Title: In re Columbus S. Power Co.

State: ohio

Issuer: Ohio Supreme Court

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. 2012-Ohio-5690.] 
 
 
 
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. 2012-OHIO-5690 
IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY FOR 
ADMINISTRATION OF THE SIGNIFICANTLY EXCESSIVE EARNINGS TEST; OHIO 
ENERGY GROUP ET AL., APPELLANTS AND CROSS-APPELLEES; COLUMBUS 
SOUTHERN POWER COMPANY, APPELLEE AND CROSS-APPELLANT; PUBLIC 
UTILITIES COMMISSION OF OHIO, APPELLEE. 
[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. 2012-Ohio-5690.] 
Public utilities—Electric distribution companies operating under electric security 
plans—R.C. 4128.143(F)—Standard of “significantly excessive earnings 
not void for vagueness—Treatment of off-system sales and associated 
assets. 
(No. 2011-0751—Submitted March 21, 2012—Decided December 6, 2012.) 
APPEALS and CROSS-APPEAL from the Public Utilities Commission of Ohio, No. 
10-1261-EL-UNC. 
_______________ 
SUPREME COURT OF OHIO 
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CUPP, J. 
{¶ 1} Electric distribution utilities that opt to provide service under an 
electric security plan must undergo an annual earnings review.  If their plan 
resulted in “significantly excessive earnings” compared to similar companies, the 
utility must return the excess to its customers.  R.C. 4928.143(F).  In the case 
below, the Public Utilities Commission found that Columbus Southern Power’s 
2009 earnings were significantly excessive by over $42 million. 
{¶ 2} There are three appeals from the order.  Columbus Southern Power 
(“CSP”) asserts that R.C. 4928.143(F) is unconstitutionally vague, and the Ohio 
Energy Group and the Office of the Ohio Consumers’ Counsel (collectively, 
“OEG”) and Industrial Energy Users-Ohio (“IEU”) raise different arguments that 
the commission erred in applying the statute.  After careful review of these 
appeals, we find merit in none of the arguments, and we affirm. 
FACTUAL AND PROCEDURAL BACKGROUND 
{¶ 3} Ohio requires electric distribution utilities to provide consumers 
with “a standard service offer of all competitive retail electric services necessary 
to maintain essential electric service to consumers, including a firm supply of 
electric generation service.”  R.C. 4928.141(A).  “The utility may provide the 
offer in one of two ways: through a ‘market rate offer’ under R.C. 4928.142 or 
through an ‘electric security plan’ under R.C. 4928.143.”  In re Application of 
Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, 
¶ 5.  The American Electric Power operating companies, CSP and Ohio Power, 
chose to provide service under an electric security plan. 
{¶ 4} The statute does not provide a detailed mechanism for establishing 
rates under an electric security plan.  Plans may contain any number of provisions 
within a variety of categories so long as the plan is “more favorable in the 
aggregate” than the expected results of a market-rate offer.  R.C. 4928.143(C)(1).  
But the statute does contain some limits, one of which is at issue in this case. 
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{¶ 5} R.C. 4928.143(F) requires the commission annually to consider 
whether the electric security plan resulted in “significantly excessive earnings” 
compared to companies facing “comparable” risk: 
 
 
With regard to the provisions that are included in an 
electric security plan under this section, the commission shall 
consider, following the end of each annual period of the plan, if 
any such adjustments resulted in excessive earnings as measured 
by whether the earned return on common equity of the electric 
distribution utility is significantly in excess of the return on 
common equity that was earned during the same period by publicly 
traded companies, including utilities, that face comparable 
business and financial risk, with such adjustments for capital 
structure as may be appropriate.  Consideration also shall be given 
to the capital requirements of future committed investments in this 
state. 
 
