Title: Cleveland Elec. Illum. Co. v. Pub. Util. Comm.

State: ohio

Issuer: Ohio Supreme Court

Document:

Cleveland Electric Illuminating Company, Appellant, v. Public Utilities 
Commission of Ohio et al., Appellees. 
 
[Cite as Cleveland Elec. Illum. Co. v. Pub. Util. Comm. (1996),         
Ohio St.3d       .]  
 
(No. 95-2444 -- Submitted June 5, 1996 -- Decided August 21, 1996.) 
The Public Utilities Commission has jurisdiction to consider a complaint 
alleging that a sale of electricity was initiated by a utility to a retail user 
using a straw man to effectuate the deal for the sole purpose of 
circumventing the Certified Territory Act. 
 
APPEAL from the Public Utilities Commission of Ohio, No. 95-458-EL-
UNC. 
 
This appeal arose from an order of the Public Utilities Commission of 
Ohio (“commission”) that dismissed a complaint filed by appellant, Cleveland 
Electric Illuminating Company (“CEI”).  In its complaint, CEI alleged that 
American Electric Power (“AEP”), using its subsidiary, intervening appellee 
Ohio Power Company  (“OPC”), sold electricity through Cleveland Public 
Power (“CPP”), and that CPP in turn sold the electricity to intervening appellee 
Medical Center Company (“MCC”), in violation of the Certified Territory Act.1 
 
 
 
 
 
2 
In other words, CEI claims that AEP, through its subsidiary OPC, allegedly 
sold electricity in CEI’s territory.   
 
Originally, MCC purchased power from CEI and redistributed it to some 
of its member/owners.2  MCC was a retail customer of CEI at that time.  MCC 
requested that CEI convert it from a retail customer to a wholesale customer. 
CEI apparently denied the change.  MCC notified CEI that on September 1, 
1996, MCC would terminate service with CEI and acquire its power from CPP. 
 
On May 3, 1995 CEI filed a complaint with the commission against 
MCC, AEP and its generating subsidiaries, including OPC.3  In re CEI, case 
No. 95-458-EL-UNC. 
 
Count one of the complaint alleged that OPC “has arranged to furnish 
service to [MCC] by selling 50 MW of capacity and associated energy to 
[CPP].”  CEI further alleged that the OPC/CPP transaction and the CPP/MCC 
transaction “are two halves of the same transaction.”  CEI alleges that these 
two transactions “are sham transactions” and were structured to circumvent the 
Certified Territory Act. Thus, CEI contends OPC will violate the Certified 
Territory Act by selling power to MCC.  
 
 
 
 
 
3 
 
In count two, CEI alleged that MCC may be an electric light company as 
defined in R.C. 4905.03(A)(4) because it resells electricity to its 
member/owners.  CEI further supports this claim by alleging that MCC intends 
to build additional facilities to take power at transmission voltages, to change 
its billing methodology and to sell electricity to non-member/owners, which 
will make MCC, if it is not already, an electric light company under Ohio law.  
 
Count three alleged that CEI installed generation and distribution 
systems in reliance on continued service to MCC and its members, and that CEI 
will suffer financial loss because of the stranded investment associated with 
MCC leaving CEI’s system.  
 
OPC and MCC filed separate motions to dismiss CEI’s complaint,  
alleging in part that the OPC/CPP power purchase agreement was a wholesale 
transaction that is exclusively under the jurisdiction of the Federal Energy 
Regulatory Commission (“FERC”).4  CEI has initiated a FERC action seeking 
to invalidate the agreement for the sale of electricity from OPC to CPP.  
Petition of Cleveland Elec. Illum. Co., FERC Docket No. EL 96-9-000. OPC 
and MCC also argued that the Certified Territory Act does not prevent 
 
 
 
 
 
4 
wholesale transactions such as the sale between OPC and CPP.  CEI countered 
the motions to dismiss, contending that the issue before the commission was 
not the OPC/CPP wholesale transaction individually or the CPP/MCC exempt 
municipal agreement individually, but rather the “de facto retail” sale between 
OPC and MCC.  
 
After reviewing the various arguments by the parties, the commission 
dismissed CEI’s complaint, stating: 
 
“Pursuant to Article XVIII, Section 4, of the Ohio Constitution, 
municipalities in Ohio may own and operate public utilities and may ‘contract 
with others for any product or service.’ Moreover, the certified territory statutes 
(Sections 4933.81-.84, Revised Code) specifically carve out an exception for 
municipal utilities regarding application of certified territories. Thus, even 
construing CEI’s allegations in this case as true, the existing constitutional and 
statutory constraints preclude granting the relief sought by CEI. Based on our 
assessment of the agreed-upon facts and the law, we do not believe that a 
hearing is warranted or necessary in this case to resolve the strictly 
jurisdictional issues raised in CEI’s complaint.” 
 
