In re Application of Suburban Natural Gas Co. (Slip Opinion) , 2021 Ohio 3224 ( 2021 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In
re Application of Suburban Natural Gas Co., Slip Opinion No. 2021-Ohio-3224.]
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
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2021-OHIO-3224IN RE APPLICATION OF SUBURBAN NATURAL GAS COMPANY FOR AN INCREASE
IN GAS DISTRIBUTION RATES, FOR TARIFF APPROVAL, AND FOR APPROVAL OF
CERTAIN ACCOUNTING AUTHORITY; OFFICE OF OHIO CONSUMERS’ COUNSEL,
APPELLANT; PUBLIC UTILITIES COMMISSION, APPELLEE; SUBURBAN NATURAL
GAS COMPANY, INTERVENING APPELLEE.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as In re Application of Suburban Natural Gas Co., Slip Opinion
No. 2021-Ohio-3224.]
Public utilities—R.C. 4909.15(A)(1)—Gas pipeline—When fixing rates for service,
Public Utilities Commission must determine the valuation of the property
of the public utility that is used and useful in rendering the public-utility
service as of the date certain—To be useful, the property must be beneficial
in rendering service for the convenience of the public as of the date
certain—Public Utilities Commission applies an incorrect formula when it
considers whether the utility’s investment is prudent.
(No. 2020-0781—Submitted March 3, 2021—Decided September 21, 2021.)
SUPREME COURT OF OHIO
APPEAL from the Public Utilities Commission of Ohio,
Nos. 18-1205-GA-AIR, 18-1206-GA-ATA, and 18-1207-GA-AAM.
_______________________
DEWINE, J.
{¶ 1} This is an appeal from a decision of the Public Utilities Commission
of Ohio (“PUCO”) allowing a gas company to charge its customers higher rates.
At issue is whether the gas company’s customers must pay for a 4.9-mile extension
of the gas company’s pipeline. To decide this point, the PUCO was required by
statute to determine whether the pipeline extension was “used and useful” as of a
specified date. R.C. 4909.15(A)(1). The PUCO determined that the extension met
this “used-and-useful” test and approved the rate increase.
{¶ 2} The Office of the Ohio Consumers’ Counsel opposed the rate increase
before the PUCO and maintains its challenge on appeal. In its view, only two miles
of the extension were used and useful and thus the PUCO erred by approving a rate
increase based upon the entire 4.9-mile extension. We conclude that the PUCO did
err: in evaluating the rate increase, the PUCO looked beyond whether the entire
extension was used and useful on the applicable date and considered whether it was
a prudent investment because it might prove useful in the future. As a consequence,
we reverse the PUCO’s decision and remand the case for a proper application of
the used-and-useful test.
I. Suburban builds a 4.9-mile pipeline extension
{¶ 3} The Suburban Natural Gas Company provides natural gas distribution
services to residential customers in Delaware and Marion Counties, an area that has
been experiencing significant population growth. On one extremely cold day in the
winter of 2015, pressure in part of Suburban’s pipeline dropped below 100 pounds
per square inch gauge (“psig”). This was concerning—we are told 100 psig is
considered the minimum pressure necessary for that part of the pipeline to maintain
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safe, reliable service. At lower pressure levels, there is a risk of the pipeline
freezing over, causing an outage that could take weeks to repair.
{¶ 4} Suburban hired an engineering firm to look at the problem. The
engineers performed modeling work, examining Suburban’s system and taking into
account projected growth in Suburban’s customer base. Ultimately, they
determined that by 2018 on an extremely cold day (when the demand for gas was
at its highest), pressure in the pipeline would dip to 104 psig, just above the 100-
psig minimum operating pressure. By the end of 2019, the engineers projected, the
pressure could drop below 78 psig.
{¶ 5} Based on the results of this modeling, Suburban decided to build a
4.9-mile pipeline extension that would be completed in time for the 2018-2019
winter. Pipeline construction must be approved by the Ohio Power Siting Board.
See R.C. 4906.04. But by keeping the extension below five miles, Suburban was
able to take advantage of an expedited approval process before the Power Siting
Board. See R.C. 4906.03(F)(3); Ohio Adm.Code 4906-6-10. The Power Siting
Board approved the extension. The board’s staff report warned, however, that the
extension might be longer than needed to serve current and future customers and
that Suburban’s cost recovery hinged on being able to demonstrate in a future rate
case that the extension was not overbuilt. After receiving the Power Siting Board’s
signoff, Suburban built the extension and placed it into service on February 22,
2019.
II. Proceedings before the PUCO
{¶ 6} While construction was underway, Suburban filed an application with
the PUCO for a rate increase to cover the costs of the pipeline extension. Its
proposed rate increase was based on a projected value of $8.9 million for the 4.9-
mile extension.