{¶ 6} The utility bears the “burden of proof for demonstrating that 
significantly excessive earnings did not occur.”  Id.  If the commission “finds that 
such adjustments, in the aggregate, did result in significantly excessive earnings, 
it shall require the electric distribution utility to return to consumers the amount of 
the excess by prospective adjustments.”  Id. 
{¶ 7} In the case below, the commission reviewed the companies’ 2009 
earnings.  The companies had proposed to exclude from review certain revenue 
from “off-system sales,” that is, wholesale sales by the companies to nonretail 
customers.  Several intervenors opposed the companies’ analysis.  OEG argued 
that the statute did not permit the commission to exclude any earnings from 
review.  IEU, in contrast, argued that many more items of revenue should have 
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been excluded.  And CSP and Ohio Power argued that the statute requiring 
earnings review was unconstitutionally vague. 
{¶ 8} The commission rejected all of these challenges.  On the merits, 
the commission eliminated the off-system-sales revenue from review.  Pub. Util. 
Comm. No. 10-1261-EL-UNC (Jan. 11, 2011) (the “Order”) at 27-30.  After 
making this adjustment, it found that Ohio Power “did not have significantly 
excessive earnings.”  Id. at 35.  CSP, on the other hand, was found to have had 
over $42 million in significantly excessive earnings.  Id. 
{¶ 9} IEU and OEG appealed, and CSP filed a cross-appeal.  The Ohio 
Partners for Affordable Energy filed an amicus brief, as did the FirstEnergy 
operating companies. 
Discussion 
{¶ 10} This case presents three separate appeals.  CSP raises a 
constitutional, void-for-vagueness challenge; OEG (joined by OCC) and IEU 
raise different arguments, each asserting that the commission misapplied the 
statute.  We consider CSP’s constitutional argument first. 
CSP’s Argument 
{¶ 11} CSP offers a single argument for overturning the order—that the 
statute requiring earnings review, R.C. 4928.143(F), is unconstitutionally vague.  
According to CSP, that section “fails to provide electric distribution utilities with 
fair notice, or the commission with meaningful standards, as to what is meant by 
‘significantly excessive earnings.’ ”  CSP is incorrect, and we hold that the statute 
is constitutional. 
I. 
Standard of review 
{¶ 12} First, as a general matter, CSP bears a heavy burden of proof in 
challenging the constitutionality of an Ohio statute.  CSP must establish beyond a 
reasonable doubt that the statute is unconstitutional.  Arnold v. Cleveland, 67 
Ohio St.3d 35, 38–39, 616 N.E.2d 163 (1993). 
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{¶ 13} CSP’s vagueness challenge faces an uphill climb for another 
reason.  Tolerance for vagueness “depends in part on the nature of the 
enactment.”  Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 
498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982).  Some statutes trigger relatively 
strict vagueness review, such as eminent-domain statutes, Norwood v. Horney, 
110 Ohio St.3d 353, 2006-Ohio-3799, 853 N.E.2d 1115, ¶ 88, statutes imposing 
criminal sanctions, Roark & Hardee LP v. Austin, 522 F.3d 533, 552 (5th 
Cir.2008), and statutes implicating constitutionally protected rights, Columbia 
Gas Transm. Corp. v. Levin, 117 Ohio St.3d 122, 2008-Ohio-511, 882 N.E.2d 
400, ¶ 42. 
{¶ 14} In contrast, “laws directed to economic matters are subject to a less 
strict vagueness test than laws interfering with the exercise of constitutionally 
protected rights.”  Id.; see also, e.g., Hoffman Estates, 455 U.S. at 498 (“economic 
regulation is subject to a less strict vagueness test * * *”).  That is, a “greater 
degree of ambiguity will be tolerated in statutes which * * * merely impose civil, 
as opposed to criminal penalties” and “when the statute regulates the conduct of 
businesses.”  Big Bear Super Market No. 3 v. Immigration & Naturalization Serv., 
913 F.2d 754, 757 (9th Cir.1990).  Cf. United States v. Dimitrov, 546 F.3d 409, 
414 (7th Cir.2008) (upholding statute imposing criminal sanctions where 
defendant “operated his business in a highly regulated industry”). 
{¶ 15} R.C. 4928.143(F) is a civil statute directed to economic matters in 
a highly regulated industry, and it does not implicate any constitutionally 
protected conduct.  Therefore, we apply a less strict vagueness test. 
{¶ 16} CSP rejoins that Norwood v. Horney, 110 Ohio St.3d 353, 2006-
Ohio-3799, 853 N.E.2d 1115, requires heightened scrutiny here because this case 
involves “the taking of private property rights.”  We did not formulate our holding 
in Norwood so broadly, however.  We held that heightened scrutiny applies 
“when a court reviews an eminent-domain statute or regulation.”  Id. at ¶ 88.  CSP 
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makes no express argument that R.C. 4928.143(F) qualifies as “an eminent-
domain statute.” 
{¶ 17} Norwood does not require heightened scrutiny here.  In that case, 
we analyzed a law providing for the physical appropriation of real estate for 
public use, not a law (like this one) that imposes a monetary assessment.  Whether 
such a law causes a taking is a difficult question, and CSP does not address it.  
See, e.g., McCarthy v. Cleveland, 626 F.3d 280, 285 (6th Cir.2010) (“all circuits 
that have addressed the issue have uniformly found that a taking does not occur 
when the statute in question imposes a monetary assessment that does not affect a 
specific interest in property”); see also Swisher Internatl., Inc. v. Schafer, 550 
F.3d 1046, 1057 (11th Cir.2008) (“Five Supreme Court Justices have expressed 
the view that the Takings Clause does not apply where there is a mere general 
liability * * * and where the challenge seeks to invalidate the statute rather than 
merely seeking compensation for an otherwise proper taking”), citing E. Ents. v. 
Apfel, 524 U.S. 498, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998). 
{¶ 18} We did not address that question in Norwood, but we did address 
whether heightened scrutiny applied to civil penalties, and the answer was no: 
“[R]egulations that are directed to economic matters and impose only civil 
penalties are subject to a ‘less strict vagueness test.’ ”  Id.,110 Ohio St.3d 353, 
2006-Ohio-3799, 853 N.E.2d 1115, at ¶ 85, quoting Hoffman Estates, 455 U.S. at 
498–499, 102 S.Ct. 1186, 71 L.Ed.2d 362.  This language describes R.C. 
4928.143(F), so Norwood does not require stricter scrutiny here. 
II. 
R.C. 4928.143(F) is not unconstitutionally vague 
{¶ 19} Having established that a more lenient standard of review applies, 
we now address the merits of CSP’s vagueness challenge. 
{¶ 20} The void-for-vagueness doctrine is a component of the right to due 
process and is rooted in concerns that laws provide fair notice and prevent 
arbitrary enforcement.  Skilling v. United States, ___ U.S. ___, 130 S.Ct. 2896, 
January Term, 2012 
7 
 