 
 
 
 
5 
 
Thus, the commission dismissed CEI’s complaint because it determined 
that it did not have jurisdiction over either of the two agreements pertaining to 
the sale of electricity --  the OPC\CPP agreement and the CPP\MCC agreement. 
 
The cause is before this court upon an appeal as of right. 
 
Jones, Day, Reavis & Pogue, Paul T. Ruxin and Helen L. Liebman, for 
appellant, Cleveland Electric Illuminating Company. 
 
Betty D. Montgomery, Attorney General, Duane W. Luckey and Steven T. 
Nourse, Assistant Attorneys General, for appellee, Public Utilities 
Commission. 
 
Bell, Royer & Sanders Co., L.P.A., and Barth E. Royer, for intervening 
appellee Medical Center Company. 
 
Edward J. Brady, Marvin I. Resnik and Kevin F. Duffy, for intervening 
appellee Ohio Power Company. 
 
Chester, Willcox & Saxbe, John W. Bentine and Jeffery L. Small, urging  
affirmance for amicus curiae, American Municipal Power-Ohio, Inc. 
 
 
 
 
 
6 
 
Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A., John 
R. Climaco, Anthony J. Garofoli, Glenn S. Krassen and Joseph M. Hegedus, 
urging affirmance for amicus curiae, city of Cleveland. 
 
STRATTON , J.  The issue to be decided today is, in determining a motion 
to dismiss a complaint before the commission alleging a violation of the 
Certified Territory Act, can the commission look beyond two individual 
contracts, over which the commission admittedly has no jurisdiction, to 
determine whether the totality of the evidence alleges a potential violation of 
the Certified Territory Act? 
 
Our review of this issue is a question of law.  Accordingly, we address 
this issue using a de novo standard of review. Indus. Energy Consumers of 
Ohio Power Co. v. Pub.Util. Comm. (1994), 68 Ohio St. 3d 559, 563, 629 N.E. 
423, 426. 
I. 
 
Standard for Dismissal for Failure to State a Claim 
 
In a civil case before a court,  “it must appear beyond doubt from the 
complaint that the plaintiff can prove no set of facts entitling him to recovery” 
 
 
 
 
 
7 
before a motion to dismiss can be granted. O’Brien v. University Community 
Tenants Union, Inc. (1975), 42 Ohio St. 2d 242, 71 O.O. 2d 223, 327 N.E. 2d 
753, syllabus. Further, in ruling on the motion to dismiss, all material factual 
allegations of the complaint must be taken as true.  See Vail v. Plain Dealer 
Publishing. Co. (1995), 72 Ohio St. 3d 279, 649 N.E. 2d 182.  The commission 
has adopted the same standard in reviewing motions to dismiss brought under 
R.C. 4905.26, i.e., that all of the complainants’ factual allegations must be 
taken as true.  In re Toledo Premium Yogurt v. Toledo Edison Co. (Sept. 17, 
1992), case No. 91-1528-EL-CSS, at 2. 
 
The present case is brought under R.C. 4933.83 of the Certified Territory 
Act.  Thus, the holding in  Toledo Premium Yogurt is not directly on point in 
this case.  However, the commission’s order of dismissal in this matter 
indicated that it had accepted all CEI’s allegations as true. Accordingly, the 
commission must accept all allegations as true in determining whether to 
dismiss a complaint brought under the Certified Territory Act. 
 
 
 
 
 
8 
 
In its complaint, CEI alleged that “AEP negotiated directly with Medical 
Center, either on its own or in conjunction with Cleveland, regarding the 50 
MW sale and purchase.”  CEI also alleged:  
 
“The 50 MW transaction between AEP and Cleveland, and the 50 MW 
transaction between Cleveland and Medical Center, are two halves of the same 
transaction.  The purchase is in reality a purchase from AEP, and the service 
provided by Cleveland, a wheeling service to effectuate the Medical Center 
purchase.”  
 
If the above allegations claimed by CEI are taken as true, as is required 
by the commission’s own standards in evaluating a motion to dismiss, then 
CEI’s complaint must survive a motion to dismiss.  While the commission may 
not have jurisdiction over either the OPC/CPP contract or the CPP/MCC 
contract individually, the totality of the evidence could indicate that the real 
intention of the deal was to transfer electricity from OPC to MCC using two 
independent transactions, which would violate the Certified Territory Act.  
 
