Title: Vectren Energy Delivery of Ohio, Inc. v. Pub. Util. Comm.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Vectren Energy Delivery of Ohio, Inc. v. Pub. Util. Comm., 113 Ohio St.3d 180, 2007-
Ohio-1386.] 
 
 
 
VECTREN ENERGY DELIVERY OF OHIO, INC., APPELLANT, v. PUBLIC UTILITIES 
COMMISSION OF OHIO ET AL., APPELLEES. 
[Cite as Vectren Energy Delivery of Ohio, Inc. v. Pub. Util. Comm., 
113 Ohio St.3d 180, 2007-Ohio-1386.] 
Public utilities — R.C. 4905.302 — Recovery of costs of natural gas — Effect of 
Public Utilities  Commission’s approval of utility’s long-term-forecast 
reports — Reasonableness of gas-procurement policies — Winter gas-
delivery contracts — Asset-management contract with corporate affiliate 
— Staff participation in hearings before commission. 
(No. 2006-0367 – Submitted November 28, 2006 – Decided April 11, 2007.) 
APPEAL from the Public Utilities Commission of Ohio,  
No. 02-220-GA-GCR. 
______________________ 
 
PFEIFER, J. 
Background 
{¶1} 
This is an appeal as of right by appellant, Vectren Energy Delivery 
of Ohio, Inc. (“Vectren”), from orders of the Public Utilities Commission of Ohio 
(“commission” or “PUCO”).  The Office of Consumers’ Counsel (“OCC”) is an 
intervening appellee in this appeal. 
{¶2} 
Vectren is a natural gas company as defined by R.C. 
4905.03(A)(6).  Pursuant to R.C. 4905.302, a natural gas company may recover 
costs incurred in obtaining the gas it sells to customers by adjusting the rates it 
charges under the gas-cost-recovery clause in the company’s rate schedules.  The 
commission has authority to review a company’s gas-procurement policies and 
practices.  R.C. 4905.302(C).  The PUCO reviewed the gas costs reflected in 
SUPREME COURT OF OHIO 
2 
Vectren’s gas-cost-recovery rates and ordered Vectren to refund some costs to the 
company’s customers, as described below. 
{¶3} 
Vectren began business as a natural gas company when it acquired 
the natural gas assets of the Dayton Power & Light Company (“DP & L”).1  
Vectren took control of DP & L’s assets and assumed DP & L’s obligations as a 
local distributor of natural gas services on November 1, 2000, the day the 2000-
2001 winter heating season began. 
{¶4} 
Pursuant to R.C. 4905.302 and Ohio Adm.Code 4901:1-14-07(A), 
the commission ordered an audit to investigate Vectren’s gas-cost-recovery rates 
for the audit period covering November 1, 2000, through October 31, 2002.  
Liberty Consulting Group (“Liberty”) conducted the audit of Vectren and filed a 
report with the commission on August 15, 2003. 
{¶5} 
OCC was permitted to intervene in the proceeding on behalf of 
Vectren’s residential customers.  Written testimony was submitted, and an 
evidentiary hearing was held in November and December 2003.  Vectren, the 
commission’s staff, and OCC filed posthearing briefs. 
{¶6} 
On June 14, 2005, the commission issued its opinion and order in 
Vectren’s gas-cost-recovery proceeding.  The commission found that in certain 
instances, Vectren had acted unreasonably, imprudently, or inappropriately in 
procuring gas during the audit period.  Specifically, the commission took issue 
with three winter-delivery service contracts that Vectren had entered into that 
resulted in unused, excess natural gas capacity during the audit period.  The 
commission also found that the terms of Vectren’s asset-management agreement 
with its affiliate, ProLiance Energy L.L.C. (“ProLiance”), were not prudent, 
                                                 