{¶ 7} In weighing such requests, the PUCO is required to determine “[t]he
valuation as of the date certain of the property of the public utility used and useful
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SUPREME COURT OF OHIO
or * * * projected to be used and useful as of the date certain, in rendering the public
utility service.” R.C. 4909.15(A)(1). In this case, the PUCO determined that date
certain to be February 28, 2019.
{¶ 8} The Consumers’ Counsel is the statewide legal representative for
Ohio’s residential ratepayers. R.C. 4911.02(B). It intervened in the proceedings at
the PUCO and argued that Suburban had admitted that at most only two miles of
the pipeline were used and useful as of February 28, 2019.
{¶ 9} After completing an investigation of Suburban’s application, the staff
of the PUCO instituted settlement discussions. Ultimately, Suburban and the
PUCO staff entered into a settlement agreement that did not include the Consumers’
Counsel. Under the settlement, the staff approved the rate increase based on the
entire 4.9-mile extension and Suburban agreed to phase in the increase over a period
of three years.
{¶ 10} Settlement agreements of this type must be approved by the PUCO.
See Ohio Adm.Code 4901-1-30. The Consumers’ Counsel filed objections to the
agreement, arguing that the pipeline extension was not used and useful.
{¶ 11} The PUCO overruled the objections and approved the settlement. In
doing so, the PUCO credited testimony from the engineering firm hired by
Suburban. Based on this testimony, the PUCO noted that by the 2018-2019 winter,
“assuming a negative five-degree temperature, additional capacity” was required to
ensure adequate pressure in the system. Pub. Util. Comm. Nos. 18-1205-GA-AIR,
18-1206-GA-ATA, and 18-1207-GA-AAM, ¶ 121 (Sept. 26, 2019). It further
pointed out that according to Suburban, pressure in the system dropped to 105 psig
on January 21, 2019—a month before the extension was placed into service.
{¶ 12} The Consumers’ Counsel did not offer its own engineering expert.
Rather, it sought to use testimony from Suburban’s expert to argue that the 4.9-mile
extension was significantly longer than was required to meet Suburban’s needs in
February 2019. This engineer said he believed he had done modeling for a two-
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January Term, 2021
mile extension. He further indicated that a two-mile extension seemed to be enough
for the 2018-2019 winter season. He then remarked that his modeling was focused
on ensuring Suburban got longevity out of the pipeline so that Suburban would not
“have to come back the next year and start building again.” The Consumers’
Counsel also pointed to testimony that the extension would allow Suburban to serve
4,000 to 20,000 more customers in addition to the 13,500 customers that Suburban
had on the date certain. It further noted that after the extension was completed, the
actual pressure in the pipeline was measured at 250 psig, well above the minimum
needed for safe, reliable service.
{¶ 13} The PUCO rejected the Consumers’ Counsel’s claim that only a two-
mile extension was called for, opining:
With regard to [the Consumers’ Counsel’s] argument about
the precise length of the extension, we find that, while a two-mile
extension may have served customers through the 2018-2019
winter, Suburban would need to immediately initiate the [Power
Siting Board] regulatory process again to build additional pipeline
to ensure adequate capacity to serve existing customers soon after.
This approach would also increase the overall cost of necessary
improvements to Suburban’s distribution system, thereby increasing
the rates customers pay. Importantly, [the National Association of
Regulatory Utility Commissioners’] guidance on this matter notes
that “utility investment is often lumpy in nature, such that it may be
cost ineffective to add small increments of plant and equipment each
year, rather than building to meet a longer growth horizon.”
Pub. Util. Comm. Nos. 18-1205-GA-AIR, 18-1206-GA-ATA, and 18-1207-GA-
AAM, at ¶ 125 (Sept. 26, 2019).
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SUPREME COURT OF OHIO
{¶ 14} The PUCO denied the Consumers’ Counsel’s application for
rehearing. The Consumers’ Counsel then appealed to this court, advancing two
propositions of law. In its first, it argues that the PUCO erred by allowing Suburban
to charge customers for property that might be useful in the future but which was
not useful on the date certain. In its second, it contends that the PUCO’s decision
was against the manifest weight of the evidence.
III. The PUCO erred in looking beyond the date certain when
it approved the rate increase
{¶ 15} The PUCO is tasked with “fixing and determining just and
reasonable rates” for a public utility’s service. R.C. 4909.15(A). In doing so, it
must follow a ratemaking formula set out in that statute. In re Application of Duke
Energy Ohio, Inc., 150 Ohio St.3d 437, 2017-Ohio-5536, 82 N.E.3d 1148, ¶ 16.
Part of this formula tells the PUCO to determine “[t]he valuation as of the date
certain of the property of the public utility used and useful * * * in rendering the
public utility service for which rates are to be fixed and determined.” R.C.
