capital structure, and the capital requirements for committed investments in this state, and
Conclusion
{¶ 114} It is premature to reach the merits of whether
FRENCH, J., concurs in the foregoing opinion.
Bruce Weston, Ohio Consumers’ Counsel, and William Michael, Angela D. O‘Brien, and Maureen R. Willis, Assistant Consumers’ Counsel, for appellant.
Dave A. Yost, Attorney General, and John Jones and Thomas W. McNamee, Assistant Attorneys General, for appellee.
Calfee, Halter & Griswold, L.L.P., James F. Lang, and Kari D. Hehmeyer; and FirstEnergy Service Company and Robert M. Endris, for intervening appellee.