In such an instance, the commission must look beyond the surface of the 
two contracts to see if there was an underlying deal between OPC and MCC, 
 
 
 
 
 
9 
thereby establishing a prima facie case of a violation of the Certified Territory 
Act. 
 
As previously mentioned, the commission’s primary reasoning for 
dismissing this case was its perceived lack of jurisdiction. Specifically, the 
commission found that it did not have jurisdiction because the CPP/MCC 
transaction was exempt from being subject to the Certified Territory Act.  The 
commission apparently made a cursory review of count two of CEI’s complaint 
as to whether MCC was an electrical supplier.  There was no analysis of count 
three of CEI’s complaint.  Therefore, upon remand, the commission should 
consider CEI’s complaint in its entirety.   
 
It is important to note that we make no determination as to the existence 
or sufficiency of evidence as to the merits of any of CEI’s allegations.  Such a 
determination is for the commission alone to make.  However, the fact that at 
least facially, two discrete transactions were used in this purchase should not 
prevent the commission from determining whether the purchase comports with 
the Certified Territory Act when viewed in its entirety. 
II. 
 
 
 
 
 
 
10 
FERC’s Jurisdiction 
 
The import of this decision does not require the commission to 
improperly regulate an area where the federal government has preempted the 
field with regard to the FERC’s regulation of wholesale power transactions. 
The commission’s review will be of the entire alleged transaction from OPC to 
MCC by way of CPP, not an analysis of the OPC/CPP  contract. Thus, the 
commission would not be encroaching into FERC’s jurisdiction over the 
OPC/CPP contract.  
 
Further, in Fed. Power Comm. v. S. California Edison Co. (1964), 376 
U.S. 205, 215-216, 84 S. Ct. 644, 651, 11 L. Ed. 2d 638, 646, the Supreme 
Court stated: 
 
“*** Congress meant to draw a bright line easily ascertained, between 
state and federal jurisdiction ***. This was done in the [Federal] Power Act 
making [FERC] jurisdiction plenary and extending it to all wholesale sales in 
interstate commerce except those which Congress has made explicitly subject 
to regulation by the States.” (Emphasis added.) 
 
 
 
 
 
11 
 
Section 824k(h), Title 16, U.S. Code (prohibition on mandatory retail 
wheeling and sham transactions) states: “Nothing in this subsection shall affect 
any authority of any State or local government under state law concerning the 
transmission of electric energy directly to an ultimate consumer.” In examining 
the alleged sham transaction (the alleged deal between OPC and MCC by way 
of CPP), the commission will be scrutinizing whether OPC has made a retail 
deal with MCC.  As stated above, retail deals are explicitly excluded from 
FERC’s exclusive jurisdiction. 
III 
 
A Municipality’s Rights pursuant to Section 4, Article XVIII of the Ohio 
Constitution 
 
Under Article XVIII, municipalities have certain powers, including the 
authoritiy to “acquire *** any public utility the products or service of which is 
or is to be supplied to the manicipality or its inhabitants, and may contract with 
others for any such product or service.”  Section 4, Article XVIII of the Ohio 
Constitution.  The Certified Territory Act excepts from its coverage 
muncipalities acting pursuant to Article XVIII of the Ohio Constitution.  R.C. 
 
 
 
 
 
12 
4933.83(A).  However, this court’ decision does not eviscerate a manicipality’s 
powers to buy or sell electricity under Article XVIII, of the Ohio Constitution.  
That is not a result of this opinion, nor should it be the practical result.  Rather, 
this decision is to prevent a utility from circumventing the Certified Territory 
Act by selling electricity to an entity to which it cannot sell under the Act, by 
inserting a straw man to legitimize the deal.  It is only in a fact-specific 
situation such as the case at bar, where the complaint alleges that there was an 
agreement between OPC and MCC to sell electricity from OPC to MCC using 
CPP as the straw man conduit, that the commission has jurisdiction to hear a 
complaint alleging a violation of the Certified Territory Act. Failure to reach 
this narrow factual threshold will result in a failure to state a claim upon which 
relief could be granted. 
 
