Case Title: In re Application of Ormet Primary Aluminum Corp.

Citation: 2011-Ohio-2377

Docket Number: 20092060, 20100722, and 20100723

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 Ormet Primary Aluminum Corp., Slip Opinion No. 2011-Ohio-2377.] 
 
 
 
 
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-2377 
IN RE APPLICATION OF ORMET PRIMARY ALUMINUM CORPORATION. 
IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY ET AL. 
IN RE APPLICATION FOR ESTABLISHMENT OF A REASONABLE ARRANGEMENT 
BETWEEN ERAMET MARIETTA, INC. AND COLUMBUS SOUTHERN POWER 
COMPANY. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as In re Application of Ormet Primary Aluminum Corp.,  
Slip Opinion No. 2011-Ohio-2377.] 
Public Utilities — R.C. 4905.31 — Establishment of special arrangements for 
particular customers. 
(Nos. 2009-2060, 2010-0722, and 2010-0723 — Submitted March 22, 2011 —  
Decided May 24, 2011.) 
APPEALS from the Public Utilities Commission, Nos. 09-119-EL-AEC, 
09-1095-EL-RDR, and 09-516-EL-AEC. 
__________________ 
 
 
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PFEIFER, J. 
{¶ 1} Under R.C. 4905.31, the Public Utilities Commission may approve 
“reasonable arrangement[s]” between utilities and customers.  Although the 
typical customer must take utility service under broadly applicable rates and 
tariffs, the reasonable-arrangement statute allows the commission to approve rates 
tailored to govern a specific customer’s service.  See R.C. 4905.31.  In a pair of 
cases below, the commission approved reasonable arrangements between two 
American Electric Power operating companies, Columbus Southern Power 
Company and Ohio Power Company (collectively, “AEP”), and two southeastern 
Ohio manufacturing firms, Ormet Primary Aluminum Corporation (“Ormet”) and 
Eramet Marietta, Inc. (“Eramet”). 
{¶ 2} Both arrangements gave the customer a substantial price discount 
on electric service.  The commission approved the arrangements and allowed AEP 
to collect from other customers most of the revenue forgone to the discounts. 
{¶ 3} The issues resolved below spanned three separate orders, and AEP 
appealed all three.  We now consolidate the appeals and affirm the orders. 
Factual and Procedural Background 
{¶ 4} R.C. 4905.31 permits “reasonable arrangement[s]” between 
utilities and customers.  Parties may propose for commission approval several 
types of arrangements, including “[a]ny * * * financial device that may be 
practicable or advantageous to the parties interested.”  R.C. 4905.31(E).  These 
financial devices often take the form of negotiated rate schedules tailored to 
govern a specific utility-customer relationship.  This case concerns separate 
applications filed by Ormet and Eramet to establish reasonable arrangements with 
AEP. 
{¶ 5} The first applicant, Ormet, manufactures aluminum.  It is the 
largest employer in Monroe County, employing around 1,000 people, and pays 
annual wages and salaries of over $56 million.  Manufacturing aluminum 
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consumes huge amounts of power, “up to 540 MW of electricity 24 hours per day, 
365 days per year,” according to Ormet’s president.  Ormet is the largest, most 
energy-intensive customer that AEP serves in Ohio. 
{¶ 6} Electricity accounts for approximately 35 percent of the cost of 
producing aluminum.  The price of aluminum is set globally on the London Metal 
Exchange, which means that Ormet cannot determine the selling price of its 
product.  Accordingly, Ormet is vulnerable when the price of aluminum fails to 
keep pace with the price of power.  In the past decade, Ormet has gone through 
bankruptcy reorganization and has shut down and restarted its Monroe County 
operations. 
{¶ 7} In February 2009, Ormet asked the commission to approve a 
reasonable arrangement linking Ormet’s electric rate to the market price of 
aluminum.  When the price of aluminum was at a certain benchmark, Ormet was 
to pay a set rate for power.  If the price of aluminum fell below the benchmark, 
Ormet would get a discount on power; if the price of aluminum was above the 
benchmark, Ormet would pay a premium. 
{¶ 8} Eramet filed its application four months after Ormet.  Eramet 
described its products as “manganese alloys that strengthen and improve the 
properties of steel.”   Its application was much simpler than Ormet’s.  It asked for 
a fixed, discounted rate to fund certain upgrades to its Marietta manufacturing 
facilities. 
