Industrial Energy Users-Ohio v. Public Utilities CommissionIndustrial Energy Users-Ohio v. Public Utilities Commission
Lead Opinion
{¶ 1} The Industrial Energy Users-Ohio (“IEU”), FirstEnergy Solutions Corporation, the Office of the Ohio Consumers’ Counsel (“OCC”), and Ohio Energy Group appeal as of right from orders of the Public Utilities Commission of Ohio approving the application of Columbus Southern Power Company and Ohio Power Company (collectively, “AEP”) to build an electric-generating facility in Meigs County, Ohio. Specifically, the commission’s approval allows AEP to collect approximately $24 million for research and development of the generating facility from its customers and further contemplates that AEP will be permitted to recover the construction and maintenance costs of the facility from its distribution customers upon completion.
{¶ 2} Appellants contend that because Am.Sub.S.B. No. 3, 148 Ohio Laws, Part IY, 7962 (“S.B. 3”), separated electric generation, which is an unregulated competitive service, from electric distribution, which is a regulated noncompetitive service, the commission’s order permitting AEP, an electric-distribution utility, to build a generation plant should be reversed.
{¶ 3} AEP contends, however, that because
{¶ 4} We agree that provisions of S.B. 3 prevent an electric-distribution utility from using revenues from noncompetitive distribution service to subsidize the cost of providing a competitive generation-service component; however, there may be merit to the commission’s regulation of the design, construction, and operation of the proposed generation facility as a distribution-ancillary service related to AEP’s POLR obligation, but this record is not fully developed in that
HISTORY OF DEREGULATION
{¶ 5} S.B. 3 restructured Ohio’s electric-utility industry to foster retail competition in the generation component of electric service. As we have repeatedly recognized, S.B. 3 altered the traditional rate-based regulation of electric utilities by requiring the three components of electric service — generation, transmission, and distribution — to be separated. See, e.g., Migden-Ostrander v. Pub. Util. Comm.,
{¶ 6} Pursuant to
AEP APPLICATION AND PROCEEDINGS
{¶ 7} On March 18, 2005, AEP filed an application with the commission for approval of a mechanism to recover the expected expenditures for the design, construction, and operation of a 629-megawatt integrated-gasification-combined-cycle (“IGCC”) electric-generation facility in Meigs County, Ohio.
{¶ 8} On April 10, 2006, the commission issued its opinion and order approving the application. In its order, the commission determined that it had the authority to regulate the design, construction, and operation of the proposed generation facility because it was a distribution-ancillary service related to AEP’s statutory POLR obligation. Accordingly, the commission’s order permitted AEP to charge its customers an estimated $23.7 million to fund AEP’s preliminary research for the proposed construction of the IGCC electric-generation facility.
{¶ 9} On June 28, 2006, the commission issued an entry, following a motion for a rehearing, in which it reiterated its authority to establish a charge related to the overall construction and operation of a generating plant as proposed in AEP’s application. However, because the commission also determined that elements of the design and engineering might be transferable to other facilities in other states, it ordered AEP to be prepared to refund the charges collected from its customers for all transferable research if AEP has not commenced a continuous course of construction of the proposed IGCC plant by June 28, 2011.
{¶ 10} FirstEnergy Solutions, IEU, OCC, and the Ohio Energy Group all appealed the commission’s order to this court, contending, inter alia, that the order was contrary to law because it improperly regulated competitive electric-generation service in violation of R.C. Chapter 4928 and it authorized an increase in electric-distribution rates without complying with the provisions of R.C. Chapter 4909. Further, Ohio Partners for Affordable Energy filed an amicus brief on behalf of the appellants. AEP intervened as an appellee, and the International Brotherhood of Electrical Workers Local 972, Ironworkers Local 787, Parkersburg-Marietta Building and Construction Trades Council, AFL-CIO, and Murray Energy Corporation filed amicus briefs on behalf of appellees.
{¶ 11} The issues presented to this court are whether the commission properly designated an unregulated competitive generation service as a regulated distribution-ancillary service in order to exercise regulatory jurisdiction, whether the commission properly determined that AEP’s POLR obligation justifies a rate-based recovery to build and operate a generation facility, and whether the commission properly denied the requested refund of $24 million in generation-plant research-and-development costs that AEP has collected from its customers pursuant to the commission’s order.
STANDARD OF REVIEW
{¶ 12} “
{¶ 13} Although we have “complete and independent power of review as to all questions of law” in appeals from the commission, Ohio Edison Co. v. Pub. Util. Comm. (1997),
DISTRIBUTION-ANCILLARY SERVICE
{¶ 14} IEU and the other appellants argue that the commission has approved an effort by AEP to ignore the current statutory process and to recover from its distribution customers the costs of planning, building, and maintaining a competitive generation facility. FirstEnergy Solutions points out that the commission acknowledged in its order that retail electric-generation service is competitive under
{¶ 15} The commission contends that its current order regulates only noncompetitive electric retail “ancillary services.”
{¶ 16}
{¶ 17} “Any function necessary to the provision of electric transmission or distribution service to a retail customer and includes, but is not limited to, scheduling, system control, and dispatch services; reactive supply from generation resources and voltage control service; reactive supply from transmission resources service; regulation service; frequency response service; energy imbalance service; operating reserve-spinning reserve service; operation reserve-supplemental reserve service; load following; back-up supply service; real-power loss replacement service; dynamic scheduling; system black start capability; and network stability service.”