2933, 177 L.Ed.2d 619 (2010).  To prevail, a challenging party “must show that 
the statute is vague ‘not in the sense that it requires a person to conform his 
conduct to an imprecise but comprehensible normative standard, but rather in the 
sense that no standard of conduct is specified at all.’ ”  State v. Anderson, 57 Ohio 
St.3d 168, 171, 566 N.E.2d 1224 (1991), quoting Coates v. Cincinnati, 402 U.S. 
611, 614, 91 S.Ct. 1686, 29 L.Ed.2d 214 (1971).  “Many statutes * * * require 
administrative and judicial construction to clarify specific language.  Such statutes 
are not unconstitutionally vague.”  Minnesota ex rel. Alexander v. Block, 660 F.2d 
1240, 1255 (8th Cir.1981), fn. 35. 
A. We consider CSP’s constitutional challenge as applied to the facts of 
this case 
{¶ 21} Litigants may challenge the constitutionality of a statute on its face 
or as applied.  CSP claims that R.C. 4928.143(F) cannot withstand scrutiny, either 
on its face or as applied.  Yet CSP does not make clear which type of challenge it 
brings.  We need not determine, however, whether the challenge is facial or as 
applied, because the only challenge available to CSP in this case is an as-applied 
challenge. 
{¶ 22} Generally, a court examining a facial-vagueness challenge to a 
statute that implicates no constitutionally protected conduct will uphold that 
challenge only if the statute is impermissibly vague in all of its applications.  
Columbia Gas Transm. Corp., 117 Ohio St.3d 122, 2008-Ohio-511, 882 N.E.2d 
400, ¶ 43, citing Hoffman Estates, 455 U.S. at 494-495, 102 S.Ct. 1186, 71 
L.Ed.2d 362.  CSP has not presented the arguments necessary to support a facial 
challenge.  It does not argue that R.C. 4928.143(F) is “impermissibly vague in all 
of its applications.”  Nor does CSP offer any argument that the statute implicates 
any constitutionally protected conduct.  Moreover, where, as in this case, a 
vagueness challenge does not involve the First Amendment, the analysis must be 
examined in the light of the facts of the case at hand.  United States v. Mazurie, 
SUPREME COURT OF OHIO 
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419 U.S. 544, 550, 95 S.Ct. 710, 42 L.Ed.2d 706 (1975); United States v. 
Wayerski, 624 F.3d 1342, 1347 (11th Cir.2010) (“Where * * * a vagueness 
challenge does not involve the First Amendment, the analysis must be as applied 
to the facts of the case”). 
{¶ 23} That being the case, we “consider whether [the] statute is vague as 
applied to the particular facts at issue.”  Holder v. Humanitarian Law Project,  
___ U.S. ___, 130 S.Ct. 2705, 2718–2719, 177 L.Ed.2d 355 (2010); see also 
Hoffman Estates, 455 U.S. at 495 (a party “who engages in some conduct that is 
clearly proscribed cannot complain of the vagueness of the law as applied to the 
conduct of others”); Broadrick v. Oklahoma, 413 U.S. 601, 608, 93 S.Ct. 2908, 37 
L.Ed.2d 830 (1973) (“even if the outermost boundaries of [a statute are] 
imprecise, any such uncertainty has little relevance * * * where appellants’ 
conduct falls squarely within the ‘hard core’ of the statute's proscriptions and 
appellants concede as much”). 
B. CSP has not shown that R.C. 4928.143(F) is vague as applied to the 
facts of this case  
{¶ 24} CSP has not shown that the “statute is vague as applied to the 
particular facts at issue.”  Holder, 130 S.Ct. at 2718–2719.  The company has not 
challenged any of the commission’s determinations under R.C. 4928.143(F): not 
the calculation of CSP’s return on equity, not the selection of the peer group, and 
not whether its return significantly exceeded that of the peer group.  The 
commission in fact adopted CSP’s proposed return on equity and proposed peer 
group.  And CSP does not even assert, much less demonstrate, that the 
commission erred in finding that CSP’s return on equity significantly exceeded 
that of comparable companies.  CSP’s silence on these points is significant.  CSP 
cannot prevail on an as-applied challenge when it does not argue that the statute 
was erroneously applied to it. 
 
