The Supreme Court of Ohio has upheld a state utility regulator’s finding that AEP Ohio is not recovering through its distribution rates the costs it incurs to provide generation service. The high court rejected an appeal by a competing electricity generator against the Public Utility Commission of Ohio's (PUCO) decision to approve AEP's rate plan, as the competitor did not demonstrate that the PUCO acted unreasonably.
The challenge was based on allegations that AEP was subsidizing its competitive electric generation services with money paid by non-generation customers in its service territory. In a unanimous decision, the Supreme Court dismissed an argument from Interstate Gas Supply (IGS), a competitor generation supplier in AEP Ohio’s service territory, claiming that the PUCO hindered competition in the electricity generation market when it approved AEP’s 2020 rate plan for distributing electricity to customers.
Justice Jennifer Brunner wrote for the Court, explaining that IGS had the burden to show that “rates and charges are unjust, unreasonable, or unlawful.” She noted that IGS presented a study by AEP staff indicating $4.7 million collected for electricity distribution might have been used to offset costs for AEP customers who did not choose competing electricity generation suppliers other than AEP Ohio.
During PUCO proceedings, IGS argued that the AEP study was unreliable. The Court concluded that IGS could not later use this disputed study to prove AEP’s rates were unjustified based on any known and quantifiable generation costs realized through its distribution rates.
Chief Justice Sharon L. Kennedy and Justices Patrick F. Fischer, R. Patrick DeWine, Michael P. Donnelly, and Melody Stewart joined the opinion. First District Court of Appeals Judge Robert C. Winkler also joined the opinion.
Ohio lawmakers restructured the electric utility industry in 1999, requiring utilities to separate electricity’s three main components: generation, transmission, and distribution. Generation became an unregulated service open to competition while distribution and transmission remained regulated. Lawmakers prohibited utility companies from subsidizing competitive generation services with money collected for distributing electricity.
AEP Ohio asked PUCO to approve a generation service rate plan extending from 2018 to 2024 and agreed to file for approval of new distribution rates by 2020 as a condition for approving these rates. Due to concerns about subsidization, AEP was directed to determine costs associated with serving customers who chose alternate electric suppliers versus those who selected AEP's standard offer.
AEP proposed two "riders" on electric bills intended to adjust costs if some distribution costs were found subsidizing non-shopping customers' expenses. The PUCO found no evidence of such subsidization but ordered an extensive study and deferred assigning charges or discounts until after its completion.
When filing its distribution plan in 2020, AEP provided a study identifying $4.7 million possibly used for serving non-shopping generation customers. However, both PUCO staff and other parties objected due to perceived flaws in determining these costs.
IGS contested this figure as too low and provided their own consultant's study suggesting $64 million should be returned to shopping customers through funded riders—an argument ultimately rejected by PUCO which deemed IGS's consultant did not follow proper directions for assessing subsidization.
Upon appealing PUCO's final approval of AEP’s distribution rates in 2023, IGS raised several legal challenges but failed to prove that PUCO acted unreasonably in approving these rates according to Justice Brunner’s opinion summarizing insufficient data from both studies regarding detailed cost differentiation between shopping versus non-shopping customers served by AEP.
2023-0464. In re Application of Ohio Power Co., Slip Opinion No. 2024-Ohio-2890.
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Please note: Opinion summaries are prepared by the Office of Public Information for general public and news media purposes only; they are not official headnotes or syllabi of court opinions which are available online.
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