Title: Ohio Partners for Affordable Energy v. Pub. Util. Comm.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Ohio Partners for Affordable Energy v. Pub. Util. Comm., 115 Ohio St.3d 208, 2007-
Ohio-4790.] 
 
OHIO PARTNERS FOR AFFORDABLE ENERGY, APPELLANT, v. PUBLIC UTILITIES 
COMMISSION OF OHIO ET AL., APPELLEES. 
[Cite as Ohio Partners for Affordable Energy v. Pub. Util. Comm., 
 115 Ohio St.3d 208, 2007-Ohio-4790.] 
Public utilities — Natural gas — Pilot program — Failure to perfect arguments 
results in court’s lack of jurisdiction —Commission’s findings are not 
manifestly against the weight of the evidence — Order affirmed. 
(No. 2006-1633 — Submitted July 10, 2007 — Decided September 20, 2007.) 
APPEAL from the Public Utilities Commission of Ohio, No. 05-474-GA-ATA. 
____________________ 
 
O’DONNELL, J. 
Background 
{¶1} 
This is an appeal as of right filed by Ohio Partners for Affordable 
Energy (“OPAE”), an advocacy group that seeks affordable energy policies for 
low- and moderate-income Ohioans, from an order of the Public Utilities 
Commission of Ohio (“commission” or “PUCO”). 
{¶2} 
This case involves the East Ohio Gas Company, d.b.a. Dominion 
East Ohio Gas (“Dominion”), its efforts to change the way it purchases natural 
gas, and the way the PUCO reviews that action.  Dominion asked the PUCO to 
grant an exemption from the gas cost recovery review process so that Dominion 
could use third-party suppliers to buy the gas Dominion provides its customers, 
permitting Dominion to focus solely on distributing gas to consumers.  A large 
number of customers on Dominion’s distribution system currently receive their 
natural gas from existing third-party suppliers.  This effort addresses customers 
still receiving the commodity from Dominion. 
{¶3} 
Dominion filed its application on April 8, 2005, proposing to 
restructure its obligation to secure gas and to expand retail choice options for its 
customers in two phases.  Natural gas companies make their rate of return on the 
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distribution of natural gas, not on the buying and selling of the commodity.  The 
regulatory system is designed to pass the cost of the natural gas to consumers.  
Pursuant to R.C. 4905.302, rates charged by natural gas companies can adjust to 
ensure that the company recovers only the price it reasonably paid to acquire the 
natural gas it distributes to its customers. 
{¶4} 
Phase 1 of Dominion’s application proposed an interim wholesale 
model by which Dominion would continue to provide commodity service for a 
pilot period using an auction process to obtain its wholesale gas supplies.  
Dominion would remain the supplier and would retain provider-of-last-resort 
(“POLR”) responsibilities in case any of Dominion’s competitors default on the 
obligation to provide gas to customers. 
{¶5} 
Phase 2 of the plan remains undeveloped, but Dominion’s stated 
goal is to transfer any remaining customers served by Dominion’s standard 
service offer to competitive suppliers at the end of Phase 2.  Dominion will then 
place the customer in a direct business relationship with the supplier instead of 
with Dominion, which will retain only minimal POLR responsibility. 
{¶6} 
The PUCO sought public comments on Phase 1 of Dominion’s 
proposal.  After reviewing the comments, the PUCO determined that Dominion’s 
request amounted to a request for an exemption from the gas purchasing review 
process specified in R.C. 4905.302.  In order to look at the request in greater 
detail, the PUCO elected to treat Dominion’s tariff change application as an 
application for an exemption under R.C. 4929.04, which sets forth the conditions 
for exemption of natural gas companies from certain rate provisions.  The 
granting of an exemption from these regulatory requirements under R.C. 
4929.04(A) requires notice of the request, public comments, and a hearing.  Under 
this provision, the PUCO can exempt a natural gas company’s commodity sales 
service or other ancillary service from a myriad of regulations, including R.C. 
4905.302, which addresses how natural gas companies adjust their rates. 
January Term, 2007 
3 
{¶7} 
The PUCO limited its review to Phase 1 of Dominion’s 
application.  The parties to the proceeding, including OPAE, filed testimony, and 
the PUCO held an evidentiary hearing on December 6 and 7, 2005.  On the 
second day of the hearing, Dominion entered into a stipulation with the Ohio Oil 
and Gas Association and the participating gas supplier groups.  The stipulation 
modified the proposed auction process by reallocating the charge for choice-
related customer education costs from consumers to suppliers. 