 
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C. R.C. 4928.143(F) provides substantial guidance to the commission 
{¶ 25} And even leaving aside the lack of an as-applied argument, we find 
that the statute provides considerable guidance to the commission.  The company 
asserts that R.C. 4928.143(F) gives “no notice or guidance as to what is meant by 
‘significantly excessive earning’ and how that determination is to be made.”  We 
disagree. 
{¶ 26} Whether a plan “resulted in excessive earnings” must be 
“measured by whether the earned return on common equity of the electric 
distribution utility is significantly in excess of the return on common equity that 
was earned during the same period by publicly traded companies, including 
utilities, that face comparable business and financial risk, with such adjustments 
for capital structure as may be appropriate.”  R.C. 4928.143(F). These are not 
meaningless words, and they provide a substantial amount of guidance on how to 
determine significantly excessive earnings.  The commission must calculate 
CSP’s “earned return on common equity,” determine a comparable group of 
publicly traded companies (which itself would require numerous other analyses), 
and then compare their earned returns on equity over the same period of time.  Id. 
{¶ 27} Having done all that, it must then determine whether CSP’s 
earnings are “significantly excessive.”  Id.  The term “significantly” also provides 
guidance.  In context, “significant” denotes “weighty” or “notable,” which tells 
the commission to look for more than a mere arithmetical excess before returning 
funds to customers.  Webster’s Third New International Dictionary 2116 (2002). 
{¶ 28} Despite fixing its argument on the term “significantly,” CSP cites 
no case law evaluating its use.  But many courts have upheld the term against 
vagueness challenges.  E.g., VIP of Berlin, LLC v. Berlin, 593 F.3d 179, 186–191 
(2d Cir.2010) (rejecting claim that “significant portion” is unconstitutionally 
vague); Williams v. Astrue, D.Kansas No. 09-1341-SAC, 2010 WL 4291918, at 
*4 (Oct. 26, 2010) (holding in review of benefits order that “the word ‘significant’ 
SUPREME COURT OF OHIO 
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is not unduly vague”); PrimeCo Personal Communications, L.P. v. Illinois 
Commerce Comm., Ill.Cir.Ct., Cook Cty. No. 98 CH 05500, 2000 WL 34016430, 
at *17 (Jan. 11, 2000) (the phrase “no significant impact on the net income” is not 
vague); Pennsylvania v. Fahy, 512 Pa. 298, 315, 516 A.2d 689 (1986) (rejecting 
claim that the term “significant history” is vague and overbroad); F. Ronci Co., 
Inc. v. Narragansett Bay Water Quality Mgt. Dist. Comm., R.I. Sup. Ct. No. C.A. 
NO. 87-0428, 1988 WL 1016804, at *4 (Feb. 9, 1988) (“The Court concludes that 
the use of the term ‘significant quantities’ does not render the statutory language 
unconstitutionally vague”); but see, e.g., Knoxville v. Entertainment Resources, 
LLC, 166 S.W.3d 650, 652, 658 (Tenn.2005) (holding in case involving First 
Amendment concerns that “the phrase ‘substantial or significant portion of its 
stock and [sic] trade’ is impermissibly vague”). 
{¶ 29} All of these required determinations limit the scope of the 
commission’s analysis.  Further, they provide numerous points that may be 
litigated below and challenged on appeal to provide a check on arbitrary 
enforcement by the commission.  See Skilling, 130 S.Ct. at 2933, 117 L.Ed.2d 
210.  In making its argument, CSP repeatedly quotes only two or three words of 
the statute (“significantly excessive earnings”) as though it provided none of the 
foregoing guidance.  But the statute says much more, and we cannot say that “ ‘no 
standard of conduct is specified at all.’ ”  Anderson, 57 Ohio St.3d at 171, 566 
N.E.2d 1224, quoting Coates, 402 U.S. at 614, 91 S.Ct. 1686, 29 L.Ed.2d 214. 
D. There are no “fair notice” concerns in this case 
{¶ 30} We also hold that this case presents no concerns about fair notice.  
A primary concern underpinning the vagueness doctrine is that “ ‘[v]ague laws 
may trap the innocent by not providing fair warning.’ ”  Hoffman Estates, 455 
U.S. at 498, 102 S.Ct.1186, 71 L.Ed.2d 362, quoting Grayned v. Rockford, 408 
U.S. 104, 108, 92 S.Ct. 2294, 33 L.E.2d 222 (1972).  CSP cannot credibly 
complain that it lacked notice; it not only had notice of R.C. 4928.143(F), but 
January Term, 2012 
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chose to be subject to it.  Under R.C. 4928.141, CSP was required to provide a 
standard service offer “in accordance with section 4928.142 or 4928.143 of the 
Revised Code.”  Only the latter section requires excessive-earnings review; the 
former establishes market-based rates.  The law has contained the earnings-review 
provision from the beginning, so CSP was on notice that it faced such review if it 
opted for an electric security plan.  Presumably, the potential reward outweighed 
the risk.  Thus, CSP’s choice to subject itself to earnings review undermines any 
argument that it lacked fair notice. 
III. 
CSP’s counterarguments 
{¶ 31} CSP raises several counterarguments, but we find them 
unpersuasive.  First, it cites no cases reviewing public-utility-regulatory statutes, 
but depends entirely on cases that involved relatively strict scrutiny and thus are 
not on point.  Most of the cited cases reviewed statutes imposing criminal 
penalties, and all required a stricter standard of review than applicable here.  See 
Cline v. Frink Dairy Co., 274 U.S. 445, 453–454, 47 S.Ct. 681, 71 L.Ed. 1146 
(1927); Belle Maer Harbor v. Charter Twp. of Harrison, 170 F.3d 553, 557 (6th 
Cir.1999); Carter v. Welles-Bowen Realty, Inc., 719 F.Supp.2d 846, 852 
(N.D.Ohio, 2010); Norwood v. Horney, 110 Ohio St.3d 353, 2006-Ohio-3799, 
853 N.E.2d 1115, ¶ 88. 
{¶ 32} CSP also argues that the administrative process employed by the 
commission is evidence of the vagueness of the statute.  But this point is 
unavailing.  Courts have often recognized that a “process of interpretation” should 
be allowed to flesh out statutory standards.  E.g., Bauer v. Shepard, 620 F.3d 704, 
717 (7th Cir.2010) (the Supreme Court is “chary of holding laws unconstitutional 
‘on their face’ precisely because they have recognized that vagueness will be 
reduced through a process of interpretation”); Minnesota ex rel. Alexander v. 
Block, 660 F.2d 1240, 1254 (8th Cir.1981), fn. 35 (“Many statutes * * * require 
SUPREME COURT OF OHIO 
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administrative and judicial construction to clarify specific language.  Such statutes 
are not unconstitutionally vague”). 
{¶ 33} Finally, CSP concludes its argument by asserting that several 
features of R.C. 4928.143(F) compound the vagueness of the statute.  But CSP 
provides no legal authority or argument suggesting that any of these features are 
unlawful or otherwise relevant to the void-for-vagueness analysis. 
{¶ 34} In sum, we reject CSP’s argument that R.C. 4928.143(F) is 
unconstitutionally vague. 
IEU’s and OEG’s Arguments 
{¶ 35} We turn to the remaining two appeals from OEG and IEU.  Both 
concern the commission’s ability to adjust the utility’s earnings before 
considering whether those earnings are significantly excessive.  The commission 
removed certain revenue from off-system sales from CSP’s earnings.  Although 
OEG and IEU raise different (and in some ways opposite) arguments, we must 
reject both of them. 
I. 
We defer to the commission’s reasonable interpretation of R.C. 
4928.143(F)  
{¶ 36} While we generally review questions of law de novo, we will defer 
to the commission’s interpretation of a statute “where there exists disparate 
competence between the respective tribunals in dealing with highly specialized 
issues.”  Ohio Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108, 110, 
388 N.E.2d 1370 (1979).  One area in which we have “consistently deferred to the 
expertise of the commission” is in determining rate-of-return matters.  Ohio 
Edison Co. v. Pub. Util. Comm., 63 Ohio St.3d 555, 561, 589 N.E.2d 1292 (1992), 
fn. 3. 
{¶ 37} “Limited judicial review of a rate of return determination is sound” 
because “ ‘cost of capital analyses * * * are fraught with judgments and 
assumptions.’ ”  Ohio Consumers’ Counsel v. Pub. Util. Comm., 64 Ohio St.2d 
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13 
 