The commission is free to find, based on the evidence, that each 
transaction stands on its own merit and was not merely a sham transaction, and 
that each contractual transaction must be honored regardless of whether the 
other contract proceeds.  Essentially, this decision should provide a delicate 
balance by preserving a municipality’s right to freely purchase electricity 
 
 
 
 
 
13 
pursuant to the Ohio Constitution, yet preventing utilities from eviscerating the 
Certified Territory Act on the rare occasion when there is evidence that shows 
that a utility has used a straw man to effectuate a sale of electricity for the sole 
purpose of circumventing the Certified Territory Act.  Accordingly, we hold 
that the Public Utilities Commission has jurisdiction to consider a complaint 
alleging that a sale of electricity was initiated by a utility to a retail user using a 
straw man to effectuate the deal for the sole purpose of circumventing the 
Certified Territory Act. 
IV 
Conclusion 
 
Within these narrow definitions, we find that CEI’s complaint sets out 
sufficient allegations to withstand a motion to dismiss for lack of jurisdiction.  
The commission failed to take the essence of CEI’s allegations as true for 
purposes of a motion to dismiss, relying solely on its technical analysis of a 
lack of jurisdiction over the separate transactions.  
 
 
 
 
 
14 
 
Therefore, the court reverses the commission’s dismissal of CEI’s 
complaint and remands the cause to the commission with instructions to 
reinstate CEI’s complaint and proceed with a hearing on the same. 
Order reversed 
and cause remanded.  
 
DOUGLAS, F.E. SWEENEY, PFEIFER and COOK, JJ., concur. 
 
DOUGLAS, J., concurs separately. 
 
MOYER, C.J., and RESNICK, J., dissent. 
1  The Certified Territory Act is set out in R.C. 4933.81 et seq.  Essentially the 
Certified Territory Act provides that with the exception set out under Article 
XVIII of the Ohio Constitution (home rule), each electrical supplier is assigned 
a certain territory where it has the exclusive right to provide service. 
2  MCC’s member/owners included University Hospitals of Cleveland, Case 
Western Reserve University, the Cleveland Museum of Art, the Church of the 
Covenant, the Musical Arts Association, the Cleveland Botanical Garden, the 
Cleveland Hearing & Speech Center, the Cleveland Medical Library 
Association and the Cleveland Institute of Art. 
 
 
 
 
 
15 
3  For purposes of this opinion, Ohio Power Company has acted on behalf of its 
parent, American Electric Power. 
4  Pursuant to the Federal Power Act, Section 824, Title 16, U.S. Code, FERC 
has jurisdiction to regulate the “sale of electric energy at wholesale,” defined as 
“a sale of electrical energy to any person for resale.”  Section 824(d), Title 16, 
U.S. Code. 
 
DOUGLAS, J., concurring.     I agree with the well-reasoned and 
enlightened judgment of the majority.  I write separately to address the dissent.  
Reading the majority opinion and the dissent together, one wonders if we are 
talking about the same case.  Contrary to what the dissent may imply, all that 
the majority decides today is that the Public Utilities Commission of Ohio 
(“PUCO”) must hold a hearing to determine whether American Electric Power 
(“AEP”) and its subsidiary, Ohio Power Company (“OPC”), created a sham 
transaction in consort with Cleveland Public Power  (“CPP”) to sell electricity 
to Medical Center Company (“MedCo”) in violation of the Certified Territory 
Act. 
 
 
 
 
 
16 
 
Both the majority and dissent are agreed that a direct sale of electricity 
from OPC to MedCo would be a violation of R.C. 4933.83.   R.C. 4933.83(A), 
of the Certified Territory Act, guarantees each electric supplier “the exclusive 
right to furnish electric service to all electric load centers [i.e., customers] 
located presently or in the future within its certified territory * * *.”  In this 
case, the exclusive right to furnish electricity to MedCo (a load center or 
customer within the meaning of section R.C. 4933.81[E] of the Certified 
Territory Act) belongs to Cleveland Electric Illuminating Company (“CEI”).  
Thus, OPC, which is a competitor of CEI, may not invade CEI's exclusive 
territory. 
 
The Certified Territory Act (R.C. 4933.81 et seq.), however, explicitly 
carves out an exception for municipal utilities regarding the application of the 
Act.  It is well established that, pursuant to Section 4, Article XVIII of the Ohio 
Constitution, municipalities may own and operate public utilities “the product 
or service of which is or is to be supplied to the municipality or its inhabitants, 
and may contract with others for any such product or service.”  Akron v. Pub. 
Util. Comm. (1948), 149 Ohio St. 347, 37 O.O. 39, 78 N.E.2d 890; Pfau v. 
 