4909.15(A). This valuation, known as the “rate base,” “represents the public
utility’s investment in real property, facilities (power plants, pipelines, poles, and
wires), and other equipment (computers and software) it uses to serve customers.”
In re Duke Energy Ohio at ¶ 19.
{¶ 16} The “date certain” is the date on which the utility property is assessed
to determine whether it is used and useful. R.C. 4909.15(A)(1). The PUCO sets
the date certain, though the date is “determined essentially by the date at which the
utility files its application for a rate increase.” Ohio Edison Co. v. Pub. Util.
Comm., 63 Ohio St.3d 555, 559, 589 N.E.2d 1292 (1992).
A. The used-and-useful test
{¶ 17} The used-and-useful test allows a public utility to recover through
rates the value of that portion of its property that is “ ‘actually used and useful for
the convenience of the public.’ ” Cincinnati v. Public Util. Comm., 113 Ohio St.
6January Term, 2021
259, 148 N.E. 817 (1925), syllabus, quoting G.C. 614-23. Whether something is
used and useful must be measured “ ‘as of the date certain,’ not at some speculative
unspecified point in time.” Office of Consumers’ Counsel v. Pub. Util. Comm., 67
Ohio St.2d 303, 309, 423 N.E.2d 1082 (1981), quoting R.C. 4909.15(A)(1). Thus,
a public utility is not entitled to include in the rate-base valuation “property not
actually used or useful in providing its public service, no matter how useful the
property may have been in the past or may yet be in the future.” Office of
Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 449, 453, 391 N.E.2d 311(1979).
{¶ 18} The used-and-useful test has been a feature of ratemaking in Ohio
since 1911. H.B. No. 325, 102 Ohio Laws 549, 556-557 (enacting G.C. 614-23,
predecessor section to R.C. 4909.15). The test has its genesis in the United States
Supreme Court’s decision in Smyth v. Ames, 169 U.S. 466, 42 L.Ed. 819, 18 S.Ct.
418 (1898). In that case, the court articulated a constitutional standard for public-
utility ratemaking that required that a utility receive a fair market value of the
property being used “for the convenience of the public.” Id. at 546. In the court’s
view, anything less would have led to an unconstitutional taking. See id. at 523;
see also Jersey Cent. Power & Light Co. v. Fed. Energy Regulatory Comm., 810
F.2d 1168, 1175 (1987) (Robert Bork, J.) (discussing Smyth).
{¶ 19} Smyth’s holding presented a two-way street. On one side, customers
had to pay for the property they used for their benefit. See Smyth at 547. On the
other, a public utility could not receive compensation for property that did not
benefit its customers. See id. “Fair value” compensation was therefore due only
for property used and useful for the convenience of the public. See Jersey Cent.
Power at 1175.
{¶ 20} The Supreme Court has long since abandoned the used-and-useful
test as a constitutional mandate, requiring only the end result that ratemaking be
“just and reasonable.” See Duquesne Light Co. v. Barasch, 488 U.S. 299, 310, 109
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SUPREME COURT OF OHIO
S.Ct. 609, 102 L.Ed.2d 646 (1989), citing Fed. Power Comm. v. Hope Natural Gas
Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944). Nevertheless, the test
continues to be the standard that the Ohio legislature has chosen to determine
whether a public utility may properly charge ratepayers for its capital investment.
B. What it means to be “useful”
{¶ 21} Here, there is no question that the entire 4.9-mile pipeline extension
was used on the date certain—gas unquestionably flowed through the pipeline
extension. The question is whether the 4.9-mile extension was useful. Though the
Consumers’ Counsel concedes that two miles of the extension were useful as of the
date certain, it disputes the usefulness of the pipeline extension’s remaining 2.9
miles.
{¶ 22} The word “useful” is not defined by the statute. When a word is
undefined, we look to its plain, everyday meaning. Great Lakes Bar Control, Inc.
v. Testa, 156 Ohio St.3d 199, 2018-Ohio-5207, 124 N.E.3d 803, ¶ 8. But looking
at the ordinary meaning of a word in isolation will not suffice. We instead must
consider the word’s ordinary meaning as used in the surrounding text. Id.{¶ 23} “Useful” can be understood a few different ways. It is defined as (1)
“capable of being put to use”; (2) “having utility”; (3) “ADVANTAGEOUS; esp :
producing or having the power to produce good”; and (4) “serviceable for a
beneficial end or object.” Webster’s Third New International Dictionary 2524
(2002).
{¶ 24} On one hand, then, labeling something “useful” can refer to that
thing’s capacity to be put to use. But that understanding makes little sense here
because the statute also refers to property that is used. Presumably, “used” property
is always capable of being put to use. So, understanding “useful” in this sense
would render the word redundant.
