Case Title: In re Application of Columbus S. Power Co.

Citation: 2011-Ohio-2383

Docket Number: 20101533

State: ohio

Court: Ohio Supreme Court

Date: 2011-05-24T00:00:00Z

Document:
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In 
re Application of Columbus S. Power Co., Slip Opinion No. 2011-Ohio-2383.] 
 
 
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. 2011-OHIO-2383 
IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY FOR 
APPROVAL OF ITS PROGRAM PORTFOLIO PLAN; 
INDUSTRIAL ENERGY USERS-OHIO, APPELLANT; PUBLIC UTILITIES 
COMMISSION ET AL., APPELLEES. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as In re Application of Columbus S. Power Co., Slip Opinion No. 
2011-Ohio-2383.] 
Public utilities — R.C. 4928.66 — Public Utilities Commission’s order approving 
electric-distribution utility’s program portfolio plan upheld. 
(No. 2010-1533 — Submitted April 6, 2011 — Decided May 24, 2011.) 
APPEAL from the Public Utilities Commission, No. 09-1089-EL-POR. 
__________________ 
LUNDBERG STRATTON, J. 
{¶ 1} In the case below, the Public Utilities Commission approved a 
“program portfolio plan” proposed by the American Electric Power (“AEP”) 
operating companies.  The plan, developed in consultation with a wide array of 
interested parties, contains a variety of programs that are designed to increase 
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energy efficiency and reduce peak demands on AEP’s system.  Such programs are 
required by law.  See R.C. 4928.66(A)(1). 
{¶ 2} Industrial Energy Users-Ohio (“IEU”) appeals from the 
commission’s approval of the plan on four grounds.  None of its arguments 
compels reversal, and we affirm. 
Background 
{¶ 3} Under R.C. 4928.66, electric-distribution utilities must implement 
programs to increase energy efficiency and to reduce peak demand.  See R.C. 
4928.66(A)(1)(a) and (b).  Energy-efficiency measures reduce the amount of 
energy required to perform tasks.  See Ohio Adm.Code 4901:1-39-01(L).  “Peak 
demand” refers to the measure of electricity usage at the time when the most 
energy is being consumed simultaneously.  See Ohio Adm.Code 4901:1-39-
01(R).  Reducing peak demand, other things being equal, lowers the price of 
power and forestalls the need to add new generation plants.  See, e.g., Natural 
Resources Defense Council, Inc. v. Herrington (C.A.D.C.1985), 768 F.2d 1355, 
1414 (discussing benefits of peak-demand reductions).  The statute imposes 
annual goals in both categories, R.C. 4928.66(A)(1)(a) and (b), and if an electric-
distribution utility does not meet the goals, the law authorizes forfeitures, R.C. 
4928.66(C). 
{¶ 4} The statute also allows the commission to approve “a revenue-
decoupling mechanism.”  R.C. 4928.66(D).  Such mechanisms separate (or 
“decouple”) the recovery of fixed distribution costs from the volume of sales.  
Before it can approve a proposed revenue-decoupling mechanism, the 
commission must determine two things: first, that the mechanism “provides for 
the recovery of revenue that otherwise may be foregone by the utility as a result 
of or in connection with the implementation by the electric distribution utility of 
any energy efficiency or energy conservation programs,” and second, that the 
January Term, 2011 
3 
 