 
 
 
 
17 
Cincinnati (1943), 142 Ohio St. 101, 26 O.O. 284, 50 N.E.2d 172; E. Ohio Gas 
Co. v. Pub. Util. Comm. (1940), 137 Ohio St. 225, 18 O.O. 10, 28 N.E.2d 599; 
Columbus Bd. of Edn. v. Columbus (1928), 118 Ohio St. 295, 160 N.E. 902.  
Therefore, the municipality in the case herein is excepted from the Certified 
Territory Act when it operates CPP, its own utility, for the purpose of 
generating power to serve the municipality or its inhabitants.  It may also 
secure by contract from another utility a product or service for the 
municipality’s needs. 
 
However, this does not permit a municipal utility to act merely as a 
conduit for the transfer of electricity from an outside utility into the 
municipality.  If this were permissible, then a municipality could set up a public 
utility operation, acquire power from an outside utility, and convey that power 
to its municipal inhabitants without ever operating a generating facility.  This 
would result in the negating of the laudatory purposes of the Certified Territory 
Act.  Clearly, this would be impermissible. 
 
The dissent calls MedCo’s activities an “artful compliance.”  The dissent 
makes, I believe, the majority’s point.  What we and the commission should be 
 
 
 
 
 
18 
concerned with is whether AEP, OPC, CPP and MedCo have “artfully” or 
otherwise created a series of transactions which, taken together, contravene the 
laws of this state. 
 
The PUCO was specifically created by the Ohio legislature to handle 
these types of issues, and it has the expertise to do so.  Thus, we grant the 
commission permission to review such matters.  The dissent broadens our order 
for a hearing into the proposition that a municipality cannot buy electricity 
from other electric power providers. 
 
The majority opinion does not say that a municipality may not contract 
with an outside supplier of power to satisfy its needs.  A home-rule 
municipality may still elect not to contract with its local public utility to supply 
the municipality’s energy requirements.  What the majority is saying, however, 
is that when, as here, allegations of foul play are made, the PUCO may look 
beyond two individual contracts to determine whether the totality of the 
contracts evidences a sham transaction in direct violation of the Certified 
Territory Act.  That is all the majority opinion holds.  The other issues are left 
 
 
 
 
 
19 
to another day when they are properly presented in cases coming before the 
court.  Accordingly, I concur. 
 
MOYER, C.J., dissenting.   Because the majority decision applies Section 
4, Article XVIII of the Ohio Constitution and the Certified Territory Act 
(“Act”) in violation of plain language and certain intent, I must respectfully 
dissent. 
 
CEI acknowledges that the commission has no jurisdiction over either 
the Ohio Power/CPP contract or the CPP/MedCo contract.  Yet CEI asked the 
commission, and now this court, to look beyond this lack of jurisdiction and 
recognize a cause of action under the Act.  Simply put, MedCo’s artful 
compliance with the plain words in the Act to reduce its energy costs does not 
violate the Act and does not create an actionable claim under the facts presently 
before the commission or this court.  The majority decision reaches beyond the 
allegations contained in CEI’s complaint to create an allegation that there 
actually is a contract between Ohio Power and MedCo: the only possible 
factual circumstance which could violate the Act and give rise to a cause of 
action between these parties. 
 
 
 
 
 
20 
 
Section 4, Article XVIII of the Ohio Constitution provides:   
 
“Any municipality may acquire, construct, own, lease and operate within 
or without its corporate limits, any public utility the product or service of which 
is or is to be supplied to the municipality or its inhabitants, and may contract 
with others for any such product or service. * * * ”  (Emphasis added.) 
 
Until today this provision meant that a municipality could choose to 
contract with any wholesale energy provider for the provision of energy to the 
municipal inhabitants.  This is the situation no longer. 
 
Moreover, the Act expressly provides: 
 
“* * * In the event that a municipal corporation refuses to grant a 
franchise or contract for electric service within its boundaries to an electric 
supplier whose certified territory is included within the municipality, any other 
electric supplier may serve the municipal corporation under a franchise or 
contract with the municipal corporation.”  (Emphasis added.)  R.C. 
4933.83(A). 
 
 
 
 
 
21 
 
The plain words of the statute have, until today, meant that a home-rule 
municipality could elect not to contract with its local public utility to supply the 
municipality’s energy requirements but, instead, could contract with any other 
energy provider of its choice to supply those needs. 
 