{¶ 9} The amount of the discounts is the difference between what AEP 
would have collected under its tariffs and what it actually collects under the 
discounts and is known as “delta revenue.”  See, e.g., Ohio Adm.Code 4901:1-38-
01(C).  A recent amendment to R.C. 4905.31 addresses delta revenue, stating that 
a reasonable arrangement “may include a device to recover costs incurred in 
conjunction with any economic development and job retention program of the 
utility within its certified territory, including recovery of revenue foregone as a 
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result of any such program.”  See 2008 Am.Sub.S.B. No. 221.  AEP understood 
this language to mean that the commission could approve an application only if 
the application allowed AEP to collect from other customers all of the resulting 
delta revenue. 
{¶ 10} The commission held hearings in both cases.  Numerous parties 
intervened, including the Office of the Ohio Consumers’ Counsel (“OCC”) and 
Industrial Energy Users–Ohio (“IEU”).  Disagreement in both cases substantially 
centered on the amount of the discount and who should pay for it. 
{¶ 11} The commission issued the Ormet order on July 15, 2009, and the 
Eramet order on October 15, 2009.  In both cases, the commission approved the 
basic discount mechanism and, as a condition of receiving the discount, required 
the manufacturers to maintain certain employment levels.  The orders allowed 
AEP to recover most of its delta revenue from other customers, but it did not 
allow AEP to continue to receive provider-of-last-resort (“POLR”) charges that 
are typically paid by the manufacturers. 
{¶ 12} AEP sought rehearing in both cases, which the commission denied.  
Several months after the original orders, in a third proceeding, the commission 
authorized AEP to collect the Ormet and Eramet delta revenue, again, without 
allowing recovery of POLR charges.  AEP appealed all three cases.  Ormet and 
Eramet have intervened in their respective appeals; OCC and IEU have intervened 
in all three.  All intervenors have filed briefs in support of the commission. 
{¶ 13} Because the three appeals present nearly identical issues, we 
consolidated the cases for oral argument.  We now consolidate the cases for 
decision. 
Analysis 
{¶ 14} As permitted by R.C. 4905.31, Ormet and Eramet each asked the 
commission to approve a reasonable arrangement that included a substantial 
discount on power; the commission approved the arrangements.  The orders of the 
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commission allow AEP to collect the delta revenue from other customers.  The 
one exception is that the commission did not allow AEP to collect the amount for 
POLR charges that are typically paid by the manufacturers.  AEP has contended 
throughout the proceedings that other customers should pay in full for the 
discount. 
{¶ 15} Leaving aside for the moment AEP’s specific challenges to the 
order, the commission’s decision to disallow POLR charges makes sense.  POLR 
charges compensate utilities for standing ready to serve “customers who shop and 
then return.”  Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 
530, 2004-Ohio-6767, 820 N.E.2d 885, ¶ 39, fn. 5.  Under the order, however, 
Ormet and Eramet cannot shop.  In short, AEP seeks payment of millions of 
dollars a year to prepare for the return of two customers even though those two 
customers cannot lawfully depart.  We conclude that the commission’s decision 
was sensible.  We now address each of AEP’s arguments in turn. 
“May” is permissive 
{¶ 16} AEP first argues that the commission erred “in concluding that ‘the 
recovery of delta revenues is a matter for the Commission’s discretion’ under 
R.C. 4905.31.”  We disagree.  R.C. 4905.31 does not require full recovery of delta 
revenue.  The statute clearly contemplates “recovery of revenue foregone” as a 
result of discounts, but it speaks only in permissive terms.  It states that certain 
arrangements “may include a device to recover costs incurred in conjunction with 
any economic development and job retention program of the utility within its 
certified territory, including recovery of revenue foregone as a result of any such 
program.”  R.C. 4905.31(E). 
{¶ 17} The statute states that delta revenue “may” be recovered.  We 
conclude that recovery is permitted but not required.  See Fayetteville Tel. Co. v. 
Pub. Util. Comm. (1982), 1 Ohio St.3d 167, 170, 1 OBR 140, 438 N.E.2d 128, fn. 
8.  See also State ex rel. Niles v. Bernard (1978), 53 Ohio St.2d 31, 34, 7 O.O.3d 
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119, 372 N.E.2d 339 (“usage of the term ‘may’ is generally construed to render 
optional, permissive, or discretionary the provision in which it is embodied”).  
Not only does the statute use the permissive term “may,” it does not use any 
mandatory terms, such as “must” or “shall,” when addressing the commission’s 
authority to allow the recovery of delta revenue.  Because R.C. 4905.31(E) uses 
permissive language in describing whether forgone revenue should be recovered, 
it is a matter for the commission’s discretion. 
{¶ 18} AEP’s primary argument is that the permissive words in R.C. 