{¶8} 
The commission determined that the record supported granting 
Dominion an exemption from R.C. 4905.302.  In re Application of E. Ohio Gas 
Co. for Approval of Plan to Restructure Its Commodity Serv. Function (May 26, 
2006), PUCO No. 05-474-GA-ATA.  The PUCO decision established a bid 
process to determine the retail price adjustment.  The adjustment is to be added to 
the New York Mercantile Exchange price of natural gas to produce the standard 
service offer price.  The PUCO established a range of $2.196/Mcf to $2.504/Mcf1 
as a reasonable result for the adjustment from the auction. 
{¶9} 
On August 29, 2006, Dominion held the auction to determine the 
standard service offer as approved by the PUCO.  The auction resulted in a retail 
price adjustment of price of $1.44/Mcf – well below the commission’s 
expectation.  The commission approved the $1.44/Mcf adjustment to be added to 
the market price of natural gas to make up the standard service offer and 
authorized Dominion to contract with successful bidders. 
Standard of Review 
{¶10} “R.C. 4903.13 provides that a PUCO order shall be reversed, 
vacated, or modified by this court only when, upon consideration of the record, 
the court finds the order to be unlawful or unreasonable.”  Constellation 
                                                 
1.  Mcf is a unit of gas equal to 1000 cubic feet, the traditional measurement used for natural gas.  
One Mcf equals the heating value of 1,000,000 Btu (mmbtu).  See Ohio Adm.Code 4901:1–14–
01(O). 
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NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820 
N.E.2d 885, ¶ 50.  The court will not reverse or modify a PUCO decision as to 
questions of fact when the record contains sufficient probative evidence to show 
that the commission’s decision was not manifestly against the weight of the 
evidence and was not so clearly unsupported by the record as to show 
misapprehension, mistake, or willful disregard of duty.  Monongahela Power Co. 
v. Pub. Util. Comm., 104 Ohio St.3d 571, 2004-Ohio-6896, 820 N.E.2d 921, ¶ 29, 
citing AT&T Communications of Ohio, Inc. v. Pub. Util. Comm. (2000), 88 Ohio 
St.3d 549, 555, 728 N.E.2d 371.  The appellant bears the burden of demonstrating 
that the PUCO’s decision is against the manifest weight of the evidence or is 
clearly unsupported by the record.  Id.  The court will also not reverse a 
commission order absent an appellant showing that it is harmed or prejudiced by 
the order.  Myers v. Pub. Util. Comm. (1992), 64 Ohio St.3d 299, 302, 595 N.E.2d 
873. 
{¶11} Although we have “complete and independent power of review as 
to all questions of law” in appeals from the PUCO, Ohio Edison Co. v. Pub. Util. 
Comm. (1997), 78 Ohio St.3d 466, 469, 678 N.E.2d 922, we may rely on the 
expertise of a state agency in interpreting a law when “highly specialized issues” 
are involved and “where agency expertise would, therefore, be of assistance in 
discerning the presumed intent of our General Assembly.”  Office of Consumers’ 
Counsel v. Pub. Util. Comm. (1979), 58 Ohio St.2d 108, 110, 12 O.O.3d 115, 388 
N.E.2d 1370. 
Proposition of Law No. 1 
{¶12} In the first proposition of law, OPAE alleges that the granting of 
the application was unlawful due to errors in the format of Dominion’s 
application, and it attacks the adequacy of the process based on deviations from 
administrative rules in the underlying proceeding. 
January Term, 2007 
5 
{¶13} Dominion filed its application with the PUCO as a tariff revision to 
change the method it used to purchase natural gas for its distribution customers.  
A tariff revision does not trigger the mandatory review process that a request for 
an exemption requires.  The commission decided to entertain public comment, 
and thereafter, it determined that Dominion’s application amounted to a request 
for an exemption from R.C. 4905.302, which requires a stricter review pursuant to 
R.C. 4929.04.  The PUCO did not require Dominion to file a new application, but 
instead allowed the proceeding to move forward on the existing docket with the 
existing parties. 
{¶14} OPAE argues that the commission failed to follow a number of the 
procedural steps found in Ohio Adm.Code 4901:1-19 et seq.  However, OPAE did 
not raise any of these arguments before the commission concerning 
noncompliance with Administrative Code provisions.  The rehearing application 
does not mention Ohio Adm.Code 4901:1-19-02, the section governing the format 
for granting exemptions. 