The majority decision will have the effect of diminishing these rights of 
the municipality.  It will discourage municipalities from contracting with the 
Ohio electrical supplier of their choice to satisfy the energy needs of the 
municipality.  If a municipality wishes to purchase energy competitively to 
supply the needs of its citizens, it must either buy from the local public utility 
or go outside the state of Ohio to satisfy its energy needs.  Home-rule 
municipalities will be unlikely to satisfy their energy requirements from a 
nonlocal Ohio energy producer, such as Ohio Power in this case, because such 
a purchase would create the very real threat of possible Act litigation at the 
commission by the aggrieved local public utility. 
 
Additionally, Ohio’s low-cost energy producers will lose the opportunity 
to sell large blocks of electric energy in the wholesale market to Ohio’s home-
 
 
 
 
 
22 
rule municipalities.  These sales will likely be forced out of state in the face of 
potential Act litigation by local public utilities.  Neither municipal inhabitants 
nor Ohio’s low-cost energy producers benefit from such a circumstance. 
 
The commission is a creature of statute, and, as such, may exercise only 
that jurisdiction conferred upon it by statute.  Time Warner AxS v. Pub. Util. 
Comm. (1996), 75 Ohio St.3d 229, 234, 661 N.E.2d 1097, 1101;  Canton 
Storage & Transfer Co. v. Pub. Util. Comm. (1995), 72 Ohio St.3d. 1, 5, 647 
N.E.2d 136, 141;  Columbus So. Power Co. v. Pub. Util. Comm. (1993), 67 
Ohio St.3d 535, 537, 620 N.E.2d 835, 838.  A complaint that fails to trigger the 
commission’s jurisdiction is subject to dismissal.  See Cincinnati v. Pub. Util. 
Comm. (1992), 64 Ohio St.3d 279, 595 N.E.2d 858;  Dayton Communications 
Corp. v. Pub. Util. Comm. (1980), 64 Ohio St.2d 302, 18 O.O.3d 478, 414 
N.E.2d 109. 
 
The General Assembly has narrowly prescribed the commission’s 
statutory authority over home-rule municipal utility operations.  The 
commission has express authority over the voluntary and forced abandonment 
of utility facilities and services inside municipal limits under the Miller Act, 
 
 
 
 
 
23 
R.C. 4905.20 and 4905.21 (State ex rel. Klapp v. Dayton Power & Light Co. 
[1967], 10 Ohio St.2d 14, 39 O.O.2d 9, 225 N.E.2d 230), and the state has the 
authority to control municipal utility actions in situations involving statewide 
public health and safety, for example, water fluoridation (Canton v. Whitman 
[1975], 44 Ohio St.2d 62, 73 O.O.2d 285, 337 N.E.2d 766), and approval of 
sewage projects (Delaware Cty. Bd. of Commrs v. Columbus [1986], 26 Ohio 
St.3d 179, 184, 26 OBR 154, 158-159, 497 N.E.2d 1112, 1117). 
 
But the commission has no authority over a municipal decision to 
purchase power from a public utility.  Section 4, Article XVIII of the Ohio 
Constitution provides that municipalities have the right to choose their 
wholesale energy suppliers.  This right is not subject to statutory restriction or 
to commission review or control.  Link v. Pub. Util. Comm. (1921), 102 Ohio 
St. 336, 131 N.E. 796, paragraph two of the syllabus;  In re Complaint of 
Residents of Struthers (1989), 45 Ohio St.3d 227, 543 N.E.2d 794, paragraphs 
one and three of the syllabus.  Accord Lucas v. Lucas Local School Dist. 
(1982), 2 Ohio St.3d 13, 2 OBR 501, 442 N.E.2d 449;  Columbus v. Pub. Util. 
Comm. (1979), 58 Ohio St.2d 427, 12 O.O. 3d 361, 390 N.E.2d 1201;  
 
 
 
 
 
24 
Columbus v. Ohio Power Siting Comm. (1979), 58 Ohio St.2d 435, 12 O.O.3d 
365, 390 N.E.2d 1208.  Thus, CPP had the constitutional authority to contract 
with Ohio Power to purchase electrical energy.  Moreover, the terms of that 
contract are not subject to commission review.  Link, supra, at paragraph two 
of the syllabus;  In re Complaint of Residents of Struthers, supra, at paragraph 
three of the syllabus.  See, also, Wooster v. Graines (1990), 52 Ohio St.3d 180, 
181, 556 N.E.2d 1163.   
 
CPP also had the exclusive right to contract with and sell electrical 
energy to MedCo, a retail customer within CPP’s service territory.  This 
unfettered right is expressly recognized by the Act: 
 
“[N]othing in [the Certified Territory Act] shall impair the power of 
municipal corporations to require franchises or contracts for the provision of 
electric services within their boundaries * * *.”  R.C. 4933.83(A). 
 