71, 79, 413 N.E.2d 799 (1980), quoting In re Dayton Power & Light Co., Pub. 
Util. Comm. No. 78-92-EL-AIR, at 26 (Mar. 9, 1979).  Thus, if a related 
determination is “fraught with similar judgments and assumptions,” it is 
“appropriate to apply a similar limited standard of review.”  Id.; see also, e.g., 
Ohio Fuel Gas Co. v. Pub. Util. Comm., 174 Ohio St. 585, 602, 191 N.E.2d 347 
(1963) (“In the end, the increase in earnings and rate of return allowed is a 
judgment figure established by the Public Utilities Commission in the exercise of 
its administrative expertise” [emphasis sic]). 
{¶ 38} The statute under review is essentially a rate-of-return statute, and 
it requires numerous judgments regarding rate-of-return issues, so we  review the 
commission’s interpretations deferentially.  Although R.C. 4928.143(F) does not 
require the commission to actually set the utility’s rate of return, it does require 
the commission to make numerous related determinations, and the statute as a 
whole entrusts the commission with regulating “the increase in earnings and rate 
of return [to be] allowed.”  Ohio Fuel Gas Co., 174 Ohio St. at 602.  Thus, in 
accordance with the cases cited above, we will defer to the commission’s 
interpretation of R.C. 4928.143(F) if it is reasonable. 
{¶ 39} We hold that it was.  The commission explains in its brief that it 
understands R.C. 4928.143(F) as requiring it to “do three things.”  “First it needs 
to determine what level of earnings is ‘excessive.’ ”  Second, “it must decide how 
high the excessive earnings must be to be considered ‘significantly excessive.’ ”  
Finally, it “must eliminate” from earnings any portion that the utility “has shown 
not to be tied to the ESP that is being reviewed.” 
{¶ 40} This is a reasonable interpretation of R.C. 4928.143(F).  The 
statute expressly requires the first two determinations.  And the third point 
(eliminating earnings not shown “to be tied to the ESP”) finds support in the 
statutory language.  The statute requires the commission to find whether “such 
adjustments”—referring to “the provisions that are included in an electric security 
SUPREME COURT OF OHIO 
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plan”—“resulted in excessive earnings.”  (Emphasis added.)  R.C. 4928.143(F).  
This implies that earnings not caused by the plan may be excluded from 
consideration.  This statutory language supports the commission’s reading, and no 
other part of the statute expressly contradicts it. 
II. 
OEG’s alternative interpretation of R.C. 4928.143(F) does not compel 
reversal   
{¶ 41} In its appeal, OEG argues that contrary to the commission’s 
interpretation, the commission cannot eliminate any earnings before conducting 
the earnings review.  As noted above, the commission eliminated from CSP’s 
earnings certain revenue from “off-system sales,” that is, wholesale sales by CSP 
to nonretail customers.  Order at 27-30.  According to OEG, this lowered CSP’s 
excess earnings by $22.24 million.1  OEG argues that “R.C. 4928.143(F) requires 
the PUCO to compare all of a utility’s earnings to all of the earnings of 
companies with comparable risk.”  (Emphases sic.)  In its view, “the statutory 
language does not permit the PUCO to selectively exclude certain utility earnings 
for purposes of the [excessive-earnings] comparison.” 
{¶ 42} But as just discussed, the statutory language does allow such an 
inference and does not definitively prohibit it.  It does not expressly forbid 
adjustments for non-ESP earnings, nor does it use the phrase “all earnings” or 
some equivalent.  OEG’s interpretation is not necessarily unreasonable, but unlike 
the commission’s, OEG’s is not entitled to deference. 
{¶ 43} We must reject OEG’s challenge to the order. 
 
