In re Application of Ohio Edison Co. (Slip Opinion) , 2019 Ohio 4196 ( 2019 )

[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
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SLIP OPINION NO. 2019-OHIO-4196
IN RE APPLICATION OF OHIO EDISON COMPANY, CLEVELAND ELECTRIC
ILLUMINATING COMPANY, AND TOLEDO EDISON COMPANY FOR APPROVAL OF
THEIR ENERGY EFFICIENCY AND PEAK DEMAND REDUCTION PROGRAM
PORTFOLIO PLANS FOR 2017 THROUGH 2019;
OHIO EDISON COMPANY ET AL., APPELLANTS; PUBLIC UTILITIES COMMISSION,
APPELLEE; OFFICE OF OHIO CONSUMERS’ COUNSEL, INTERVENING APPELLEE.
[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—R.C. 4928.66—Energy-efficiency and peak-demand-reduction
program portfolio plans—Commission’s determination that it was
authorized to impose a cap on utilities’ recovery of costs spent
implementing statutorily required energy-efficiency and peak-demand-
reduction programs was unlawful—Order reversed and cause remanded.
(No. 2018-0379—Submitted February 20, 2019—Decided October 15, 2019.)
APPEAL from the Public Utilities Commission, No. 16-0743-EL-POR.
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SUPREME COURT OF OHIO
O’CONNOR, C.J.
{¶ 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. R.C. 4928.66(A)(1)(a) and (b). Under
the statutory scheme, each electric utility must file a portfolio plan every three years
that shows how the utility will meet its energy-efficiency and peak-demand-
reduction statutory benchmarks. See Ohio Adm.Code 4901:1-39-04. A portfolio
plan uses a variety of programs in different markets that are designed to increase
energy efficiency and reduce peak demands on the utility’s system. For example,
a residential program in a portfolio plan may include distribution of LED lightbulbs
or discounted “smart” thermostats to customers.
{¶ 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.
1. Shared savings is an incentive payment from customers to the utility for the utility’s introduction
of cost-effective programs that exceed the statutory mandates for energy efficiency and peak-
demand reduction.
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Facts and Procedural Background
{¶ 4} R.C. 4928.66 requires electric-distribution utilities to implement
programs that increase energy efficiency and reduce peak demand. R.C.
4928.66(A)(1)(a) and (b). A measure contributes to energy efficiency if it reduces
the amount of energy required to perform a task. See Ohio Adm.Code 4901:1-39-
01(L). “Peak demand” refers to the time at which the most energy is being
consumed simultaneously across the utility’s system.2 Reducing peak demand
lowers the price of power and tends to reduce the number of generation plants
needed to meet demand. R.C. 4928.66 imposes annual benchmarks in both
categories, and if the electric-distribution utility fails to meet the requirements, the
law requires that the commission assess a forfeiture on the utility, R.C. 4928.66(C);
In re Application of Columbus S. Power Co., 129 Ohio St. 3d 46, 2011-Ohio-2383,
950 N.E.2d 164, ¶ 3. The requisite benchmarks are calculated from a “baseline”
formula in the statute based on the average total kilowatt hours sold and average
peak demand on the utility in the preceding three years. R.C. 4928.66(A)(2)(a). A
utility may apply to the commission to amend the benchmarks if they cannot be
“reasonably achieve[d] * * * due to regulatory, economic, or technological reasons
beyond [the utility’s] reasonable control.” R.C. 4928.66(A)(2)(b).
{¶ 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.
2. The commission’s rules define “peak demand” as “the average maximum hourly electricity usage
during the highest 100 hours on the electric utility’s system in a calendar year.” Ohio Adm.Code
4901:1-39-01(R).
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{¶ 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.
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{¶ 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} “R.C. 4903.13 provides that a [Public Utilities Commission] order
shall be reversed, vacated, or modified by this court only when, upon consideration
of the record, the court finds the order to be unlawful or unreasonable.”
Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St. 3d 530, 2004-
Ohio-6767, 820 N.E.2d 885, ¶ 50, modified on other grounds, Ohio Consumers’
Counsel v. Pub. Util. Comm., 111 Ohio St. 3d 300, 2006-Ohio-5789, 856 N.E.2d
213, ¶ 87. “A [Public Utilities Commission] order is unlawful if it is inconsistent
with relevant statutes or with the state or federal constitutions.” Ohio Consumers’
Counsel v. Pub. Util. Comm., 111 Ohio St. 3d 384, 2006-Ohio-5853, 856 N.E.2d
940, ¶ 44.
Analysis
{¶ 11} FirstEnergy argues under its first proposition of law that the
commission lacked statutory authority to adopt and implement a cost cap under
R.C. 4928.66. We resolve the appeal on this issue and conclude that the
commission lacked statutory authority to impose a cap on FirstEnergy’s recovery
of program costs.