“Nothing contained in [the Act] shall be construed to affect the right of 
municipal corporations to generate, transmit, distribute, or sell electric energy.  
The rights and powers of municipal corporations as they exist on or after the 
effective date of this section to acquire, construct, own, lease, or operate in any 
 
 
 
 
 
25 
manner a public utility or to supply the service or product * * * under Section 
4, Article XVIII, Ohio Constitution in any portion of the state is not affected by 
[the Act].”  R.C. 4933.87.  
 
Thus, the commission had no authority to regulate or otherwise control 
the CPP / MedCo power agreement. 
 
More important, jurisdiction over wholesale power purchases like the 
Ohio Power / CPP agreement has expressly been preempted by federal law.  
Under the Federal Power Act, Section 824, Title 16, U.S. Code, the FERC has 
exclusive jurisdiction over the sale of wholesale electric energy.  The United 
States Supreme Court has long ago established the preemptive effect of the 
Federal Power Act: 
 
“* * * Congress meant to draw a bright line easily ascertained, between 
state and federal jurisdiction * * *.  This was done in the [Federal ] Power Act 
by making [FERC] jurisdiction plenary and extending it to all wholesale sales 
in interstate commerce except those which Congress has made explicitly 
subject to regulation by the States.”  Fed Power Comm. v. S. California Edison 
 
 
 
 
 
26 
Co. (1964), 376 U.S. 205, 215-216, 84 S. Ct. 644, 651, 11 Ed.2d 638, 646.  
Intrastate wholesale transactions, like the one at bar, are also considered to be 
made in interstate commerce and preempted by the Federal Power Act.  Fed. 
Power Comm. v. Florida Power & Light Co. (1972), 404 U.S. 453, 92 S.Ct. 
637, 30 L.Ed.2d 600.   
 
The majority holds that the commission has concurrent jurisdiction over 
an alleged sham transaction under the Act.  I disagree.  If preemption retains 
any force whatsoever, then the commission cannot have concurrent jurisdiction 
over this situation.  Pursuant to Section 824K(h), Title 16, U.S. Code, the 
“sham transaction” of which CEI complains is subject to the FERC’s 
jurisdiction.  Only the FERC has the authority over this contract.  Cf. 
Marketing Research Services, Inc. v. Pub. Util. Comm. (1987), 34 Ohio St.3d 
52, 517 N.E.2d 540.  In fact, CEI has, understanding this, initiated a FERC 
proceeding under this section to invalidate the Ohio Power / CPP power 
contract.  Petition of CEI (Nov. 2, 1995), FERC Docket No. EL 96-9-000, at 4, 
14. 
 
 
 
 
 
27 
 
That is not to say that the commission might not have jurisdiction over 
this matter at some later date.  If the FERC agrees with CEI that this situation 
constitutes a “sham transaction,” the FERC has the authority to strike down the 
Ohio Power / CPP wholesale power contract.  Armed with the FERC’s “sham 
transaction” finding, the commission would then have jurisdiction to determine 
CEI’s damages under the Act.  However, absent such a FERC finding, the 
commission correctly held that it has no right to render any decision related to 
the substance of a contract that is exclusively within FERC’s domain.  Cf. 
Marketing Research Services, Inc., supra. 
 
Even if we could put aside the determinative issue of jurisdiction, the 
question at the heart of this case is whether Ohio Power and MedCo contracted 
to sell 50 MW of power in violation of the Act.  If CEI alleged that they did, 
then the complaint was not subject to being dismissed, because the complaint 
would have alleged a prima facie violation of CEI’s certified territory under the 
Act.  However, the complaint contains no such allegation.   
 
The complaint alleges in count one that: 
 
 
 
 
 
28 
 
(1) 
Ohio Power “has arranged to furnish electric service to [MedCo] 
by selling 50 MW of capacity and associated energy to [CPP]”; 
 
(2) 
Ohio Power “negotiated directly with [MedCo] * * * regarding the 
50 MW sale and purchase”; 
 
(3) 
CPP will bill MedCo under the same method that Ohio Power was 
billing CPP for the 50 MW of power; 
 
(4) 
the Ohio Power / CPP and CPP / MedCo power agreements “are 
two halves of the same transaction”; 
 
(5) 
these two transactions “are sham transactions” structured to 
circumvent the Act; and 
 
(6) 
Ohio Power will violate the Act by selling power through CPP to 
MedCo.   
 