{¶15} According to R.C. 4903.10, rehearing applications “shall set forth 
specifically the ground or grounds on which the applicant considers the order to 
be unreasonable or unlawful.”  This court held in Office of Consumers’ Counsel v. 
Pub. Util. Comm. (1994), 70 Ohio St.3d 244, 247, 638 N.E.2d 550, that “setting 
forth specific grounds for rehearing is a jurisdictional prerequisite for our review.” 
{¶16} OPAE also failed to include the arguments found in its first 
proposition of law in its notice of appeal.  R.C. 4903.13 establishes that the 
appropriate avenue to seek reversal of a PUCO order is through a notice of appeal 
“setting forth the order appealed from and the errors complained of.”  The court 
lacks jurisdiction to consider arguments not included in a notice of appeal.  
Cincinnati Gas & Elec. Co. v. Pub. Util. Comm., 103 Ohio St.3d 398, 2004-Ohio-
5466, 816 N.E.2d 238, ¶ 21. 
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{¶17} OPAE also claims in its first proposition of law that Dominion 
should have filed its application as a request for an alternative rate plan under 
R.C. 4929.05.  Again, however, OPAE failed to assert an argument based upon 
R.C. 4929.05 until it filed its merit brief in this court.  The failure to raise the 
argument at rehearing and in its notice of appeal precludes this court from 
considering the argument. 
{¶18} We conclude, therefore, that because OPAE failed to properly 
perfect the arguments made in the first proposition of law, we lack jurisdiction to 
consider them. 
Proposition of Law No. 2 
{¶19} In its second proposition of law, OPAE argues that Dominion 
failed to sustain its burden of proving that it is eligible for an exemption pursuant 
to R.C. 4929.04(C), and therefore, the PUCO opinion is unlawful. 
{¶20} The PUCO’s findings, however, contain sufficient probative 
evidence to show that its decision was not manifestly against the weight of the 
evidence and was not so clearly unsupported by the record as to show 
misapprehension, mistake, or willful disregard of duty.  Monongahela Power Co., 
104 Ohio St3d 571, 2004-Ohio-6896, 820 N.E.2d 921, ¶ 29.  Accordingly, the 
order will not be reversed on this basis. 
{¶21} The second proposition of law focuses on the argument that 
Dominion failed to sustain its burden of justifying an exemption under R.C. 
4929.04.  R.C. 4929.04(A) sets forth the procedural steps and substantive 
prerequisites for granting an exemption.  The statute requires that upon the 
application of a natural gas company, after notice, a period for public comment, 
and a hearing, the PUCO shall exempt any commodity sales service of a natural 
gas company from certain provisions of R.C. Chapters 4905 and 4909 if the 
PUCO finds that the natural gas company substantially complies with the state 
policy specified in R.C. 4929.02.  It is the policy guidelines in R.C. 4929.02(A) 
January Term, 2007 
7 
on which OPAE focused its arguments that Dominion failed to satisfy its burden 
of proof. 
Substantial Compliance with the Policy of R.C. 4929.02 
{¶22} In its appeal, OPAE argued that the PUCO lacked the authority to 
approve an exemption because Dominion failed to show that the application 
substantially complied with the policies set forth in R.C. 4929.02(A)(1) through 
(11). 
{¶23} OPAE claims that Dominion provided only a declaration that the 
application and current market structure are consistent with the state policy and 
that the application will further the policy by fostering more competition.  OPAE 
maintains that Dominion’s declaration alone is not evidence and does not rise to 
the level of satisfying Dominion’s burden of proof under R.C. 4929.04(C).  The 
record supports the commission’s finding that Dominion’s application 
substantially complied with the policy set forth in R.C. 4902.02(A)(1) through 
(11). 
{¶24} OPAE spends a majority of its argument asserting that Dominion 
failed to prove substantial compliance with the goal to “[e]ncourage innovation 
and market access for cost-effective supply- and demand-side natural gas services 
and goods” set forth in R.C. 4929.02(A)(4). 
{¶25} The PUCO’s order relied on Dominion’s existing energy 
conservation programs and the effect of the anticipated competition on the market 
to encourage market access and demand-side services and goods.  The PUCO 
noted in its order that a move to purer market pricing will provide customers with 
better comparative information to make more informed decisions about their 
commodity service alternatives, eliminate pricing distortions in the gas cost 
recovery system (“GCR”) rate, and encourage conservation in response to more 
accurate price signals.  Dr. Robert Lawson, a witness called by Dominion, 
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testified, “The real advantage of market-based pricing is how market prices 
communicate information and proper incentives to buyers and sellers.” 