4905.31 cannot be directly applied to the cost-recovery language.  AEP contends 
that because no permissive words immediately precede “including recovery of 
revenue foregone” in the statute, recovery of delta revenue must be mandatory.  
But no mandatory language immediately precedes “including recovery of revenue 
foregone” either.  Furthermore, the earlier “may” naturally relates to the entire 
sentence.  AEP’s own choice of words confirms the difficulty of characterizing 
R.C. 4905.31(E) as mandatory—AEP uses forms of the word “permit” no less 
than nine times to describe the relevant provisions of the statute.  Indeed, it 
concludes its statutory argument with the statement that “the General Assembly’s 
manifest intention [was] to permit recovery of economic development costs 
‘including revenue foregone.’ ”  (Emphasis added.)  We agree—but fail to see 
how this furthers AEP’s cause. 
{¶ 19} AEP also asserts that if the order is allowed to stand, the 
commission “could disallow recovery of all revenues foregone under a contract 
filed unilaterally by a mercantile customer and imposed on the utility by the 
Commission.”  But this case does not present that question.  As AEP 
acknowledges in Ormet (and does not gainsay in Eramet), the commission 
granted AEP “the majority of the revenues foregone.”  Whether the commission 
could lawfully deny all forgone revenue is a hypothetical question, and we will 
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not pass on it here.  See, e.g., State ex rel. Elyria Foundry Co. v. Indus. Comm. 
(1998), 82 Ohio St.3d 88, 89, 694 N.E.2d 459. 
{¶ 20} Finally, AEP devoted nine pages of its brief to explaining how the 
commission had decided AEP’s electric-security-plan case, suggesting that the 
decisions in that case and this one are inconsistent.  AEP cites no authority and 
presents no argument suggesting that any inconsistency between the two orders 
constitutes an independent legal error.  We fail to see the relationship between the 
two cases, and accordingly, we do not consider the matter. 
{¶ 21} AEP has not shown that R.C. 4905.31 requires full recovery of 
delta revenue.  We reject its first proposition of law. 
Exclusive-supplier provisions do not violate public policy 
{¶ 22} Even though AEP argues to the contrary, the orders issued by the 
commission do not allow the manufacturers to shop for electric service for the 
duration of the arrangement.  In Eramet, AEP argues that there is no evidence that 
the manufacturer agreed to the exclusive-supplier provision.  (No such argument 
is made in Ormet.)  The order stated that “Eramet cannot shop,” and Eramet did 
not appeal any part of the order.  Thus, Eramet is now bound by the order.  
Further, Eramet represents to this court that “there is an exclusive supplier 
agreement,” and we accept its representation.  In its second proposition of law, 
AEP argues that these exclusive-supplier provisions violate Ohio’s “basic and 
central” electric policies: namely, those favoring the development of competitive 
markets, retail shopping, and customer choice.  For that reason, AEP asks us to 
reverse or vacate the adoption of the exclusive-supplier provisions. 
{¶ 23} In response, OCC argues that the state policies of R.C. Chapter 
4928 do not apply to reasonable arrangements approved under R.C. 4905.31.  See 
R.C. 4905.31 (“Chapter[] * * * 4928 * * * do[es] not prohibit” the formation of 
“any reasonable arrangement”).  We will assume for the sake of argument that the 
policy statutes apply here, because even if they do, AEP has not shown that the 
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commission violated them.  According to AEP, the exclusive-supplier provisions 
conflict with the policies in favor of “customer choice,” “the right to shop,” and 
“retail choice.”  But the order advanced the choices of the only customers who 
were party to these proceedings.  The customers, after all, proposed the 
arrangements, supported them before the commission, and have intervened to 
defend them on appeal.  Customer choice appears to have been vindicated in these 
cases. 
{¶ 24} Nevertheless, AEP responds, allowing Ormet and Eramet to tie up 
their accounts might harm the larger competitive market, contrary to state policy.  
The company suggests that expert testimony is not necessary to show harm to 
Ohio markets, but we find that assertion dubious.  Whether and to what extent the 
removal of one or two large customers would adversely affect the entire 
competitive market is the sort of matter to which economists and other market 
experts could attest.  It is a question of fact, but no evidence was provided, and we 
will not reverse the commission based on speculation.  See, e.g., Elyria Foundry 
Co. v. Pub. Util. Comm., 114 Ohio St.3d 305, 2007-Ohio-4164, 871 N.E.2d 1176, 
¶ 67.  We reject AEP’s second proposition of law. 
Can Ormet or Eramet shop for competitive generation? 