 
                                                 
1 In agreeing to eliminate the off-system sales, the commission also noted, but did not resolve, 
arguments raised by CSP that federal law prohibited the commission from counting the off-system 
sales.  Order at 27, 30.  Such sales are regulated by the Federal Energy Regulatory Commission 
under the Federal Power Act, and CSP argued that federal law prohibited Ohio “from interfering 
with the Companies’ ability to realize revenue rightfully received from wholesale power sales 
pursuant to contracts or rates approved by FERC.”  Id. at 27.  CSP also argued that counting the 
off-system sales would violate the Commerce Clause of the United States Constitution.  Id.  The 
commission did not reach these issues, and under our holding, we need not either. 
January Term, 2012 
15 
 
III. 
IEU’s counterarguments also lack merit 
{¶ 44} IEU raises two basic arguments, but neither compels reversal. 
A. 
In its first argument, IEU fails to show prejudice 
{¶ 45} Whereas OEG argues that the commission should not have 
excluded any earnings from review, IEU argues that the commission should have 
excluded more.  As IEU sees it, the commission may consider the companies’ 
earned return on equity only “from the ESP” and not “for all lines of regulated 
and unregulated businesses that reside within [the companies].”  Therefore, IEU 
argues, CSP should have prepared “a comprehensive jurisdictional allocation 
study” showing what earnings resulted from the ESP and what did not. 
{¶ 46} IEU has failed to show prejudice, as it must to warrant reversal.  
Ohio Consumers’ Counsel v. Pub. Util. Comm., 121 Ohio St.3d 362, 2009-Ohio-
604, 904 N.E.2d 853, ¶ 12 (“this court will not reverse a commission order absent 
a showing by the appellant that it has been or will be harmed or prejudiced by the 
order”).  In this proposition, IEU neither explains nor provides evidence of which 
adjustments the commission should have made but did not.  This lack of evidence 
and explanation makes it impossible to know whether IEU was prejudiced by the 
alleged failure to “jurisdictionalize” CSP’s earnings.  Consequently, we must 
reject IEU’s first argument. 
B. 
IEU’s second argument—that the commission should have 
eliminated CSP’s transmission assets from review—also fails to 
demonstrate error 
{¶ 47} IEU’s second argument alleges that the commission should have 
excluded transmission assets when it excluded CSP’s revenue from off-system 
sales.  For any revenue excluded from review, it would be necessary to exclude 
the related portion of equity (i.e., the assets that earned the excluded return).  
Failing to do so would skew the rate of return too low.  The commission did 
exclude some of CSP’s equity to reflect the exclusion of off-system sales, Order 
SUPREME COURT OF OHIO 
16 
 
at 30, but IEU asserts that the commission did not remove enough equity—that it 
did not “include[] an adjustment to equity to transmission plant.” 
{¶ 48} Because this argument is also speculative, we must reject it.  IEU’s 
argument turns on two questions of fact, both demanding substantial expertise in 
utility operations, accounting, and finance to answer:  Should any of CSP’s 
transmission assets have been excluded to reflect the exclusion of earnings from 
off-system sales?  And if so, how much?  Yet IEU does not point to any testimony 
or other evidence suggesting that such an exclusion would have been appropriate.  
Without this factual support, its argument cannot succeed. 
{¶ 49} In fact, the testimony that IEU does cite cuts against its argument 
on both points.  As to the first point—whether there should even be any exclusion 
of transmission assets—the witness cited by IEU stated on cross-examination, 
“[T]here’s no way I could even begin to imagine how I would say that 
[transmission] is a component of off-system sales” and also stated that he 
suspected that “transmission costs are * * * netted out of the profits from off-
system sales.”  As to the second point—what specific exclusion would be 
appropriate—the same witness suggested that calculating an adjustment would 
not be workable: he “could not figure out a way of cleanly * * * utilizing other 
aspects of the company’s assets,” such as transmission assets, in excluding the 
assets from consideration. 
{¶ 50} IEU also cites the testimony of an AEP witness who acknowledged 
that the company had not “exclude[d] the earnings associated with the 
transmission business.”  This says nothing about whether such an exclusion 
should have been made and, if so, the amount.  Thus, it provides no support for 
IEU’s argument. 
{¶ 51} To overturn the commission on a question of fact, IEU must show 
that the order is “so clearly unsupported by the record as to show 
misapprehension, mistake, or willful disregard of duty.”  AT&T Communications 
January Term, 2012 
17 
 