{¶26} In addition, both Dominion and the PUCO point out the value of 
the existing demand-side and conservation management programs fulfilling the 
policy goal of R.C. 4929.02(A)(4).  Those programs amount to an annual 
expenditure of $3.5 million per year, a figure that Dominion committed to 
maintaining.  Elizabeth Hernandez, a witness for OPAE, described the program as 
providing furnace repair and replacement energy audits, repair and replacement of 
other gas-fired appliances, and weatherization, including air sealing and 
insulation. 
{¶27} The record supports the commission’s finding that Dominion’s 
application comports with the policy guidelines of the General Assembly as set 
forth in R.C. 4929.02.  The policy established in R.C. 4929.02(A)(4) is a 
guideline for the commission to consider when entertaining requests for 
exemptions from regulation.  Here, the commission weighed the cost-effective 
nature of Dominion’s services and the current offering of demand-side natural gas 
services and goods.  The commission reasonably found that the advantages added 
by a competitive market and the continuation of the $3.5 million conservation 
program satisfied the considerations set forth in R.C. 4929.04(A)(4). 
{¶28} OPAE primarily focused upon R.C. 4929.02(A)(4), but it also 
challenged the other policy provisions set forth in R.C. 4929.02(A).  Again, the 
commission found that Dominion was in substantial compliance with these policy 
provisions.  The record supports the findings as to each one. 
{¶29} OPAE contends that nothing in the record shows that Dominion’s 
plan promotes the availability of adequate, reliable, and reasonably priced natural 
gas.  See R.C. 4929.02(A)(1). 
{¶30} The PUCO and Dominion, however, maintain that the record 
supports  compliance with the policy goal of R.C. 4929.02(A)(1).  PUCO staff 
January Term, 2007 
9 
witness Stephen Puican testified that Phase 1 was designed to ensure reliability of 
gas supplies in the event of supplier default.  Dominion witness Jeffrey Murphy 
testified that suppliers will be required to meet the same reliability standards as 
Dominion, including proof of capacity and a plan to secure capacity for 
Dominion, should one or more Phase 1 suppliers fail to deliver enough gas to 
meet customer requirements.  Dominion witness Dr. Lawson also testified that 
shortages are one possible result of non-market-based rates like the gas cost 
recovery system.  Murphy explained that by minimizing exposure, the method of 
securing bids in separate tranches (slices or shares) mitigates the risk of any one 
supplier defaulting on its delivery obligations. 
{¶31} Dominion also argues that the interim plan approved by the PUCO 
may result in a price lower than the traditional gas cost recovery price.  Scott 
White, cofounder and president of Interstate Gas Supply, Inc., a certificated 
competitive retail natural gas supplier serving customers in five states, including 
Dominion’s service area, testified for the gas suppliers.  He stated, “[T]he GCR 
mechanism* * * is not a good indicator of the current market cost of gas nor does 
it reflect the actual cost that the customer ends up paying for that period.”  And 
Dr. Lawson testified that regulatory agencies often set prices above competitive 
market rates.  Moreover, the application of Phase 1 resulted in lower prices.  
Customers served under the standard service offer, established by Phase 1, paid 
less than they would have paid under the GCR process. 
{¶32} The court is also satisfied that the commission relied on the record 
with adequate support for its finding that Dominion already satisfies the goals of 
R.C. 4929.02(A)(2) and (3).  The policy goal of R.C. 4929.02(A)(2) is to promote 
the availability of unbundled gas services to meet consumer needs.  The goal of 
R.C. 4929.02(A)(3) is to promote diversity of natural gas suppliers by giving 
consumers effective choices.  The nature of this proceeding is to consider a 
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regulatory scheme that promotes even greater participation by competitive gas 
suppliers. 
{¶33} R.C. 4929.02(A)(7) requires a showing that the market can 
substitute for regulation.  OPAE argued that Dominion failed to prove that a more 
competitive market will result from Phase 1 or Phase 2.  The PUCO stated in its 
order that it was approving Phase 1 as a “measured progression” toward market 
pricing for commodity service “to test the ability of the new process to expand 
competition among suppliers and reduce rates in the long term.”  There are 
numerous examples in the record discussing the danger of the gas cost recovery 
rate in a competitive market reacting to the present-day commodity process, 
including price distortions and confusion.  This type of pilot program tests those 
market theories in an effort to promote speedy transitions to effective competition.  