{¶ 25} That leaves us with the far more sensible conclusion that “useful” in
the statute means “advantageous” or “beneficial.” Nothing in the statutory
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January Term, 2021
framework suggests deviating from the everyday meaning of the word. And
because assessing whether property is useful ensures “the reasonableness and
justice of rates and charges for the service rendered by the public utilities,” see R.C.
4909.04, the property must be beneficial in rendering service for the convenience
of the public as of the date certain. Columbus v. Pub. Util. Comm. of Ohio, 62 Ohio
St.3d 430, 436, 584 N.E.2d 646 (1992).
{¶ 26} With a proper understanding of the term “useful” in mind, we turn
to the Consumers’ Counsel’s challenge to the PUCO’s order.
C. The PUCO misapplied the used-and-useful test when it looked beyond the date
certain and considered whether Suburban’s investment was prudent
{¶ 27} The PUCO concluded that the 4.9-mile pipeline extension was used
and useful on the date certain based on modeling that showed that without
additional capacity, the pipeline was at risk of falling below minimally adequate
pressure levels during the 2018-2019 winter. But that evidence showed only that
the existing pipeline would soon be inadequate and that some extension was
necessary; it didn’t address the Consumers’ Counsel’s contention that Suburban
built far more than necessary.
{¶ 28} In regard to the “precise length” of the extension, the PUCO looked
not at the extension’s date-certain usefulness, but at its potential to save time and
money in the future. The PUCO conceded a two-mile extension may have been
adequate to serve customers as of the date certain but worried that soon thereafter
Suburban would have had to seek regulatory approval for another extension. It also
cited guidance from the National Association of Regulatory Utility Commissioners
that “ ‘it may be cost ineffective to add small increments of plant and equipment
each year, rather than building to meet a longer growth horizon.’ ”
{¶ 29} The problem is that such considerations go beyond the used-and-
useful test. The test measures usefulness as of the date certain, “not at some
speculative unspecified point in time.” Office of Consumers’ Counsel, 67 Ohio
9SUPREME COURT OF OHIO
St.2d at 309, 423 N.E.2d 1082. By speculating about the pipeline extension’s
potential for saving time and money in the long run, the PUCO looked beyond the
date certain, February 28, 2019, to find the disputed 2.9 miles useful.
{¶ 30} The PUCO contends it reasonably interpreted the meaning of
“useful” to “include a prudently-designed pipeline extension” that would
“minimize regulatory and construction costs.” But we have never interpreted the
term “used and useful” to encompass capital facilities that are not presently useful,
even if it might be cheaper to construct them now. To the contrary, we have held
that the PUCO exceeds its statutory mandate when incorporating into the rate base
“unfinished projects ineligible for rate base treatment [even] if the original decision
to build the facilities and the subsequent decision to cancel the projects are prudent
under the circumstances.” Office of Consumers’ Counsel v. Pub. Util. Comm., 67
Ohio St.2d 153, 166, 423 N.E.2d 820 (1981).
{¶ 31} The PUCO’s reliance on the guidance from the National Association
of Regulatory Commissioners and its discussion of the “lumpy nature of utility”
investment is telling in this regard. The manual was prepared to serve as a guideline
for state and federal regulatory utility commission personnel. It does not override
applicable jurisdictional law. The PUCO is bound to follow Ohio law, not the
Regulatory Commissioners’ manual. See id. at 163.
{¶ 32} In effect, the PUCO applied what is known as the “prudent-
investment” test, the most prominent alternative to the used-and-useful test.
Jonathan Kahn, Keep Hope Alive: Updating the Prudent Investment Standard for
Allocating Nuclear Plant Cancellation Costs, 22 Fordham Envtl.Law Rev. 43, 49-
50 (2010). The used-and-useful test is forward-looking: it incorporates into the rate
base only the property that has been taken by the public for its benefit. Baumol &
Sidak, The Pig in the Python: Is Lumpy Capacity Investment Used and Useful?, 23
Energy L.J. 383 (2002); James J. Hoecker, “Used and Useful”: Autopsy of a
Ratemaking Policy, 8 Energy L.J. 303, 311 (1987), fn. 38. In contrast, the prudent-
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January Term, 2021
investment test is backward-looking: it incorporates into the rate base any
investments in property a public utility made, so long as that investment was
prudent when it was made. Baumol & Sidak, 23 Energy L.J. at 383. That’s the
case even if the prudent investment never pans out for customers. Richard J. Pierce
Jr., The Regulatory Treatment of Mistakes in Retrospect: Canceled Plants and
Excess Capacity, 132 U. Pa.L.Rev. 497, 511-512 (1984). Thus, the prudent-
investment test places the risk of a failed investment on the customers, who must
pay so long as that investment was prudently made. Baumol & Sidak, 23 Energy
L.J. at 392. In contrast, the used-and-useful test places the risk of a failed
investment on a public utility because the customers are made to pay only for what
they take for their benefit. Id. at 391-392.