{¶ 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 under R.C. 4928.66, since the
General Assembly did not specifically prohibit a cost cap.
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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 R.C. 4928.66 contains no language that
authorizes the commission to impose a cap on the recovery of costs incurred to meet
the statutory benchmarks under the portfolio plans. FirstEnergy cites Pike Natural
Gas Co. v. Pub. Util. Comm., 68 Ohio St. 2d 181, 183, 429 N.E.2d 444 (1981),
quoting Dayton Communications Corp. v. Pub. Util. Comm., 64 Ohio St. 2d 302,
307, 414 N.E.2d 1051 (1980), for the proposition that the commission “ ‘is a
creature of the General Assembly and may exercise no jurisdiction beyond that
conferred by statute.’ ” See also Canton Storage & Transfer Co., Inc. v. Pub. Util.
Comm., 72 Ohio St. 3d 1, 5, 647 N.E.2d 136 (1995). FirstEnergy notes that R.C.
4928.64, which sets forth renewable-energy-resource requirements, was enacted at
the same time as R.C. 4928.66 and R.C. 4928.64 includes a cap on the maximum
cost of compliance. See 2008 Am.Sub.S.B. No. 221; R.C. 4928.64(C)(2) and (3);
Ohio Adm.Code 4901:1-40-07. According to FirstEnergy, the absence of a similar
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provision in R.C. 4928.66 demonstrates the General Assembly’s intent to prohibit
the commission from limiting cost recovery under R.C. 4928.66.
{¶ 15} We agree with FirstEnergy that the commission acted unlawfully in
imposing a cap on cost recovery under the portfolio plans.
{¶ 16} Neither the commission’s order nor its rehearing entry cites any
language in R.C. 4928.66 that would authorize the commission to impose a cost-
recovery cap in this case. Instead, the commission states only that it can impose
the cap because it has “broad authority to administer and enforce the provisions of
R.C. Title 49, and to regulate a utility’s portfolio plan under R.C. 4928.66.” Pub.
Util. Comm. No. 16-0743-EL-POR, at ¶ 56 But we find no express or implied
authorization in the language of R.C. 4928.66 that would allow the commission to
preemptively impose a limitation on FirstEnergy’s recovery of costs incurred in
order to meet its statutory benchmarks.
{¶ 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 R.C. 4928.66 without any
clear indication in the statutory language to that effect. See Columbus S. Power Co.
v. Pub. Util. Comm., 67 Ohio St. 3d 535, 537-541, 620 N.E.2d 835 (1993); Time
Warner AxS v. Pub. Util. Comm., 75 Ohio St. 3d 229, 238-241, 661 N.E.2d 1097
(1996).
{¶ 18} The General Assembly’s inclusion of cost-cap language in R.C.
4928.64(C)(2) and (3) further undermines the commission’s determination that it
had authority to impose a cost cap under R.C. 4928.66. Under R.C. 4928.64(C)(3),
an electric-distribution utility does not need to comply with the statutory
benchmarks for renewable-energy-resource requirements if its “reasonably
expected cost of that compliance exceeds its reasonably expected cost of otherwise
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producing or acquiring the requisite electricity by three percent or more.” This
provision, enacted at the same time as R.C. 4928.66, demonstrates that the General
Assembly recognized a maximum cost for a utility’s compliance with the
renewable-energy-resource requirements. In contrast, in R.C. 4928.66, the General
Assembly included no such provision to cap the recovery of compliance costs.
Thus, we presume it chose not to do so. See, e.g., Indep. Ins. Agents of Ohio, Inc.
v. Fabe, 63 Ohio St. 3d 310, 314, 587 N.E.2d 814 (1992) (“It is apparent that the
General Assembly knows how to use these words when it so chooses”).
{¶ 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 R.C. 4928.66. For the renewable-energy-resource
benchmarks in R.C. 4928.64, the commission enacted a corresponding regulation
entitled “Cost cap,” which describes the process by which a utility can apply for a
commission determination that the cost of compliance would exceed its expected
generation costs by 3 percent or more. Ohio Adm.Code 4901:1-40-07. There is no
such regulatory provision for utilities engaging in energy-efficiency and peak-
demand-reduction programs under R.C. 4928.66. In fact, the commission
promulgated Ohio Adm.Code 4901:1-39-07, entitled “Recovery mechanism,”
which describes how a utility may submit “a request for recovery of an approved
rate adjustment mechanism” to recover costs for energy-efficiency and peak-
demand-reduction programs under R.C. 4928.66. But that rule includes no
language regarding a cost-recovery cap or a cap on a utility’s program spending.