The statutory section also includes a reduction in regulation as part of the goal, 
and Dominion’s approach reduces regulatory oversight on a pilot basis while 
permitting the commission to reassert itself if the pilot does not work. 
{¶34} OPAE characterizes the remaining six policy goals of R.C. 
4929.02(A)(5), (6), (8), (9), (10), and (11) as provisions “to protect consumers 
from any harmful effects of alternative regulation or exemptions, such as volatile 
gas prices.”  As noted in the discussion of R.C. 4929.02(A)(1), consumer 
safeguards are included to ensure safe and reliable service.  Even beyond those 
protections, the PUCO established Phase 1 as a pilot, retaining the right to 
terminate the program and return to the gas cost recovery pricing methodology 
under R.C. 4905.302.  The record contains sufficient evidence that these policy 
goals are satisfied here. 
{¶35} Our conclusion is, therefore, that evidence in the record supports 
the commission’s finding that the application was in substantial compliance with 
the policy guidelines of the General Assembly set forth in R.C. 4929.02.  The 
PUCO weighed the evidence contained in the record and conditionally approved 
January Term, 2007 
11 
the application for Phase 1 and expressed its willingness to revoke the exemption 
upon its own motion or as the result of an R.C. 4905.26 complaint proceeding.  
Based on that understanding and the evidence contained in the record, the court 
rejects OPAE’s arguments with regard to this proposition of law. 
Proposition of Law III 
{¶36} In its third proposition of law, OPAE argues that R.C. 
4929.02(A)(4) and R.C. 4905.702 both require the PUCO to approve demand-side 
management and energy conservation programs before granting an exemption 
from regulation under R.C. 4929.04.  Specifically, OPAE claims that the 
programs advocated by its witness Elizabeth Hernandez, like bill payment 
assistance and weatherization services to reduce the demand of low-income 
customers, need funding increases.  OPAE argues that the $3 million to $3.5 
million established in the early 1990s is not adequate.  However, nothing in either 
R.C. 4929.02(A)(4) or 4905.70 requires approval of these programs or the 
increased funding that OPAE demands. 
{¶37} While R.C. 4929.04 refers to innovation and market access, it 
never mentions OPAE’s programs, nor does it mention R.C. 4905.70.  Moreover,  
nothing in R.C.4905.70 indicates that the legislature intended it to pertain to R.C. 
4929.04 proceedings.  These facts provide adequate grounds to reject this 
argument. 
{¶38} OPAE’s argument concerning R.C. 4929.04(A)(4) is a repackaging 
of its argument in its second proposition of law.  As stated above, Dominion’s 
current funding of $3.5 million dollars dedicated to housewarming and 
weatherization efforts, combined with the benefit of the pilot program studying 
future effects of its overall program, satisfies R.C. 4929.02(A)(4).  Accordingly, 
this proposition of law is not well taken. 
                                                 
2.  R.C. 4905.70 requires the PUCO to promote and encourage energy conservation programs in 
general.   
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Conclusion 
{¶39} We recognize that Dominion’s application for alternative treatment 
presented the commission with a Phase 1 and Phase 2 plan progression.  This 
opinion addresses only Phase 1.  We make no comment with regard to Phase 2, as 
that matter is not before us.  Our review of the commission’s approval of Phase 1 
relies on the commission’s statement that this is a pilot program allowing the 
commission to study the effects of the effort.  We expect the commission to 
monitor the progress of the effort to ensure that consumers are protected. 
{¶40} We recognize this pilot program as a significant step in changing 
the way natural gas companies ensure the availability of natural gas for all Ohio 
consumers.  We expect the commission to carefully analyze the pilot program 
before permitting Dominion to move to Phase 2.  Any effort to implement the 
next phase will require independent justification on the merits of that proposal. 
{¶41} Based upon the foregoing, we affirm the order of the Public 
Utilities Commission. 
Order affirmed. 
MOYER, C.J., and LUNDBERG STRATTON, O’CONNOR, LANZINGER, and 
CUPP, JJ., concur. 
PFEIFER, J., concurs in judgment only. 
__________________ 
Colleen L. Mooney and David C. Rinebolt, for appellant. 
Marc Dann, Attorney General, Duane Luckey, Senior Deputy Attorney 
General, Anne L. Hammerstein, Deputy Attorney General, and William L. Wright 
and Steven L. Beeler, Assistant Attorneys General, for appellee. 
Jones Day, Mark A. Whitt, David A. Kutik, and Andrew J. Campbell, for 
intervening appellee, East Ohio Gas Company, d.b.a. Dominion East Ohio. 
______________________