{¶ 33} The used-and-useful test doesn’t prohibit utilities from making
capital investments based on whatever scale and time frame the utility finds the
most prudent. But what it does do is limit the utility’s ability to recover the costs
for such investments. Only at the actual point in time in which such investments
are used and useful in providing services to the ratepayers may the utility charge
consumers for such capital investments. Of course, this doesn’t mean that some
extra capacity may never be considered useful. In an appropriate circumstance, a
limited degree of reserve capacity could be useful (or beneficial) to consumers in
providing protection against unforeseen contingencies in the same way that
property insurance is useful to a homeowner. In evaluating such circumstances,
however, the question always must be whether the property is used and useful, not
whether it was a prudent investment.
{¶ 34} Certainly, the General Assembly could have opted for a prudent-
investment test, instead of the used-and-useful test in R.C. 4909.15(A). Indeed, in
another section of the Revised Code, R.C. 4909.154, the General Assembly
provided a test for assessing compensation for a public utility’s operating and
maintenance expenses that is based on whether the utility’s policies and practices
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are imprudent. The PUCO lacks authority to “legislate in its own right” and may
not substitute its own test for the one adopted by the General Assembly. Office of
Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio St.2d at 166, 423 N.E.2d 820.
But that is precisely what the PUCO did when relying on the prudence of
Suburban’s investment.
D. We remand for the PUCO to apply the appropriate standard
{¶ 35} The application of the relevant legal standard to the facts is
something that is best left to the PUCO in the first instance. In re Complaint of
Wingo v. Nationwide Energy Partners, L.L.C., 163 Ohio St.3d 208, 2020-Ohio-
5583, 169 N.E.3d 617, ¶ 26. Here, the PUCO departed from the proper standard
by looking beyond the date certain and in considering whether the investment was
prudent rather than “useful.” Because the PUCO failed to properly apply the used-
and-useful standard, we remand this case for it to do so. On remand, the PUCO
must evaluate the evidence and determine whether the 4.9-mile pipeline extension
was used and useful as of the date certain.
{¶ 36} The dissent agrees that the PUCO erred when it considered the
prudence of Suburban’s investment but contends that this error does not warrant a
remand. The dissent essentially finds the error harmless, pointing to the portion of
the PUCO’s rehearing entry in which the PUCO labeled its earlier reliance on
investor prudence as “additional considerations,” Pub. Util. Comm. Nos. 18-1205-
GA-AIR, 18-1206-GA-ATA, and 18-1207-GA-AAM, Second rehearing entry, ¶ 22
(Apr. 22, 2020). According to the dissent, the PUCO ultimately “refuted [the
Consumers’ Counsel’s] overbuilding claim,” dissenting opinion at ¶ 51, with
evidence of the pipeline extension’s date-certain usefulness.
{¶ 37} This characterization of the PUCO’s decision is off base. The
evidence cited by the dissent as having refuted the Consumers’ Counsel’s
overbuilding claim simply showed that without any extension at all, pressure levels
were forecasted to drop below the minimum safety threshold. Here’s the specific
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evidence of date-certain usefulness the dissent relies upon: (1) Suburban would
have to “prepare for contingencies—such as cold temperatures, high winds,
sustained weather events, and changes in load,” dissenting opinion at ¶ 56, (2)
“without the 4.9-mile extension, the pressure * * * would drop to 104.27 psig at the
end of 2018, barely above the minimum-acceptable level of 100 psig,” id. at ¶ 51,
and (3) pressure “would drop to 78.72 psig in 2019 without the extension,” id. at
¶ 51.
{¶ 38} The problem is that none of this evidence shows that a 4.9-mile
extension was necessary. It simply shows that some extension was necessary to
address safety concerns and that a 4.9-mile extension would easily do the trick. But
by this logic, virtually any size extension (10 miles, 15 miles, and beyond) would
pass muster.
{¶ 39} The dissent rightfully notes the distinction between, on one side, a
pipeline with adequate reserves and, on the other, a pipeline overbuilt with excess
capacity. But we are in the dark as to which side the 4.9-mile extension lies on
because the PUCO provided no analysis beyond its nod to future prudence for why
the 4.9-mile pipeline extension made sense over a shorter extension.
{¶ 40} We are also troubled by the dissent’s suggestion that the Consumers’
Counsel needed to provide its own modeling or forecasts for its overbuilding claim.
It is Suburban that seeks the benefit of a rate increase. As such, Suburban has “the
burden of proof to show that the proposals in the application are just and
reasonable.” R.C. 4909.18; see also R.C. 4909.19(C); Ohio Edison Co., 63 Ohio
St.3d at 558-559, 589 N.E.2d 1292. And while we recognize the dissent’s point
that the PUCO is afforded discretion in how it responds to the evidence before it,
this discretion is cabined by a statutory mandate to apply the used-and-useful test
to ensure rates are in fact just and reasonable. R.C. 4909.15. The PUCO went
astray of this requirement when it relied on “additional considerations” of investor
prudence in approving the 4.9-mile extension. This was not harmless error.