{¶ 20} In sum, the commission’s determination that the cost-recovery cap
in this case is a permissible exercise of its broad authority is not supported by the
statutory language. Thus, we conclude that the commission acted unlawfully here
by modifying the stipulation to include the 4 percent cost cap.
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Conclusion
{¶ 21} We hold that the commission lacked authority under R.C. 4928.66
to impose a cost-recovery cap in this case. Therefore, we reverse the commission’s
decision and remand the cause for approval of the portfolio plans without the cap
on cost recovery.
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 R.C. 4928.66(A)(1)(a) and (b). The Public Utilities
Commission approved the cost cap under its broad authority to administer and
enforce the provisions of R.C. Title 49, as well as its authority to regulate a utility’s
portfolio plan under R.C. 4928.66. According to the majority, the commission
erred because there is “no express or implied authorization in the language of R.C.
4928.66 that would allow the commission to preemptively impose a limitation on
FirstEnergy’s recovery of costs incurred in order to meet its statutory benchmarks.”
Majority opinion at ¶ 16. I believe that the commission does have statutory
authority to impose a cap on FirstEnergy’s cost recovery, but that here, the
commission failed to provide adequate record support and reasoning for its
decision. Thus, I concur in the judgment to reverse the commission’s order, but for
different reasons, and I dissent from the majority’s order on remand.
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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, R.C. 4928.66 requires electric utilities to
achieve certain levels of energy savings and peak-demand reduction but says
virtually nothing about the utility’s ability to recover costs from customers for
complying with those mandates. The statute makes only general references to a
cost-recovery mechanism. R.C. 4928.66(A)(2)(c) and (d)(i)(II).3 When a statute
does not prescribe a particular formula or methodology, the commission has broad
discretion to decide how to achieve a legitimate objective, and our review of those
decisions is deferential. See Payphone Assn. v. Pub. Util. Comm., 109 Ohio St. 3d
453, 2006-Ohio-2988, 849 N.E.2d 4, ¶ 25; In re Application of Columbus S. Power
Co., 129 Ohio St. 3d 46, 2011-Ohio-2383, 950 N.E.2d 164, ¶ 27.
{¶ 24} In reaching its decision, the majority points to the absence of
language in R.C. 4928.66 authorizing the commission to impose a cap on cost
recovery. Majority opinion at ¶ 16. But that is not enough to demonstrate reversible
error. While there is no language in R.C. 4928.66 that expressly authorizes the
commission to impose a cap on cost recovery, the statute likewise imposes no
restrictions on the commission’s authority over cost recovery. And this court has
read a lack of conditions on a statutory grant of power as a grant of discretion to
the agency. In re Application of Columbus S. Power Co., 128 Ohio St. 3d 512,
2011-Ohio-1788, 947 N.E.2d 655, ¶ 68; Util. Serv. Partners, Inc. v. Pub. Util.
Comm., 124 Ohio St. 3d 284, 2009-Ohio-6764, 921 N.E.2d 1038, ¶ 13.
{¶ 25} Second, the commission’s decision to impose a cap on cost recovery
in this case was reasonable and supported by the record. See R.C. 4903.09
(requiring the commission to support its decisions with evidence and a reasoned
3. R.C. 4928.66(D) also provides for a revenue-decoupling mechanism, which allows the utility to
recover lost revenue as a result of implementing energy-efficiency or energy-conservation
programs. But this provision is not relevant here.
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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
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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
R.C. 4928.64(C)(3) “undermines the commission’s determination that it had
authority to impose a cost cap under R.C. 4928.66.” Majority opinion at ¶ 18. R.C.
4928.64 contains renewable-energy-resource requirements for Ohio electric
utilities. Under R.C. 4928.64(C)(3), an electric-distribution utility does not need to
comply with the statutory benchmarks “to the extent that its reasonably expected
cost of compliance exceeds its reasonably expected cost of otherwise producing or
acquiring the requisite electricity by three per cent or more.” The majority finds
that because R.C. 4928.64(C)(3) was enacted at the same time as R.C. 4928.66, the
fact that it provides a cost cap demonstrates the General Assembly’s intent not to
include a cost cap in R.C. 4928.66. But the majority overlooks that the cost cap
under R.C. 4928.64 differs in purpose and operation from the cap on cost recovery
imposed under R.C. 4928.66 in this case.