mechanism “reasonably aligns the interests of the utility and of its customers in 
favor of those programs.”  Id. 
{¶ 5} On November 12, 2009, the AEP operating companies, Columbus 
Southern Power (“CSP”) and Ohio Power Company, filed an application seeking 
approval of a “Three-Year Program Portfolio Plan,” which presented a three-year 
approach to meeting the companies’ energy-efficiency and peak-demand-
reduction goals.  The plan had been developed in consultation with a group of 
interested parties, and along with the plan, the companies filed a stipulation to 
help resolve various issues.  Among other things, the stipulation provided AEP 
with a revenue-decoupling mechanism, which the parties expected to run for three 
years. 
{¶ 6} IEU opposed the stipulation.  It intervened, lodged objections to 
the portfolio plan, and sponsored testimony in support of its objections.   
{¶ 7} The commission held a hearing on the stipulation on February 25, 
2010, and on May 13, it issued an order modifying and approving the stipulation.  
One of the modifications pertained to the proposed decoupling mechanism.  
Instead of allowing the mechanism to run for three years (and thus end sometime 
in 2013), the commission prescribed an end date of January 1, 2011.  This 
limitation on the period in which AEP could recover forgone revenue reflected the 
commission’s concern whether the companies’ distribution rates—which had last 
been reviewed in 1991 (CSP) and 1994 (Ohio Power Company)—accurately 
reflected their costs.  Going forward, the commission “encouraged” the 
companies “to propose a mechanism to answer the Commission’s concern 
regarding quantification of fixed costs.” 
{¶ 8} IEU filed an application for rehearing, which the commission 
denied on July 14.  This appeal followed.  Apparently due to a filing error before 
the commission, IEU appealed only the order as it pertained to CSP and not to its 
sister company, Ohio Power Company.  CSP has intervened as an appellee. 
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Discussion 
{¶ 9} IEU raises four propositions of law.  All lack merit, and 
accordingly we affirm. 
A.  IEU has not shown that the commission erred in modifying and  
approving the revenue-decoupling mechanism 
{¶ 10} In its first proposition of law, IEU challenges the commission’s 
approval of CSP’s requested decoupling mechanism.  The commission actually 
agreed with IEU’s contention that “the record fails to establish what revenue is 
necessary to provide AEP-Ohio with the opportunity to recover its costs and to 
earn a fair and reasonable return.”  But rather than disapprove the decoupling 
mechanism altogether, the commission shortened its lifespan from three years to 
about seven months. 
{¶ 11} We agree with IEU that the commission’s reasoning had a serious 
flaw—which we will address momentarily—but at the same time, we do not see 
that the flaw warrants reversal. 
1.  The outcome of the order was reasonable and lawful 
{¶ 12} IEU’s argument assumes that CSP was required to prove “ ‘what 
revenue is necessary to provide [it] with the opportunity to recover its costs and to 
earn a fair and reasonable return.’ ”  According to IEU, this cost-of-service 
evidence is required by R.C. 4928.66(D) and Ohio Adm.Code 4901:1-39-07(A).  
We disagree. 
{¶ 13} We can quickly dispense with the administrative-rule argument 
made by IEU.  Ohio Adm.Code 4901:1-39-07(A) contains no requirement that 
utilities demonstrate their cost of service.  It simply allows “appropriate lost 
distribution revenues.” 
{¶ 14} As for the statute, R.C. 4928.66(D) contains two requirements that 
an application for a revenue-decoupling mechanism must meet before the 
January Term, 2011 
5 
 
commission may approve it, but IEU does not explain which one it alleges was 
not met, and we fail to see any statutory violation. 
{¶ 15} The first requirement is that the decoupling mechanism provide 
only for “the recovery of revenue that otherwise may be foregone by the utility as 
a result of or in connection with the implementation by the electric distribution 
utility of any energy efficiency or energy conservation programs.”  This clause 
does not require the commission to find that the recovery of the lost revenue is 
necessary to recover costs and to ensure a fair rate of return.  In fact, the word 
“revenue” means the opposite; it means “[g]ross income or receipts.”  (Emphasis 
added.)  Black’s Law Dictionary (8th Ed.2004) 1344.  If CSP loses sales, it loses 
gross income, regardless of its costs, so the first part of subsection (D) does not 
prohibit recovery.1  
{¶ 16} The second part of R.C. 4928.66(D) requires the commission to 
find that the decoupling mechanism “reasonably aligns the interests of the utility 
and of its customers in favor of [energy-efficiency and energy-conservation] 
programs.”  This part of the statute also does not require what IEU says was 
needed: evidence of the utility’s cost of service. 
{¶ 17} Thus, none of the authorities cited by IEU requires evidence of the 
utility’s cost of service.  Nevertheless, the commission plainly took the lack of 
cost evidence into account.  Sharing IEU’s concern that CSP’s distribution rates 
might be too high, the commission sharply limited the period in which CSP could 
recoup lost revenue.  If anyone was harmed by that decision, it was CSP, but CSP 
did not appeal.  We therefore need not decide whether R.C. 4928.66 entitled the 
commission to do what it did: reduce the recovery of lost revenue based on 
concerns regarding the utility’s cost of service.  But the statute plainly does not do 
                                                 