1.  In the Matter of the Joint Petition of Vectren Energy of Ohio, Inc., Indiana Gas Company, Inc., 
and the Dayton Power and Light Company, to Transfer the Natural Gas Assets of the Dayton 
Power and Light Company to Vectren Energy Delivery of Ohio, Inc. and/or Indiana Gas 
Company, Inc., Pursuant to R.C. Section 4905.48(B) and (C), PUCO case No. 00-524-GA-ATR 
(Mar. 20, 2000).   
January Term, 2007 
3 
reasonable, or appropriate.  The commission concluded that Vectren’s customers 
should not be responsible for the inappropriate excess-capacity costs of the 
winter-delivery service contracts and that Vectren’s customers had been harmed 
as a result of the ProLiance contract.  Accordingly, the commission determined 
that six adjustments to Vectren’s gas-cost-recovery rates were warranted, and it 
ordered Vectren to refund, by those adjustments, over $9.5 million in gas supply 
costs that Vectren had previously collected from customers. 
{¶7} 
Vectren filed a timely application for rehearing.  On August 10, 
2005, the commission granted the application in part, finding that Vectren had set 
forth sufficient reasons to warrant reconsideration of the adjustment related to the 
ProLiance contract and the calculation of interest of all adjustments in the June 
14, 2005 order.  The commission reduced the refund owed by Vectren to its 
customers in connection with the ProLiance contract from $3.83 million to $1.98 
million.  The commission also changed the date when interest would begin to 
accrue on the ordered refund. 
{¶8} 
Vectren’s appeal as of right is now before this court.  Based on the 
following reasons, we affirm the PUCO’s orders. 
Standard of Review 
{¶9} 
R.C. 4903.13 provides that we may reverse, vacate, or modify a 
PUCO order only when, upon consideration of the record, we find the order to be 
unlawful or unreasonable.  We will not reverse or modify a PUCO decision as to 
questions of fact where 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, at ¶ 
29.  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 
SUPREME COURT OF OHIO 
4 
record.  Id.  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 where “highly specialized issues” 
are involved and “where agency expertise would, therefore, be of assistance in 
discerning the presumed intent of our General Assembly.”  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. I 
Winter Delivery Service-1 and Winter Delivery Service-3 Contracts 
{¶10} In its first proposition of law, Vectren challenges the PUCO’s 
finding that it did not act reasonably, prudently, or appropriately when it executed 
the first winter-delivery service (“WDS-1”) contract and the third winter-delivery 
service (“WDS-3”) contract.  Vectren argues that its actions in executing these 
contracts are entitled to a presumption of reasonableness and were based on 
forecast methods, assumptions, reserves, and resource plans that had been 
reviewed and approved by the PUCO in proceedings on the company’s long-term-
forecast reports. 
{¶11} R.C. 4935.04(C) requires natural gas companies like Vectren to 
file annually a long-term-forecast report.2  The purpose of the long-term-forecast 
report is to project customers’ future demands for gas and to determine how to 
acquire sufficient commodity and pipeline resources to meet demand.  See In the 
Matter of the Long-Term Forecast Report of Vectren Energy Delivery of Ohio and 
Related Matters, PUCO No. 00-120-GA-FOR (Sept. 25, 2001), 2001 WL 
1518351, at 3.  Among other items, long-term-forecast reports are required to 
contain a year-by-year ten-year forecast of annual energy demand, peak load, and 
                                                 
2.  R.C. 4935.04 was modified during the audit period, but the modifications do not affect this 
matter. 
January Term, 2007 
5 
reserves, and a general description of the resource plan to meet demand.  R.C. 
4935.04(C)(1).  The reports must also contain a projection of anticipated supply, 
supply prices, and sources of supply over the forecast period.  R.C. 
4935.04(C)(4). 
{¶12} R.C. 4935.04(D)(1) requires the PUCO to review and comment on 
long-term-forecast reports, and subsection (D)(3) requires that a hearing be held at 
least once every five years.  The scope of the hearing is “limited to issues relating 
to forecasting.”  R.C. 4935.04(E)(1). 
{¶13} Under R.C. 4935.04(F), the PUCO shall determine whether the 
following are true: 
{¶14} “(2) The load requirements are based on substantially accurate 
historical information and adequate methodology; 
{¶15} “(3) The forecasting methods consider the relationship between 
price and energy consumption; 
{¶16} “(4) The report identifies and projects reductions in energy 
demands due to energy conservation measures * * * in the [utility’s] service area; 
{¶17} “(5) Utility company forecasts of loads and resources are 
reasonable in relation to population growth estimates * * *; 
{¶18} “* * * 
{¶19} “(7) All assumptions made in the forecast are reasonable and 
adequately documented.” 
{¶20} During the gas-cost-recovery audit period under review in this 
matter — November 1, 2000, through October 31, 2002 — the PUCO approved 
the 2000 long-term-forecast report filed by Vectren and determined that no 
hearings were required on the 2001 and 2002 reports.3 
                                                 