of Ohio, Inc. v. Pub. Util. Comm., 88 Ohio St.3d 549, 555, 728 N.E.2d 371 
(2000).  IEU has not shown that the order lacked record support; indeed, the only 
evidence IEU cites contradicts its own argument.  Therefore, we reject it. 
Conclusion 
{¶ 52} For the foregoing reasons, we affirm the order.  Contrary to CSP’s 
assertion, the statute is not unconstitutionally vague.  And neither OEG nor IEU 
has shown that the commission unreasonably interpreted or applied R.C. 
4928.143(F). 
Order affirmed. 
O’CONNOR, C.J., and LUNDBERG STRATTON, O’DONNELL, LANZINGER, 
and MCGEE BROWN, JJ., concur. 
PFEIFER, J., dissents. 
_____________ 
PFEIFER, J., dissenting. 
{¶ 53} This case presents this court’s first opportunity to address the 
Public Utilities Commission of Ohio’s application of the significantly excessive 
earnings test (“SEET”) established by R.C. 4928.143(F).  Through the SEET, the 
commission is to determine how much is too much for electric utilities to charge 
Ohio consumers pursuant to an electric security plan (“ESP”).  It is a 
determination made after the fact, after consumers have paid their bills, in 
seeming adherence to the aphorism “It is better to beg forgiveness than ask 
permission.”  But the return on investment the commission allows in this case is 
not forgiveable.  It should not be ratified by this court. 
{¶ 54} This case tests whether the commission’s discretion on SEET 
matters is truly susceptible of meaningful judicial review.  This court cannot 
allow its deference to the commission’s discretion to become an abdication of our 
duty to provide appellate review of the commission’s orders.  The commission’s 
outrageous order in this case indicates that the commission believes that its orders 
SUPREME COURT OF OHIO 
18 
 
have no requirement of reasonableness and that it has carte blanche to interpret 
statutes as it sees fit.  But it is answerable to this court in applying laws passed by 
the General Assembly and is ultimately statutorily responsible to consumers to 
provide electric service for reasonable rates. 
{¶ 55} Columbus Southern Power (“CSP”) requests that this court 
overturn the commission’s order in this case because, it argues, R.C. 4928.143(F) 
is unconstitutionally vague.  We should overturn the commission’s entire order, 
but not for the reason CSP suggests.  Instead, we should hold that the commission 
abused its discretion in establishing a SEET threshold of 17.6 percent and, further, 
misapplied R.C. 4928.143(F) by removing off-system sales from its calculation of 
CSP’s income.  The commission should start from scratch in this case. 
The Reasonableness of 17.6 percent 
{¶ 56} In this case, the commission determined CSP’s SEET threshold to 
be 17.6 percent.  That is, only a return on investment of more than 17.6 percent in 
2009, a year when the United States’ economy was in a recession, would be 
considered significantly excessive in comparison to other similarly situated 
entities.  Only at that number would CSP’s profit be enough to trigger a refund to 
consumers. 
{¶ 57} How did the commission get to 17.6 percent?  By employing the 
highly complex statistical analysis known as “splitting the baby.”  As the 
commission points out in its order, AEP-Ohio argued for a SEET threshold of 
22.51 percent.  The customer parties in the case put forth a proposed SEET 
threshold in the range of 11.58 percent to 13.58 percent, an average of 12.58 
percent.  With those numbers to work with, the commission apparently raced to 
the middle: the halfway point between the proposed SEETs of the customer 
parties and AEP-Ohio is 17.545 percent.  AEP-Ohio got the .055 percent round-
up. 
January Term, 2012 
19 
 
{¶ 58} This might be all well and good were the numbers reflective of 
equally valid methodologies.  But the commission’s judgments before and after 
the case at issue support the number put forth by the customer parties. 
{¶ 59} After the passage of Am.Sub.S.B. No. 221, the commission sought 
input from stakeholders to determine the methodology for determining what 
constitutes significantly excessive earnings.  After a long process from October 
2009 through April 2010 that included a workshop, a comment period, a period to 
reply to comments, and a question-and-answer period before the commission, the 
commission produced In the Matter of the Investigation into the Development of 
the Significantly Excessive Earnings Test Pursuant to Amended Substitue Senate 
Bill for Electric Utilities, Pub. Util. Comm. No. 09-786-EL-UNC, a finding and 
order intended to provide guidance on the interpretation and application of  R.C. 
4928.142(D)(4), 4928.143(E), and 4928.143(F).  After reviewing the input from 
interested parties, the commission came to the following conclusion regarding 
how to determine whether a utility’s earnings are significantly excessive: 
 
Having fully considered all the comments regarding establishing 
the threshold and in consideration of the discretion afforded the 
Commission in SB 221, the Commission concludes that 
“significantly excessive earnings” should be determined based on 
the reasonable judgment of the Commission on a case-by-case 
basis. 
 
09-786-EL-UNC Finding and Order, 28-29.  So much for predictability. 
{¶ 60} Despite leaving the matter up to itself and its own judgment, the 
Commission did set one important marker: 
 
SUPREME COURT OF OHIO 
20 
 
[T]he Commission is willing to recognize a “safe harbor” of 200 
basis points above the mean in the comparable group.  To that end, 
any electric utility earning less than 200 basis points above the 
mean of the comparable group will be found to not have 
significantly excessive earnings. 
 
Id. at 28-29. 
{¶ 61} It was that 200 basis points “safe harbor’ that the customer parties 
based their excessive-earnings conclusion upon.  Taking their calculation of a 
relevant return on investment of 9.58 percent for a comparable group of 
companies, they argued that significantly excessive earning should run  from the 
safe harbor amount of 200 basis points up to 400 basis points.  This would mean 
that significantly excessive earnings would fall somewhere between 11.58 and 
13.58 percent.  Instead, the commission established a figure 800 basis points 
above the figure the customer parties determined as the mean of the comparable 
group of companies. 
{¶ 62} Even accepting the commission’s return-on-investment figure of 
11 percent for comparable companies, the commission’s 17.6 percent figure is 
over 600 basis points above the mean in the comparable group.  The commission 
blew its safe harbor out of the water. 
{¶ 63} And in a case announced in August of this year, In re Columbus S. 
Power Co., Pub. Util. Comm. Nos. 11-346-EL-SSO, 11-346-EL-SSO, 11-349-
EL-AAM, 11-350-EL-AAM, ___ WL ______ (Aug. 8, 2012), the commission 
prospectively set a SEET threshold at 12 percent for AEP-Ohio, finding it 
“appropriate to establish a significantly excessive earnings test (SEET) threshold 
to ensure that the Company does not reap disproportionate benefits from the 
[electric security plan].  The evidence in the record demonstrates that a 12 percent 
ROE would be at the high end of a reasonable range for return on equity * * *.  
January Term, 2012 
21 
 