1 The statute permits recovery of revenue that otherwise might be forgone “as a result of or in 
connection with” certain programs.  R.C. 4928.66(D).  IEU does not argue that this causal 
requirement was unmet, and we do not consider the matter. 
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what IEU wants it to: absolutely prohibit recovery if the utility’s cost of service is 
unknown.  For these reasons, we affirm this part of the order. 
2.  Although the commission erred in its reasoning, that error  
does not warrant remand 
{¶ 18} Although we affirm the commission’s order regarding decoupling, 
we are troubled by some of the reasoning in the commission’s order.  The 
commission appeared to believe that the requirement that its findings be based on 
record evidence is somehow lessened when the commission is reviewing a 
stipulation.  For example, the commission stated in its entry on rehearing that “in 
a litigated case,” it “would have required more information to find that AEP-Ohio 
had met its burden of proof.” 
{¶ 19} Contrary to the commission’s statement, this was “a litigated 
case”—IEU contested the stipulation.  When the commission reviews a contested 
stipulation, the requirement of evidentiary support remains operative.  While the 
commission “may place substantial weight on the terms of a stipulation,” it “must 
determine, from the evidence, what is just and reasonable.”  (Emphasis added.)  
Consumers’ Counsel v. Pub. Util. Comm. (1992), 64 Ohio St.3d 123, 126, 592 
N.E.2d 1370.  Numerous cases, including several in the last ten years, confirm the 
point.  See, e.g., Duff v. Pub. Util. Comm. (1978), 56 Ohio St.2d 367, 379, 384 
N.E.2d 264 (“The commission may take the stipulation into consideration, but 
must determine what is just and reasonable from the evidence presented at the 
hearing”); Elyria Foundry Co. v. Pub. Util. Comm., 114 Ohio St.3d 305, 2007-
Ohio-4164, 871 N.E.2d 1176, ¶ 38; Constellation NewEnergy, Inc. v. Pub. Util. 
Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885, ¶ 49; AK Steel 
Corp. v. Pub. Util. Comm. (2002), 95 Ohio St.3d 81, 83, 765 N.E.2d 862.  Indeed, 
the very case cited by the commission concerning the approval of stipulations 
made 
precisely 
this 
point: 
“stipulations 
are 
considered 
merely 
as 
recommendations to the commission and, while entitled to substantial weight, 
January Term, 2011 
7 
 
they must be supported by the evidence of record to withstand [appellate] 
scrutiny.”  Industrial Energy Users-Ohio v. Pub. Util. Comm. (1994), 68 Ohio 
St.3d 559, 563, 629 N.E.2d 423.  The agreement of some parties is no substitute 
for the many procedural protections reinforced by the evidentiary-support 
requirement. 
{¶ 20} Here, however, no one challenges the legality of the commission’s 
specific decision to cut short CSP’s decoupling mechanism.  And IEU has not 
shown that the law required the commission to go any further.  While the 
commission may have erred in its reasoning,  that error is harmless.  For that 
reason, we reject IEU’s first proposition of law. 
B.  Contrary to IEU’s assertions, the commission considered price impact 
{¶ 21} In its second proposition of law, IEU argues that the commission 
failed to “consider[] the overall rate impacts on Ohio customers.”  This claim is 
meritless. 
{¶ 22} The commission expressly considered the impact of rate increases.  
The order contained a section entitled “Consideration of Rate Increases.”  In that 
section, the commission discussed IEU’s argument that “approval of the 
Stipulation will result in a rate increase for customers” and that the commission 
should not view the increase in isolation “but must consider other recent rate 
increases approved by the Commission.”  The entry on rehearing stated, “The 
Commission is mindful of the rate impact of this case on AEP-Ohio’s customers.” 
{¶ 23} The commission considered overall rate impacts, and we reject 
IEU’s second proposition of law. 
C.  IEU has not shown that CSP’s plan for reducing peak demand was unlawful 
{¶ 24} In its third proposition of law, IEU raises two challenges to CSP’s 
plan for reducing peak demand.  One challenge was forfeited, and the other is 
flawed. 
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{¶ 25} IEU’s first argument is that CSP’s peak-reduction program is “not 
designed to achieve” the statutory mandates of R.C. 4928.66.  This argument was 
not raised before the commission on rehearing, so we lack jurisdiction to consider 
it.  See, e.g., Ohio Partners for Affordable Energy v. Pub. Util. Comm., 115 Ohio 
St.3d 208, 2007-Ohio-4790, 874 N.E.2d 764, ¶ 15. 
{¶ 26} IEU did raise its second argument below, but it lacks merit.  The 
commission did not adopt IEU’s preferred way of reducing peak demand—details 
on that method need not be discussed to dispose of IEU’s argument.  Pertinent 
here, IEU asserts that its preferred method “could lower the overall cost of AEP-
Ohio’s Portfolio Plan by approximately $7 million.”  IEU then argues, “Ignoring 
known lower cost options that reduce the overall cost of AEP-Ohio’s Portfolio 
Plan does not benefit ratepayers and is not in the public interest.” 
{¶ 27} IEU is attacking a discretionary decision, so our standard of review 
is deferential.  The statute creates a goal (peak-demand reduction), but does not 
tell the commission how to get there.  See R.C. 4928.66(A)(1)(b).  This 
effectively gives the commission discretion to find its way.  See, e.g., Payphone 
Assn. v. Pub. Util. Comm., 109 Ohio St.3d 453, 2006-Ohio-2988, 849 N.E.2d 4, 
¶ 25 (“When a statute does not prescribe a particular formula, the PUCO is vested 
with broad discretion”). 
{¶ 28} IEU has not shown an abuse of discretion.  We will assume for the 
sake of argument that IEU’s preferred method is in fact less expensive than the 
one proposed by CSP.  Even so, the mere fact that one program is less expensive 
than another is not grounds for selecting it.  The applicable statute does not 
require use of the “least cost” method.  See R.C. 4928.66(A)(1)(b); cf. R.C. 
4928.142(C) (requiring selection of the “least-cost bid”).  And as a matter of 
common sense, one must evaluate costs and benefits, but IEU adduces no 
evidence showing the relative benefits of the competing plans.  CSP’s peak-
demand-reduction plan covers multiple years and numerous industries and rate 
January Term, 2011 
9 
 