{¶ 19} Appellants dispute the commission’s analysis, asserting that the construction and maintenance of an electric-generating facility is fundamental to the generation of electric service. The Ohio Energy Group opposes the commission’s determination that it is able to regulate the proposed electric-generating facility by classifying the service as a regulated distribution-ancillary service rather than what it really is — a competitive electric-generation service. The Ohio Energy Group further contends that the commission is permitting AEP to recover and earn a return on its investment in a power plant, which was previously guaranteed by regulating the electric utility prior to deregulation. It notes that, since the enactment of S.B. 3, utilities no longer have any guarantee that they will either recover costs or earn a return on their power-plant investments through cost-based rates. OCC contends that the commission’s findings move the state closer to re-regulation and that, left undisturbed, the commission’s exercise of jurisdiction over generation, under the guise of distribution-ancillary services, could circumvent R.C. Chapter 4928 by permitting the commission to exercise jurisdiction over all generation functions.
{¶ 20} It is well settled that the generation component of electric service is not subject to commission regulation. In Constellation NewEnergy, Inc.,
{¶ 21} Thus, the issue presented here is whether the commission properly identified the subject matter of AEP’s application as a distribution-ancillary service subject to its regulatory jurisdiction.
{¶ 22} The statutory definition of ancillary service, set forth in
{¶ 23} The commission’s holding blurs the legislative distinctions between electric transmission, generation, and distribution. Adoption of its rationale may result in these three functions all being subject to commission regulation, which would negate the legislature’s deregulation of the electric-utility industry. While we appreciate the commission’s concern with respect to the future reliability of the electric-generation market as Ohio’s market-development period comes to an end, a laudable and practical concern for all Ohio utility consumers, we have previously stated that a concern for the future of the competitive market does not empower the commission to create remedies beyond the parameters of the law. Ohio Consumers’ Counsel v. Pub. Util. Comm.,
{¶ 24} Accordingly, we reverse the commission’s finding, which approved, as a distribution-ancillary service, AEP’s application.
POLR — STANDARD-SERVICE OFFER
{¶ 25} The commission further found that, as an electric distributor, AEP has a duty under
{¶ 26} FirstEnergy Solutions argues that AEP and the commission overextend the electric-distribution utility’s POLR obligation and standard-service offerings. It acknowledges that
{¶ 27}
{¶ 28} R.C. Chapter 4905 governs the commission’s general power to regulate public utilities, while R.C. Chapter 4909 governs the commission’s power to set utility rates and charges.
{¶ 29} Notably,
{¶ 30} We also have held that “[i]n order to meet the requirements of
{¶ 31} While the commission may allow recovery of an electric-distribution utility’s noncompetitive costs that are associated with its effort to secure competitive retail electric service in furtherance of its statutory POLR obligation, the commission’s approval must be given in accordance with R.C. Chapters 4905 and 4909.
{¶ 32} The evidence does not support the order permitting AEP to recover the costs associated with the research and development of the proposed generation facility. To warrant its conclusions regarding AEP’s POLR obligation, the commission may supplement the record with evidence to support its order and must verify that AEP has complied with the application requirements under
{¶ 33} Additionally, we note that while the commission details potential problems with the fleet of existing generation facilities, it fails to make any findings regarding the amount of generation that AEP needs to guarantee its Ohio distribution responsibilities. Nor does the record demonstrate what portion of the facility’s costs should be attributed to AEP’s POLR obligation versus what costs should be recovered through competitive rates when the facility begins generating electricity.
RESEARCH-AND-DEVELOPMENT COSTS
{¶ 34} IEU and OCC seek an order to refund the $24 million in IGCC plant research-and-development costs that AEP has already recovered from its customers. IEU acknowledges this court’s holding in Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co. (1957),
{¶ 35} The commission argues that we should deny the request because IEU had an opportunity to request a stay of the commission’s order but failed to do so, and it notes that it ordered AEP to refund all charges collected for expenditures that are transferable to other projects if AEP has not commenced a continuous course of construction of the plant within five years of its entry on rehearing.
{¶ 36} In view of our remand of this matter to the commission, we need not reach the matter of refund. Therefore, we decline to deviate from Keco to create an exception based on these facts.
CONCLUSION
{¶ 37} The provisions of S.B. 3 prevent an electric-distribution utility from using noncompetitive distribution revenues to subsidize the cost of providing competitive generation-service components. However, on a properly supported record, the commission may, in accordance with R.C. Chapters 4905 and 4909, approve recovery of an electric-distribution utility’s noncompetitive costs associated with its effort to secure competitive retail service in furtherance of its POLR obligation. Here, the record does not demonstrate the extent to which recovery should be permitted in this case or whether the appropriate statutory procedures for obtaining such recovery were followed. Accordingly, we remand this case to the commission for further proceedings consistent with this opinion. Because we remand this case to the commission, and because the commission’s conditional refund order remains in effect, we need not reach the issue of a refund, and we decline to create an exception to our precedent of denying claims for refund from approved orders of the commission.
Order affirmed in part and reversed in part, and cause remanded.
Notes
. AEP argued that the IGCC process is a favored technology because it burns coal in an environmentally friendly manner. The IGCC process uses gas and steam turbines to generate
.
. The commission argued in its merit brief that a power plant can fill numerous roles “even after the primary function of thofee power plants has been deregulated.” (Emphasis added.) The commission admits the primary purpose of the plant is for the unregulated provision of electric generation. Yet the record presented to the court places the entire cost for planning, building, and maintaining the plant with the distribution customers in the category of noncompetitive service.
Concurrence Opinion
concurring.
{¶ 38} I concur fully in the opinion and the judgment. I write separately solely to state that I would be willing to order a refund without remanding that issue to the commission.