Neither the commission nor the court is required to accept allegations in 
a complaint as true which are contradicted by documents attached to the 
complaint.  See State ex rel. Edwards v. Toledo City School Dist. Bd. of Edn. 
 
 
 
 
 
29 
(1995), 72 Ohio St.3d 106, 109, 647 N.E.2d 799, 802.  The two contracts 
before us today are totally independent of each other, and fully effectuate the 
power transfer in question.  These contracts do not impose reciprocal 
obligations upon each other.  As a matter of fact, Article 10.3 of the 
CPP/MedCo agreement specifically states that it creates no third-party 
beneficiaries and that the only parties to the agreement are CPP and MedCo.  
CPP is not required to use Ohio Power as the source of its energy under the 
CPP/MedCo contract.  Additionally, CPP is obligated to provide MedCo with 
all of its energy needs under Article 1.1 of the CPP/MedCo agreement, 
including any amounts over 50 MW, while Ohio Power, on the other hand, is 
obligated only to provide 50 MW to CPP.  Moreover, Article 5.8 of the 
CPP/MedCo agreement specifically contemplates interconnection with 
wholesale electric providers other than Ohio Power.  Two halves of a whole?  
The documents clearly state otherwise. 
 
Further, changes in billing practices and methods between a municipality 
and its retail customers have no meaning under the Act.  Nor do negotiations 
between MedCo and Ohio Power without some type of contract.  Additionally, 
 
 
 
 
 
30 
every party to this litigation agrees that these two power contracts are not 
subject to the commission’s jurisdiction.  The fact that this alleged 
“arrangement” is regulated by and subject to a remedy at FERC, under Section 
824K(h), Title 16, U.S. Code does not vest the commission with jurisdiction to 
hear CEI’s complaint.   
 
Under these circumstances, the commission was free to question the 
allegations in CEI’s complaint and determine that this complaint did not set 
forth “reasonable grounds for a complaint.”  The allegations in count one do 
not trigger commission jurisdiction. 
 
In count two, CEI alleges that: 
 
(1) 
although CEI never raised the issue before this complaint, MedCo 
is an electric light company under Ohio law because it sells the power that it 
buys from CEI to its member/owners; 
 
(2) 
MedCo intends at some point in the future to build additional 
facilities to take power at transmission voltages, change its billing methodology 
regarding its member/owners, and sell electricity to non-member/owners; 
 
 
 
 
 
31 
 
(3) 
these changes will make MedCo, if it is not already, an electric 
light company under Ohio law; and  
 
(4) 
after the changes, MedCo will be selling electricity to its 
member/owners in violation of the Act. 
 
Speculative future changes in billing methods to member/owners, the 
construction of facilities to take power at transmission voltages, and 
speculation that MedCo may provide electricity to new member/owners do not 
violate the Act.  Nor do they convert a retail customer of over sixty years into 
an electric supplier that is subject to the Act.  Simply stated, speculative future 
activity which may or may not occur is not the basis for a valid complaint at the 
commission.  Cleveland v. Pub. Util. Comm. (1980), 64 Ohio St.2d 209, 216-
217, 18 O.O.3d 418, 422-423, 414 N.E.2d 718, 723.   
 
Additionally, the commission properly stated that electric suppliers (if 
that is what MedCo is in this case) in existence before January 1, 1977 are 
exempt from the Act.  In re CEI, case No. 95-458-EL-UNC, Entry at 7.  
Therefore, even if MedCo were considered an electric supplier under the Act, 
MedCo is exempt from the Act until it actually provides energy to new 
 
 
 
 
 
32 
customers or otherwise violates that Act.  The commission did not err in 
determining that there were no reasonable grounds for CEI’s complaint.  CEI 
argues here and in its FERC complaint that there is a contract between MedCo 
and Ohio Power for the sale of 50 MW of electricity and associated power.  
CEI’s complaint simply does not support these arguments.  Absent that specific 
allegation, the commission has no jurisdiction over the Ohio Power / CPP / 
MedCo power transfer.  Even if the complaint included that specific allegation, 
I seriously question whether the commission has jurisdiction over this power 
transfer in light of the Federal Power Act’s jurisdiction over “sham 
transactions” under Section 824K(h), Title 16, U.S. Code, and the 
acknowledged lack of jurisdiction by the commission over either power 
contract. 
 
For the foregoing reasons, I respectfully dissent. 
 
RESNICK, J., concurs in the foregoing dissenting opinion.