{¶ 25} In its third proposition of law, AEP asserts that the commission 
erred when it found that there was “no risk” that the customers “will shop for 
competitive generation and then return to AEP-Ohio’s POLR service.”  This 
finding underpinned the commission’s decision to disallow POLR charges.  AEP 
asks us to “reverse the Commission’s conclusion that there is no risk that [the 
customers] will shop and subsequently return to SSO service from AEP Ohio.” 
{¶ 26} AEP challenges a factual finding, so our review is deferential.  See 
Ohio Consumers’ Counsel v. Pub. Util. Comm., 117 Ohio St.3d 301, 2008-Ohio-
861, 883 N.E.2d 1035, ¶ 14.  We cannot say that the commission erred in finding 
that there was no risk that the manufacturers would shop.  The commission relied 
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on the fact that “AEP-Ohio will be the exclusive supplier” to the manufacturers.  
As we have already discussed, that is true—the orders require the customers to 
take service exclusively from AEP.  If they must take service exclusively from 
AEP, then it follows that they cannot take it from another supplier.  Thus, the 
commission reasonably found that the risk of shopping was insufficient to justify 
the collection of POLR charges. 
{¶ 27} AEP maintains that there is some risk that Ormet or Eramet could 
shop despite the order, given the commission’s continuing supervisory power 
over reasonable arrangements.  We consider this issue unripe.  If the commission 
allows Ormet or Eramet to shop, if that harms AEP, and if the commission fails to 
make AEP whole, AEP may protest before the commission and then appeal to this 
court if it remains dissatisfied. 
{¶ 28} Finally, 
AEP 
argues 
that 
the 
commission 
unreasonably 
“narrow[ed] the scope of its review” of the risk that manufacturers would shop “to 
only three years of the 10-year contract.”  AEP did not apply for rehearing on this 
ground in the Ormet case, so we lack jurisdiction to consider the issue.  
Consumers’ Counsel v. Pub. Util. Comm. (1994), 70 Ohio St.3d 244, 247, 638 
N.E.2d 550.  AEP preserved this challenge in Eramet, but it lacks merit.  Limiting 
review of shopping risk to three years was reasonable.  The POLR charge was to 
expire after three years, and no determination had been made whether it would be 
renewed.  Recovery of the POLR charge was the only disputed issue in Eramet, 
so the commission sensibly limited its review to the period in which that charge 
was in effect. 
Must a utility consent to a reasonable arrangement? 
{¶ 29} In its fourth and final proposition of law, AEP argues that “there 
can be no arrangement approved by the Commission if the public utility to be 
bound by the arrangement does not agree to its terms.”  The statute does not 
expressly require the utility’s consent to a reasonable arrangement.  AEP attempts 
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to locate this requirement in two places: the word “arrangement” and the phrase 
“practicable or advantageous to the parties interested.” 
{¶ 30} AEP’s primary argument is that the term “arrangement” denotes a 
contract to which both parties assent.  The argument assumes that “arrangement” 
means one of only two things: “either a ‘mutual agreement or understanding’ or ‘a 
preliminary step or measure’ ” (emphasis added by AEP), quoting Webster’s 
Third New International Dictionary (2002) 120.  As the second meaning does not 
work, AEP concludes, arrangement must mean “mutual agreement.” 
{¶ 31} We are not persuaded, because the major premise of the argument 
is false.  The word “arrangement” has more than two possible definitions.  
Webster’s Third gives seven main senses, and AEP’s preferred definition is the 
only one denoting any sense of mutual assent.  See id., sense 6(b)(1).  Many of the 
definitions that AEP neglected to mention fit in the context before us, including 
the first, which is “the act or action of arranging or putting in correct, convenient, 
or desired order.”  Id.  A rate schedule may be “arranged,” i.e., put in a desired 
order, so that sense also works in this context.  See, e.g., Atchison, Topeka & 
Santa Fe Ry. Co. v. United States (1914), 232 U.S. 199, 221, 34 S.Ct. 291, 58 
L.Ed. 568 (stating that the commerce commission “may prescribe the form in 
which schedules shall be prepared and arranged”).  This sense of the word 
“arrangement” contains no element of mutual assent.  Thus, “arrangement” by 
itself does not impose a requirement of utility consent. 
{¶ 32} At most, AEP has shown that “arrangement” could mean “mutual 
agreement.”  But the question is not what “arrangement” could mean in isolation, 
but what R.C. 4905.31 as a whole requires.  See, e.g., State v. Porterfield (2005), 
106 Ohio St.3d 5, 2005-Ohio-3095, 829 N.E.2d 690, ¶ 12 (“Parsing individual 
words is useful only within a context”).  Reading the statute as a whole, we 
discern no support for AEP’s position. 