classes to address a highly complex problem, and there are many concerns 
(beyond simple cost) that CSP and the commission must account for in structuring 
these plans. 
{¶ 29} While cost is surely a relevant concern to be balanced in evaluating 
peak-demand-reduction plans, it is not the only concern, and the commission is 
entitled to consider more.  IEU’s third proposition of law is rejected. 
D.  IEU has not shown that the commission erred when it rejected a cost-saving 
program designed for mercantile customers 
{¶ 30} In its fourth proposition of law, IEU argues that the commission 
erred by “prohibiting * * * mercantile customers from relying on the ‘benchmark 
comparison method’ for agreements reached after December 10, 2009.”  R.C. 
4928.66(A)(2)(c) permits the commission to “exempt mercantile customers” from 
paying energy-efficiency and peak-demand-reduction charges if those customers 
“commit their demand-response or other customer-sited capabilities” toward the 
utility’s energy-reduction goals. 
{¶ 31} The stipulation proposed two methods allowing mercantile 
customers to seek this rate exemption.  The commission rejected one of them (the 
“benchmark-comparison method”) because it had already decided against using 
this method in the related rulemaking case.  This method had been favored by 
IEU. 
{¶ 32} On appeal, IEU lists several aspects of this decision that it 
disagrees with, but none of its complaints demonstrates reversible error. 
{¶ 33} IEU emphasizes that “[t]he PUCO unilaterally modified the only 
universally supported provision” of the stipulation.  But the commission “is not 
bound to accept the terms of any stipulation,” Ohio Consumers’ Counsel v. Pub. 
Util. Comm., 114 Ohio St.3d 340, 2007-Ohio-4276, 872 N.E.2d 269, ¶ 16, so this 
does not provide grounds to reverse. 
SUPREME COURT OF OHIO 
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{¶ 34} IEU also states that the commission’s rules do not address “what 
criteria must be met in order for a mercantile customer to qualify for an 
exemption from the rider.”  But the commission addressed this issue in its entry 
on rehearing.  It explained that it was in the process of developing an application 
and filing instructions to enable mercantile customers to request the exemption.  
IEU gives us no reason to think that the commission needed to develop these 
specific standards before it approved the wide-ranging portfolio plan—of which 
mercantile-exemption applications are but a part.  At its heart, then, IEU’s attack 
is against a docket-management decision.  We generally defer to the commission 
on such decisions, Toledo Coalition for Safe Energy v. Pub. Util. Comm. (1982), 
69 Ohio St.2d 559, 560, 23 O.O.3d 474, 433 N.E.2d 212, and do so here. 
{¶ 35} Finally, IEU states, “The [commission] failed to articulate why the 
benchmark compliance methodology * * * is not an appropriate methodology or 
does not meet the settlement review criteria.”  That is not true—the commission 
did articulate why IEU’s preferred method was not an appropriate methodology.  
As already noted, the commission had rejected use of that method in a separate 
rulemaking case.  This was a reasonable basis on which to act: “an administrative 
agency cannot ignore its own rules.”  State ex rel. Kroger Co. v. Morehouse 
(1995), 74 Ohio St.3d 129, 133, 656 N.E.2d 936.  Like its other arguments, IEU’s 
last complaint does not support reversal.  We reject its fourth proposition of law. 
Conclusion 
{¶ 36} For the foregoing reasons, we affirm. 
Order affirmed. 
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, CUPP, and 
MCGEE BROWN, JJ., concur. 
__________________ 
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, and Joseph E. 
Oliker, for appellant. 
January Term, 2011 
11 
 
Michael DeWine, Attorney General, William L. Wright, Section Chief, 
and Thomas W. McNamee and Steven L. Beeler, Assistant Attorneys General, for 
appellee Public Utilities Commission of Ohio. 
Matthew J. Satterwhite, Steven T. Nourse, and Anne M. Vogel, for 
intervening appellee Columbus Southern Power Company. 
______________________