3.  See In the Matter of the Long-Term Forecast Report of Vectren Energy Delivery of Ohio and 
Related Matters, PUCO No. 00-120-GA-FOR, 2001 WL 1518351 (Sept. 25, 2001); In the Matter 
of the Long-Term Gas Forecast Report of Vectren Energy Delivery of Ohio, Inc., PUCO No. 01-
SUPREME COURT OF OHIO 
6 
{¶21} Vectren claimed that it entered into the WDS-1 and WDS-3 
contracts to meet design-day4 forecasting requirements and a reserve margin that 
were set forth in its 2000 and 2001 long-term-forecast reports.  Vectren passed the 
demand and commodity costs of these contracts through to its customers who 
were subject to gas-cost recovery.  The PUCO found, however, that Vectren’s 
forecasting methodology was too conservative and that its use of a five-percent 
reserve margin was improper.  The PUCO, therefore, concluded that the WDS-1 
and WDS-3 contracts resulted in inappropriate excess-capacity costs to Vectren’s 
customers in the amount of $2,387,965. 
{¶22} Statutory authority. Vectren first argues that in gas-cost-recovery 
proceedings the PUCO has no statutory authority to conduct a de novo 
consideration of issues that were open to investigation in long-term-forecast 
proceedings.  Vectren claims that the PUCO erred when it overturned, in this gas-
cost-recovery proceeding, its prior findings, in Vectren’s long-term-forecast 
proceedings, that Vectren’s forecasting assumptions and methodology were 
reasonable. 
{¶23} The PUCO found that Vectren had misinterpreted the intent and 
purpose of long-term-forecast reports under R.C. 4935.04 and gas-cost-recovery 
proceedings under R.C. 4905.302.  The PUCO held that it was not barred from 
addressing issues regarding Vectren’s forecast assumptions and methodology set 
forth in its long-term-forecast reports for purposes of reviewing Vectren’s gas 
purchases during the audit period.  The PUCO recognized the purpose and 
interrelationship of long-term-forecast reports and gas-cost-recovery audits but 
                                                                                                                                     
320-GA-FOR (Oct. 4, 2001); and PUCO No. 02-120-GA-FOR, 2002 WL 32093811 (Aug. 22, 
2002). 
 
4.  “Design day” means “[a] 24-hour period of demand which is used as a basis for planning gas 
capacity requirements.” American Gas Association Glossary, http://www.aga.org; and Ohio 
Adm.Code 4901:5-7-01(A). 
 