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E. We need not consider the Consumers’ Counsel’s remaining challenges
{¶ 41} As part of the settlement agreement, Suburban agreed to phase in its
rate increase over three years with customer rates reflecting charges for 50 percent
of the value of the extension in the first year, 80 percent of the extension in the
second year, and 100 percent thereafter. The phase-in did not change the overall
amount that customers would pay in the aggregate—Suburban would still recover
the full value of its investment, but the recovery would be spread out over three
years. And if Suburban’s projections of growth are correct, it means that existing
customers would ultimately pay less because as customers are added, the rates are
spread out over a larger rate base. Within its first assignment of error, the
Consumers’ Counsel challenges the PUCO’s decision to approve this phase-in,
arguing that it is inconsistent with the requirement that property be valued as of the
date certain.
{¶ 42} A party who seeks to challenge an order on appeal must be aggrieved
by that order. See Ohio Contract Carriers Assn. v. Pub. Util. Comm., 140 Ohio St.
160, 42 N.E.2d 758 (1942), syllabus. Thus, we will not reverse an order of the
commission unless the party seeking reversal shows that it has been harmed by the
order. In re Application of Ohio Power Co., 155 Ohio St.3d 320, 2018-Ohio-4697,
121 N.E.3d 315, ¶ 9. Here, the Consumers’ Counsel fails to show that it is
aggrieved by the PUCO’s decision to allow the phase-in of the rate increase; if
anything, the phase-in would seem to work a net benefit to consumers.
{¶ 43} In its reply brief, the Consumers’ Counsel suggests a possible
scenario where some customers could be hurt by the phase-in. It posits that if
Suburban’s projections are wrong, and if instead of adding customers Suburban
actually loses customers, then the remaining customers would end up paying more
because the rate increase would be spread over a smaller customer base. But this
argument is purely speculative: there is nothing in the record that provides any basis
to predict that Suburban will lose customers. And “[w]e will not reverse a
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commission order based on speculation.” In re Application of Ohio Power Co., 155
Ohio St.3d 326, 2018-Ohio-4698, 121 N.E.3d 320, ¶ 50. Because the Consumers’
Counsel has failed to show that it is aggrieved by the phase-in, we do not consider
further its challenge to that portion of the PUCO’s order.
{¶ 44} Finally, we need not consider the Consumers’ Counsel’s second
proposition of law, in which it argues that the PUCO’s decision was manifestly
against the weight of the evidence. Our conclusion that the case should be
remanded for application of the proper standard renders this argument moot.
III. Conclusion
{¶ 45} The PUCO erred when it assessed the usefulness of Suburban’s 4.9-
mile pipeline extension by looking beyond the date certain and considering the
prudence of Suburban’s investment. We remand for the PUCO to properly apply
the used-and-useful standard.
Order reversed
and cause remanded.
O’CONNOR, C.J., and KENNEDY, FISCHER, STEWART, and BRUNNER, JJ.,
concur.
DONNELLY, J., dissents, with an opinion.
_________________
DONNELLY, J., dissenting.
{¶ 46} A majority of the court has decided that appellee Public Utilities
Commission of Ohio’s order allowing a rate increase should be reversed and the
cause remanded because the commission improperly applied the used-and-useful
test in R.C. 4909.15(A)(1) in allowing intervening appellee, Suburban Natural Gas,
to recover its costs for building a 4.9-mile pipeline extension. I agree with the
majority that the commission erred when it considered whether Suburban’s
decision to build the 4.9-mile extension rather than a shorter, two-mile extension
had been prudent. Whether the longer extension would minimize future regulatory
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and construction costs is not a relevant consideration under the used-and-useful
standard of R.C. 4909.15(A)(1). But despite the commission’s legal error, the
evidence supports the commission’s finding that the entire pipeline extension was
used and useful as of the date certain, which was a separate and sufficient basis for
determining that Suburban was entitled to full recovery of its costs. Therefore, I
dissent and would affirm the commission’s order.
ANALYSIS
{¶ 47} Under the plain language of R.C. 4909.15(A)(1), a utility may
recover its investment in property from ratepayers only if the property is “used and
useful” in providing service to customers “as of the date certain.” As the majority
notes, the dispositive question here is whether the 4.9-mile extension was useful
under R.C. 4909.15(A)(1). Appellant, Office of Consumers’ Counsel (“OCC”),
conceded that two miles of the pipeline extension was useful and thus lawfully
included in rates. OCC, however, maintains that the remaining 2.9 miles were not
useful in providing service as of the date certain and that therefore, Suburban’s
customers should not be charged for this part of the extension.