{¶ 29} The cost cap authorized by R.C. 4928.64(C)(3) is designed
principally to protect electric-distribution utilities. Under this provision, the utility
can avoid costly renewable-energy mandates—and protect itself against any
compliance penalties—if the cost of complying with the mandate is at least 3
percent higher than the utility’s cost to generate the power itself or purchase it from
other energy sources. Moreover, the cost cap under R.C. 4928.64(C)(3) is not
mandatory, but can be invoked at the utility’s discretion, as set forth in the statute
and under the corresponding administrative rule. See Ohio Adm.Code 4901:1-40-
07(B) (“An electric utility * * * may file an application requesting a determination
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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 R.C.
4928.66 is designed primarily to protect customers by limiting how much the utility
can charge them each year for the utility’s implementation of energy-efficiency and
peak-demand-reduction programs. Because the two cost caps operate differently
and serve distinct purposes, the express provision of a cost cap in R.C.
4928.64(C)(3) does not, as the majority contends, demonstrate by negative
implication the General Assembly’s intent to prohibit the commission from
adopting a cap on cost recovery under R.C. 4928.66 in order to protect customers
against costly program charges.
Reversal is appropriate on separate, narrow grounds
{¶ 31} Although I believe the commission has statutory authority to impose
a cap on cost recovery under R.C. 4928.66 as a general matter, it failed to justify
its decision to adopt a 4 percent cap in this specific case. The commission’s arrival
at a figure of 4 percent lacked evidence and a reasoned explanation, in violation of
R.C. 4903.09. Accordingly, I would reverse the commission’s order and remand
the case to correct this error only.
{¶ 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
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specifically on data from the companies’ 2012-2014 annual status reports, which
showed that on average they had underspent their budgets by 21 percent and
overachieved their benchmarks by 50 percent during that period.
{¶ 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).
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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} R.C. 4903.09 requires the commission to explain its decisions and
identify in sufficient detail the record evidence upon which its orders are based.
MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St. 3d 306, 311-312,
513 N.E.2d 337 (1987). The commission abuses its discretion if it decides an issue
without adequate record support. Indus. Energy Users-Ohio v. Pub. Util. Comm.,
117 Ohio St. 3d 486, 2008-Ohio-990, 885 N.E.2d 195, ¶ 30. In my view, the
commission violated R.C. 4903.09 in two respects.
{¶ 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
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a 4 percent cap on the other Ohio utilities. Although the commission cited the
testimony of staff witness Donlon, it did so only for the purpose of showing that a
cap was necessary “given the rising [energy-efficiency/peak-demand-reduction]
rider amounts billed to customers.” Pub. Util. Comm. No. 16-0743-EL-POR, at
¶ 55.
{¶ 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
R.C. 4928.66(A)(2)(b), which allows it to amend benchmarks if a utility “cannot
reasonably achieve [them] due to regulatory, economic, or technological reasons
beyond its reasonable control.” Although invoking this provision may allow the
companies to avoid penalties if they cannot meet their statutory mandates under the
4 percent cost cap, it does not relieve the commission of its obligation under R.C.
4903.09 to file “written opinions setting forth the reasons prompting the decisions
arrived at, based upon [its] findings of fact,” which must be included with the record
of the proceedings. In short, evidence was needed; none was provided.
{¶ 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.”
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January Term, 2019
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} R.C. 4903.09 prohibits summary rulings and conclusions that do not
develop the supporting rationale or record. MCI Telecommunications Corp., 32
Ohio St. 3d at 312, 513 N.E.2d 337. If the order included any reasonable analysis
of why the commission selected the staff’s methodology over FirstEnergy’s,
FirstEnergy’s arguments would be easily dispatched. However, there is no
explanation. And it is not self-evident how raising the cap on recovery by 1 percent
will mitigate any unfairness to FirstEnergy, and even the commission—by using
the word “should”—seems less than certain of that outcome. As noted, FirstEnergy
specifically challenged the methodology used to calculate the cap on the ground
that it was unfair to the companies, but the commission never addressed those
arguments.
{¶ 41} R.C. 4903.09 is mandatory, and while “strict compliance * * * is not
required,” failure by the commission to provide record support for an opinion
constitutes an abuse of discretion. Indus. Energy Users-Ohio., 117 Ohio St. 3d 486,
2008-Ohio-990, 885 N.E.2d 195, ¶ 30. In the end, it is impossible to make any
determination about the reasonableness of the commission’s decision to adopt a 4
percent cap on cost recovery without evidence and explanation in its opinion and
order. See Ohio Consumers’ Counsel v. Pub. Util. Comm., 111 Ohio St. 3d 300,
2006-Ohio-5789, 856 N.E.2d 213, ¶ 31; In re Comm. Rev. of Capacity Charges of
Ohio Power Co., 147 Ohio St. 3d 59, 2016-Ohio-1607, 60 N.E.3d 1221, ¶ 56-57.
{¶ 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
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SUPREME COURT OF OHIO
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.
____________________
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