Accordingly, for purposes of this [electric security plan], the Commission will 
establish a SEET threshold for AEP-Ohio of 12 percent.” 
{¶ 64} That lower rate of return is appropriate for an industry with 
minimal risk, with built-in methods to recover costs from their customers.  In In 
re Columbus S. Power Co. (Aug. 8, 2012), for instance, built-in protections for 
the utility include an alternative-energy rider, a generation-resource rider, a retail-
stability rider, a distribution-investment rider, a pool-modification rider, a phase-
in recovery rider, a transmission-cost-recovery rider, an enhanced-service 
reliability rider, an energy-efficiency and peak-demand reduction rider, an 
economic-development rider, and a storm-damage-recovery mechanism. 
{¶ 65} Most importantly, the lower SEET is consistent with the policy of 
this state to “[e]nsure the availability to consumers of adequate, reliable, safe, 
efficient, nondiscriminatory, and reasonably priced retail electric service.” R.C. 
4928.02(A). 
Off-System Sales 
{¶ 66} The commission also erred in excluding CSP’s off-system sales 
from the calculation of its return on investment, without any statutory authority.  
This court has “complete and independent power of review as to all questions of 
law” in appeals from the commission. Ohio Edison Co. v. Pub. Util. Comm. 
(1997), 78 Ohio St.3d 466, 469, 678 N.E.2d 922.  We should not forget that.  This 
court has held that in matters of statutory interpretation, “we may rely on the 
expertise of a state agency in interpreting a law where ‘highly specialized issues’ 
are involved and ‘where agency expertise would, therefore, be of assistance in 
discerning the presumed intent of our General Assembly.’ ” Ohio Consumers’ 
Counsel v. Pub. Util. Comm., 111 Ohio St.3d 300, 303, 2006-Ohio-5789, 856 
N.E.2d 213, 220, citing Consumers’ Counsel v. Pub. Util. Comm. (1979), 58 Ohio 
St.2d 108, 110, 388 N.E.2d 1370. 
SUPREME COURT OF OHIO 
22 
 
{¶ 67} This is not a case in which this court needs to rely on the 
commission’s interpretation of a statute.  Indeed, we should not simply assume 
that any statute involving public utilities concerns “highly specialized issues.”  
Here, the General Assembly spells out in plain English what it means by 
“excessive earnings.”  Excessive earning are “measured by whether the earned 
return on common equity of the electric distribution utility is significantly in 
excess of the return on common equity that was earned during the same period by 
publicly traded companies, including utilities, that face comparable business and 
financial risk, with such adjustments for capital structure as may be appropriate.” 
{¶ 68} I would hold that CSP’s off-system sales should have been 
included in the determination of whether CSP’s earnings were significantly 
excessive.  They were, after all, earnings.  The statute does not allow for 
removing any amount of income—either from the utility at issue or from the 
comparable publicly traded companies—from the assessment,.  The statute seeks 
an “apples to apples” comparison; taking a few slices out of the Ohio utility’s 
apples skews the evaluation. 
{¶ 69} Our 
deference 
to—or, 
too 
often, 
our 
reliance 
on—the 
commission’s interpretation of statutes diminishes this court’s role in reviewing 
the commission’s determinations and shifts the balance too far in favor of the 
executive branch in the separation of powers.  Ultimately, Ohio consumers pay 
the price for that deference.  Judging from Ohio utilities’ status at the top of the 
heap in profits nationwide—CSP had the highest equity return of 143 investor-
owned regulated electric utilities in the United States in 2009—that price is steep. 
___________________ 
 
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr, 
and Joseph E. Oliker, for appellant and cross-appellee Industrial Energy Users-
Ohio. 
January Term, 2012 
23 
 
 
Boehm, Kurtz & Lowry, David F. Boehm, and Michael L. Kurtz, for 
appellant and cross-appellee the Ohio Energy Group. 
 
Bruce J. Weston, Ohio Consumers’ Counsel, Maureen R. Grady, Melissa 
R. Yost, and Kyle L. Verrett, for appellant and cross-appellee Ohio Consumers’ 
Counsel. 
 
Steven T. Nourse and Matthew J. Satterwhite; Porter, Wright, Morris & 
Arthur, L.L.P., Kathleen M. Trafford, and Daniel R. Conway, for appellee and 
cross-appellant Columbus Southern Power Company. 
 
Mike DeWine, Attorney General, William L. Wright, Section Chief, and 
Thomas W. McNamee, Assistant Attorney General, for appellee Public Utilities 
Commission of Ohio. 
 
Arthur E. Korkosz and Carrie M. Dunn, for amici curiae Ohio Edison 
Company, the Cleveland Electric Illuminating Company, and the Toledo Edison 
Company. 
 
Colleen L. Mooney, for amicus curiae Ohio Partners for Affordable 
Energy. 
___________________________