January Term, 2007 
7 
found that the purpose of each proceeding is different. The PUCO noted that the 
purpose of proceedings on long-term-forecast reports under R.C. 4935.04 is “to 
require energy utilities to prospectively plan for a sufficient supply based on 
projected demand and to demonstrate that such a process has been adequately 
implemented by the reporting utility.  The [long-term-forecast reports] are 
primarily for the utilities’ planning purposes.” 
{¶24} In contrast, the PUCO stated that in R.C. 4905.302 gas-cost-
recovery proceedings, it “performs audits to determine, among other things, if a 
gas or natural gas company has acted unreasonably or imprudently with its gas 
procurement policies and/or practices.”  Thus, although “Vectren’s use of a 
reserve margin, its propane inventory and design-day criteria were part of its 
long-term planning in [its long-term-forecast reports], * * * the prudence and 
reasonableness of the effect of such decisions on Vectren’s gas procurement 
policies were not and have not been evaluated in the [long-term-forecast] 
proceedings.  The appropriate proceeding for review of Vectren’s gas 
procurement policies and practices is the [gas-cost-recovery] audit.” 
{¶25} R.C. 4905.302 is designed to separate the cost of gas from all other 
costs incurred by a natural gas company and to permit the company to recover the 
costs of its gas supplies from its customers.  See River Gas Co. v. Pub. Util. 
Comm. (1982), 69 Ohio St.2d 509, 510, 23 O.O.3d 443, 433 N.E.2d 568.  The 
PUCO may refuse to permit the recovery of gas costs if it has reason to believe 
that the company “has followed imprudent or unreasonable procurement policies 
and practices, * * * or has employed such other practices, policies, or factors as 
the commission considers inappropriate.”  R.C. 4905.302(E). 
{¶26} Ohio Adm.Code Chapter 4901:1-14 establishes a “gas cost 
recovery process” and “investigative procedures and proceedings, including 
periodic reports, audits, and hearings, to examine the arithmetic and accounting 
accuracy of the gas costs reflected in each company’s gas cost recovery rate, and 
SUPREME COURT OF OHIO 
8 
to review each company’s gas production and purchasing policies to the extent 
that those policies affect the gas cost recovery rate.”  Ohio Adm.Code 4901:1-14-
02.  See, also, R.C. 4905.302(C)(1). 
{¶27} Vectren has cited no statute or commission rule that precludes the 
PUCO from reviewing, in a gas-cost-recovery proceeding, its forecasting 
methodology (including design-day specifications) in order to determine whether 
they correspond to the company’s service requirements.  Indeed, the above-quoted 
language indicates that the PUCO is well within its authority to review forecasting 
assumptions and methodology in gas-cost-recovery proceedings.  Vectren’s long-
term-forecast reports would necessarily have an effect upon its purchasing 
policies and practices and thus are appropriate for the PUCO’s review during gas-
cost-recovery proceedings.  In fact, the PUCO conducted such a review of DP & 
L’s forecasting methodology and assumptions in DP & L’s gas-cost-recovery case 
(which Vectren was a party to) that covered the audit period just prior to DP & 
L’s transfer of assets to Vectren.  See In the Matter of the Regulation of the 
Purchased Gas Adjustment Clause Contained within the Rate Schedule of Vectren 
Energy Delivery of Ohio, Inc. and Related Matters, PUCO No. 00-220-GA-GCR, 
2001 WL 1518351, at 7-9. 
{¶28} Notwithstanding, Vectren asks us to hold that the commission may 
not find under R.C. 4905.302 that a utility acted imprudently – and thereby deny 
its recovery of gas costs – merely because the utility has purchased enough gas 
supply to meet the demand forecasts that the PUCO previously reviewed and 
approved in accordance with R.C. Chapter 4935. In other words, Vectren 
maintains that as long as it follows a supply plan dictated by forecasting 
methodology and assumptions set forth in its long-term-forecast report and 
approved by the PUCO, then its gas costs can never be found imprudent. But 
Vectren’s reasoning ignores the difference between forecast demand and actual 
demand.  Indeed, Vectren acknowledged the difference in its 2000 long-term-
January Term, 2007 
9 
forecast report when it noted that “the demand forecasting process although 
detailed * * * is a forecast and will have variances when compared to actual 
demand.” 
{¶29} Res Judicata/Collateral Estoppel. Vectren also asserts under its 
first proposition of law that the PUCO’s findings regarding Vectren’s long-term-
forecast reports foreclosed all claims on the forecast assumptions and 
methodology based on the doctrines of res judicata and collateral estoppel.  
According to Vectren, the PUCO’s disallowance of the costs of the WDS-1 and 
WDS-3 contracts was unlawful because it was ultimately based upon the PUCO’s 
re-evaluation of forecasting methods, particularly its design-day specifications, 
previously approved by the PUCO in Vectren’s long-term-forecast reports. 
{¶30} The doctrines of res judicata and collateral estoppel preclude 
relitigation of a point of law or fact that was at issue in a former action between 
the same parties and was passed upon by a court of competent jurisdiction.  See 
Consumers’ Counsel v. Pub. Util. Comm. (1985), 16 Ohio St.3d 9, 10, 16 OBR 
361, 475 N.E.2d 782, citing Trautwein v. Sorgenfrei (1979), 58 Ohio St.2d 493, 
12 O.O.3d 403, 391 N.E.2d 326, syllabus.  Neither doctrine is applicable here 
because there was no relitigation in Vectren’s gas-cost-recovery proceeding of a 
point of law or fact that was passed upon by the PUCO in proceedings on 
Vectren’s long-term-forecast reports. 
{¶31} In the proceeding on Vectren’s 2000 long-term-forecast report, the 
PUCO approved a stipulation signed by Vectren, OCC, and the PUCO staff that 
Vectren’s long-term-forecast report substantially complied with the requirements 
of R.C. Chapter 4935.  Nothing in the PUCO’s order indicates that it conclusively 
decided all issues regarding Vectren’s forecasting methods or design-day criteria.  
The PUCO did not engage in any evaluation or make any specific endorsement of 
Vectren’s forecasting methodology or design-day specifications. 
SUPREME COURT OF OHIO 
10 
{¶32} Similarly, the PUCO closed the proceedings on Vectren’s 2001 
long-term-forecast report in October 2001.  In doing so, the PUCO specifically 
noted that it was “not making any judgment or reaching any conclusion as to the 
reports or data submitted” by Vectren in that case.  In the Matter of the Long-
Term Gas Forecast Report of Vectren Energy Delivery of Ohio, Inc., PUCO No. 
01-320-GA-FOR (Oct. 4, 2001). Thus, we find that Vectren’s claim is not 
supported by the record. 
{¶33} Vectren also overlooks that the PUCO’s findings that the WDS-1 
and WDS-3 contracts were imprudent were not based solely on its determination 
that Vectren’s forecasting methodology was overly conservative (resulting in 
higher design-day requirements).  The PUCO found that Vectren’s forecast need 
and the volume obtained under the WDS-1 contract would be appropriate only if 
the PUCO included the five-percent reserve margin5 on top of Vectren’s 2000 
design-day requirements.  Similarly, the PUCO concluded that the WDS-3 
contract resulted in inappropriate excess-capacity costs when it determined that a 
five-percent reserve margin on top of the 2001 forecasted design-day needs was 
not warranted.  Thus, “[i]t was the cumulative effect of Vectren’s very 
conservative design day requirements combined with a five percent reserve 
margin” when compared to customer demand that caused the commission to 
conclude that inappropriate excess-capacity costs were passed on to Vectren’s 
customers. 
{¶34} Vectren suggests that any claims involving its implementation of a 
five-percent reserve margin were barred by res judicata or collateral estoppel.  
The PUCO held, however, that it had never endorsed Vectren’s decision to 
implement a five-percent reserve margin in any previous proceeding.  The PUCO 
                                                 