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{¶ 33} First, as may be inferred from AEP’s exertions, the statute does not 
expressly require the consent or agreement of the utility.  For the General 
Assembly to choose a word that usually does not denote mutual consent would be 
an odd and exceedingly subtle way for the General Assembly to impose a mutual-
consent requirement. 
{¶ 34} Second, although R.C. 4905.31 does not expressly require utility 
consent, it expressly requires utility compliance.  The statute states, “No * * * 
arrangement is lawful unless it is filed with and approved by the commission.”  
Subsection (E).  The next sentence then commands the utility “to conform its 
schedules of rates, tolls, and charges to such arrangement”—that is, the 
commission-approved arrangement.  Rather than giving utilities the right to 
cancel or consent, the statute requires utilities to conform to the approved 
arrangement. 
{¶ 35} Third, the fact that R.C. 4905.31 now allows the customer to 
propose an arrangement undercuts the notion that the utility must agree to the 
terms.  Before recent amendments to R.C. 4905.31, see 2008 Am.Sub.S.B. No. 
221, only utilities could file reasonable arrangements for commission approval—
this meant utilities possessed a de facto veto power.  If they did not like the terms 
of the arrangement, they could refuse to file.  That the statute was amended to 
allow nonutilities to file arrangements further suggests that AEP’s consent is not 
required. 
{¶ 36} Finally, the statute affirmatively gives the commission—not 
utilities—final say over arrangements.  The final sentence of R.C. 4905.31 states, 
“Every * * * reasonable arrangement shall be under the supervision and 
regulation of the commission, and is subject to change, alteration, or modification 
by the commission.”  Thus, the commission may supervise, regulate, change, 
alter, and modify arrangements.  No comparable power is vested in the utility, and 
the power to modify is not conditioned on the agreement of the utility. 
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{¶ 37} Taking these factors together, we cannot read the word 
“arrangement” to impose a utility-consent requirement. 
{¶ 38} AEP asserts that one other part of the statute requires its consent to 
the final order.  As noted, R.C. 4905.31(E) permits “financial device[s] that may 
be practicable or advantageous to the parties interested.”  According to AEP, the 
phrase “advantageous to the parties” means that all parties must agree that the 
device is advantageous.  We disagree.  Even assuming that the phrase “practicable 
or advantageous to the parties interested” acts as a limit upon the commission, the 
General Assembly used the disjunctive term “or.”  Thus, even under AEP’s 
reading of the statute, an arrangement need only be “practicable” to survive.  
“Practicable” means “reasonably capable of being accomplished; feasible.”  
Black’s Law Dictionary (9th Ed.2009) 1291.  AEP has made no showing that this 
arrangement is infeasible.  Indeed, the commission required other customers to 
pay all of AEP’s forgone revenue, except for the POLR charge, and AEP has not 
demonstrated that it will actually expend anything to act as provider of last resort 
for these customers. 
Conclusion 
{¶ 39} For the foregoing reasons, we affirm the orders of the commission. 
Orders affirmed. 
O’CONNOR, C.J., and LUNDBERG STRATTON, O’DONNELL, LANZINGER, 
CUPP, and MCGEE BROWN, JJ., concur. 
__________________ 
Steven T. Nourse and Matthew J. Satterwhite, for appellants, Columbus 
Southern Power Company and Ohio Power Company. 
Michael DeWine, Attorney General, William L. Wright, Section Chief, 
and Thomas McNamee, Werner L. Margard III, and Thomas G. Lindgren, 
Assistant Attorneys General, for appellee, Public Utilities Commission of Ohio. 
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Janine L. Migden-Ostrander, Consumers’ Counsel, and Maureen R. 
Grady, Melissa R. Yost, and Michael E. Idzkowski, Assistant Consumers’ 
Counsel, for intervening appellee Ohio Consumers’ Counsel. 
Boehm, Kuntz & Lowry, David F. Boehm, and Michael L. Kuntz, for 
intervening appellee Ohio Energy Group. 
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, and Joseph E. 
Oliker, for intervening appellees Industrial Energy Users–Ohio and Eramet 
Marietta, Inc. 
Sonnenschein, Nath & Rosenthal, L.L.P., Clinton A. Vince, Douglas G. 
Bonner, Daniel D. Barnowski, Emma F. Hand, and Keith C. Nusbaum, for 
intervening appellee Ormet Primary Aluminum Corporation. 
______________________