Ohio SC critiques utilities commission's opinion

By Jessica M. Karmasek | May 5, 2011


COLUMBUS, Ohio (Legal Newsline) - The Ohio Supreme Court says the state Public Utilities Commission partially erred in authorizing new generation rates for two American Electric Power companies.

In all, the Office of the Ohio Consumers' Counsel, or OCC, and the Industrial Energy Users-Ohio, or IEU, raised 13 propositions of law in its case against the commission.

Of the 13, the state's high court found that the commission committed "reversible error" on three grounds.

In 2008, Ohio's General Assembly enacted Senate Bill 221, which substantially revised the regulation of electric service in the state.

Specifically, it established new standards to govern generation rates. It also requires electric distribution utilities to provide consumers with "a standard service offer of all competitive retail electric services necessary to maintain essential electric service to consumers, including a firm supply of electric generation service."

The utility may provide the offer in one of two ways: through a "market rate offer" or an "electric security plan." The market rate offer, as the name implies, sets rates using a competitive-bidding process to harness market forces.

In this case, AEP applied for an electric security plan, or ESP. It filed its application on July 31, 2008 and multiple parties intervened.

A hearing was held from November to December 2008, briefing was completed over the holidays and on March 18, 2009, the commission issued a 77-page opinion and order modifying and approving the plan.

Two rounds of rehearing applications followed, resolved by entries on July 23 and Nov. 4, 2009. The OCC and IEU appealed. AEP intervened in support of the commission.

The Supreme Court, in its ruling April 19, said the commission violated the law when it granted AEP additional rates to make up for the regulatory delay. However, the OCC is not entitled to a monetary refund, it said.

Justice Evelyn Lundberg Stratton, who authored the Court's opinion, said the commission also relied on a justification lacking any record support in approving a $500 million provider-of-last-resort charge.

"We have carefully reviewed the record, and we can find no evidence suggesting that AEP's POLR charge is related to any costs it will incur," the Court wrote.

"Even assuming that AEP accurately priced the option, we fail to see how the amount a customer would be willing to pay for the right to shop necessarily establishes AEP's costs to bear the attendant risks. The order does not explain the relationship between the two."

The Court said the commission may consider on remand whether a non-cost-based POLR charge is reasonable and lawful.

The justices said the commission also erred in determining that ESPs may include items not specifically authorized by statute. On remand, they said, it may determine whether any of the listed categories authorize recovery of environmental carrying charges.

However, the commission did not lose jurisdiction over the ESP application when the 150-day approval deadline expired, the Court said. And IEU, it said, has not shown error in AEP's acceptance and appeal of its ESP.

In one of its propositions of law, IEU argues that the commission should have "prohibited AEP-Ohio from accepting the benefits of the higher rates approved in the ESP while simultaneously preserving the right to withdraw and terminate the approved ESP." The argument "lacks merit," the Court said.

The commission, the Court found, also adequately explained why it was not following prior decisions in allowing AEP to keep the proceeds of "off-system sales."

The commission allowed AEP to keep all proceeds from those off-system sales -- unregulated sales to other resellers and not to retail customers -- rather than requiring AEP to give the net profits of those sales as a rate credit to consumers, the Court explained.

"Here, the commission explained why it did not follow the cases cited by OCC as precedent. None of them arose under the applicable body of law, SB 221. And the commission further concluded that the applicable law now in place does not even require OCC's requested treatment," it wrote.

IEU also failed to show error concerning the approval of charges related to a pair of generation stations, the Court said. In addition, IEU failed to show error in the approval of AEP's vegetation-management and smart-grid programs, and in the commission's setting of AEP's fuel-cost baseline.

"Conclusory assertions that the commission 'cannot' do something fall well short of demonstrating reversible error," it wrote.

Lastly, the Court determined that IEU failed to demonstrate that the commission violated state law by failing to sufficiently detail "the reasons prompting the decisions arrived at."

"Some of the issues raised are best left to the General Assembly, which has the responsibility to monitor the development and implementation of the new regulatory regime. We can resolve legal disputes, but we cannot fill gaps," the justices concluded.

"While our goal is always to determine the intent of the General Assembly, we also recognize that our decisions may reveal gaps unintended by that body. If that occurs, or the law otherwise fails to achieve its policy objectives, the legislature is the appropriate body to determine those issues."

The Court remanded the order to the commission.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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