{¶ 48} The majority adopts OCC’s first proposition of law, concluding that
the commission erred when it considered whether Suburban had made a prudent
investment decision to build the 4.9-mile extension. Specifically, the majority
holds that the commission violated R.C. 4909.15(A)(1) by relying on the longer
extension’s potential to save regulatory and construction costs beyond the date
certain rather than looking at whether the extension was useful in providing service
to customers as of the date certain. I agree with the majority that the commission
should not have considered whether Suburban acted prudently when determining
whether the extension met the used-and-useful test. In my view, however, the
evidence supports a finding that the entire pipeline was used and useful as of the
date certain, despite the commission’s error in relying on the prudence of
Suburban’s decision. Thus, I believe that there was a sufficient basis for the
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decision to allow Suburban to recover its entire investment in the 4.9-mile
extension.
Record evidence shows that the entire 4.9-mile extension
was useful as of the date certain
{¶ 49} R.C. 4909.15(A)(1) requires the commission, when setting “just and
reasonable rates,” to determine the value of the utility’s property that is used and
useful in rendering service as of the date certain.
Whether property is used and useful in providing service to
the customers of a utility is a question which of necessity must be
resolved on the basis of a case-by-case analysis. That status cannot
be determined through the application of a rigid formula, but should
be ascertained by the trier of the facts in light of all the
circumstances.
Ohio Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 449, 453, 391 N.E.2d
311 (1979).
{¶ 50} The commission found that the 4.9-mile extension was used and
useful as of the date certain because without the additional capacity provided by the
extension, Suburban’s pipeline was at risk of falling below minimally adequate
pressure levels during the 2018-2019 winter. According to the majority, that
“evidence showed only that the existing pipeline would soon be inadequate and that
some extension was necessary; it didn’t address the Consumers’ Counsel’s
contention that Suburban built far more than necessary.” Majority opinion at ¶ 27.
{¶ 51} The majority is mistaken. The commission did cite evidence that
refuted OCC’s overbuilding claim. Suburban’s engineers forecast that by the 2018-
2019 winter season Suburban would require additional capacity to ensure adequate
pressure for the company’s distribution system in southern Delaware County. The
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commission specifically cited an August 31, 2018 model created by Suburban’s
engineering firm that projected how much capacity and pipeline pressure was
needed to serve customers safely and reliably during the winter of 2018-2019. Pub.
Util. Comm. Nos. 18-1205-GA-AIR, 18-1206-GA-ATA, and 18-1207-GA-AAM,
¶ 126 (Sept. 26, 2019). This model projected that without the 4.9-mile extension,
the pressure at the Lazelle Road point of delivery would drop to 104.27 psig at the
end of 2018, barely above the minimum-acceptable level of 100 psig. The model
also forecast that pressure would drop to 78.72 psig in 2019 without the extension,
well below the minimum safe harbor. But the model projected that with the 4.9-
mile extension, the pressure would be 232.50 psig.
{¶ 52} Moreover, OCC conceded before the commission that the August
2018 model was the only one relevant to whether the 4.9-mile extension was used
and useful as of the date certain. Although OCC argued that the projections showed
the extension was not useful under R.C. 4909.15, it offered no evidence, such as its
own modeling or forecasts, to refute Suburban’s methodology. Instead, OCC
offered testimony from only one witness, who was neither an engineer nor an expert
in pipeline construction, demand forecasting, or capacity requirements.
{¶ 53} We have held that the commission should be afforded wide
discretion in determining issues of capacity. Consumers’ Counsel v. Pub. Util.
Comm., 63 Ohio St.3d 522, 530, 589 N.E.2d 1267 (1992). “Limited judicial review
of an excess capacity determination is sound for the reason that while excess
capacity analyses have an aura of precision about them, they are fraught with
judgments and assumptions.” Consumers’ Counsel v. Pub. Util. Comm., 67 Ohio
St.2d 153, 158, 423 N.E.2d 820 (1981). See also Cleveland v. Pub. Util. Comm.,
63 Ohio St.2d 62, 65, 406 N.E.2d 1370 (1980) (“Since utilities must anticipate load
growth years in advance to maintain adequate capacity to ensure reliable service, it
is unrealistic to expect a utility to have only the precise amount of capacity needed
at any given time”).
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{¶ 54} In the end, the commission’s determination that a shorter extension
would not have maintained pressure at Lazelle Road above the minimum-
acceptable level of 100 psig was supported by the record and well within the
discretion this court has afforded the commission in the above cases.
The commission’s finding that all 4.9 miles of the extension were
necessary is consistent with the majority’s definition of “useful”
under R.C. 4909.15(A)(1)
{¶ 55} The majority determines that “useful” under R.C. 4909.15(A)(1)
means “ ‘advantageous’ or ‘beneficial.’ ” Majority opinion at ¶ 25. I agree with
the majority that “extra capacity” or “[i]n an appropriate circumstance, a limited
degree of reserve capacity could be useful (or beneficial) to consumers in providing
protection against unforeseen contingencies in the same way that property
insurance is useful to a homeowner.” Id. at ¶ 33. And that is precisely what the
commission found here.
{¶ 56} The commission noted that Suburban is a natural-gas utility engaged
in providing a critical and necessary commodity. That being so, the commission
found that Suburban must prepare for contingencies—such as cold temperatures,
high winds, sustained weather events, and changes in load. The commission relied
on engineering models that projected that Suburban needed additional capacity to
transport more gas to alleviate pressure concerns at the Lazelle Road point of
delivery. The commission found that without the 4.9-mile extension, “Suburban’s
ability to provide safe, adequate, and reliable service may have been impacted
during a particularly cold stretch over multiple days and involving multiple
contingencies.” Pub. Util. Comm. Nos. 18-1205-GA-AIR, 18-1206-GA-ATA, and
18-1207-GA-AAM, Second rehearing entry, ¶ 126 (Apr. 22, 2020). The
commission further explained that the 4.9-mile extension was necessary to provide
Suburban with needed capacity at Lazelle Road to serve customers during normal
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weather conditions and to maintain pressure levels when demand unexpectedly
surges during the winter heating season.
{¶ 57} In applying the meaning of the word “useful” to the facts of this case,
it is critical to understand that although pipelines are constructed to meet peak
demand, they rarely use 100 percent of their capacity every day of the year. This
means that on any given day there will likely be underutilized capacity in the
pipeline. But that fact that a pipeline at times has underutilized capacity does not
mean that the pipeline is not useful for purposes of R.C. 4909.15(A)(1). Rather,
the additional capacity built into the pipeline enhances the reliability of the natural-
gas distribution system and provides insurance for customers against service
interruptions, a point that the majority concedes.
{¶ 58} These considerations do not mean that pipelines can never be
overbuilt, only that the evidence in this case does not support such a finding. In the
end, the commission’s findings validate its conclusion that the entire length of the
4.9-mile extension was beneficial and thus “useful” under R.C. 4909.15(A)(1).
Accordingly, the majority errs in holding otherwise.
The majority’s reliance on Suburban’s expert does not justify reversal
{¶ 59} The majority relies on the commission’s finding that “a two-mile
extension may have been adequate to serve customers as of the date certain but
* * * that soon thereafter Suburban would have had to seek regulatory approval for
another extension.” (Emphasis added.) Majority opinion at ¶ 28. Suburban’s
expert witness did testify to this. The commission found, however, that other
evidence outweighed this testimony. Specifically, the commission found on
rehearing that based on a totality of the evidence presented—including the
projections modeled by Suburban’s engineers—the 4.9-mile extension was
necessary as of the date certain to provide safe and reliable service to Suburban’s
customers. Thus, the commission found that the weight of the evidence supported
a finding that the entire extension should be included in Suburban’s rate base, and
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it is not this court’s function to reweigh this evidence on appeal. Elyria Foundry
Co. v. Pub. Util. Comm., 114 Ohio St.3d 305, 2007-Ohio-4164, 871 N.E.2d 1176,
¶ 39.
{¶ 60} The commission’s finding that it would have been imprudent to
build a two-mile extension because Suburban would have needed to add another
extension soon after, costing ratepayers more money in the long run, was error. But
the commission treated its reliance on the prudence of Suburban’s investment
decision as “additional considerations,” Pub. Util. Comm. Nos. 18-1205-GA-AIR,
18-1206-GA-ATA, and 18-1207-GA-AAM, Second rehearing entry, ¶ 22 (Apr. 22,
2020), separate and apart from its reliance on Suburban’s modeling projections.
Therefore, even though I find merit in OCC’s first proposition of law, the record
supports the commission’s finding that the entire 4.9-mile extension was useful as
of the date certain, effectively rendering any error harmless.
CONCLUSION
{¶ 61} The commission based its factual findings primarily on Suburban’s
modeling, and it properly applied the used-and-useful standard to this evidence. On
rehearing, the commission clarified that it had cited the factors that made
Suburban’s management decision prudent only as “additional considerations.” As
a result, despite the commission’s error in relying on the prudent-investment rule,
this court errs in concluding that OCC has demonstrated reversible error.
Therefore, I dissent. I would affirm the commission’s order.
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Bruce Weston, Consumers’ Counsel, and Christopher Healey and Angela
D. O’Brien, Assistant Consumers’ Counsel, for appellant.
Dave Yost, Attorney General, John Jones, Section Chief, and Robert A.
Eubanks and Werner L. Margard III, Assistant Attorneys General, for appellees.
Carpenter, Lipps & Leland, L.L.P., Kimberly W. Bojko, and Michael H.
Carpenter, for intervening appellees.
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