5.  A reserve margin is maintained in the event of a shortfall in peak-day supply resulting from a 
supplier or facility failure.  However, Vectren’s design-day equation included a margin of error in 
addition to its proposed five-percent reserve margin. 
January Term, 2007 
11 
found that Vectren’s 2000 long-term-forecast report did not include any specific 
reserve margin, noting that the 2000 report referred to a reserve margin without 
quantifying a percentage. 
{¶35} Therefore, even if proceedings on Vectren’s long-term-forecast 
reports established the reasonableness of Vectren’s forecasting methodology as 
Vectren contends, Vectren’s claim still must fail because the PUCO held that the 
volumes under the WDS-1 and WDS-3 contracts could be justified only by 
including the five-percent reserve margin.  Vectren has offered no credible 
evidence that the PUCO approved a five-percent reserve margin in any of the 
proceedings on Vectren’s long-term-forecast reports or that the PUCO erred in 
finding that Vectren’s use of a reserve margin was not warranted. 
{¶36} We conclude that Vectren has failed to establish that the PUCO’s 
decision on this issue was unlawful, unreasonable, or against the manifest weight 
of the evidence.  Accordingly, we defer to the commission’s statutory 
interpretations and reject Vectren’s first proposition of law.  Migden-Ostrander v. 
Pub. Util. Comm., 102 Ohio St.3d 451, 2004-Ohio-3924, 812 N.E.2d 955, at ¶ 23. 
Proposition of Law No. II 
Winter-Delivery Service-2 Contract 
{¶37} In proposition of law No. II, Vectren contends that the PUCO erred 
when it determined that Vectren did not act reasonably, prudently, or 
appropriately by executing the second winter-delivery service (“WDS-2”) 
contract.  Vectren argues that the PUCO’s decision was unreasonable, unlawful, 
and against the manifest weight of the evidence and that it failed to comply with 
R.C. 4903.09.6 
{¶38} Within two months before the asset transfer between DP & L and 
Vectren, DP & L sold 1.5 million gallons of propane, arguably in violation of its 
                                                 
6.  R.C. 4903.09 requires that the commission issue “findings of fact and written opinions setting 
forth the reasons prompting the decisions arrived at, based upon said findings of fact.”  
SUPREME COURT OF OHIO 
12 
obligation to Vectren to act in accordance with good utility practices in the 
transfer of assets.7  Vectren elected not to delay the DP & L asset-purchase 
transaction and, for the sake of its business relationship with DP & L, chose to 
forgo a legal dispute over the depleted propane inventory.  Vectren instead 
obtained natural gas through the WDS-2 contract to replace the propane sold by 
DP & L. 
{¶39} The PUCO held that Vectren did not act prudently, reasonably, or 
appropriately when it executed the WDS-2 contract.  The PUCO reasoned that the 
volume that Vectren obtained under the WDS-1 contract – which Vectren had 
executed just prior to the WDS-2 contract – and the remaining propane inventory 
could have covered the same concerns (depleted propane inventory and extreme 
November-December 2000 weather conditions) that Vectren advanced to justify 
the WDS-2 contract.  The PUCO noted that Vectren failed to explain why it did 
not use its remaining propane on hand or the natural gas volume from the WDS-1 
contract.  Moreover, the PUCO found that under the WDS-2 contract, Vectren 
obtained the equivalent of nearly 26 times the amount of the missing propane and 
that Vectren provided no explanation to justify a contract that was much larger 
than the main reason for its existence.  According to the PUCO, Vectren’s 
handling of the WDS-2 contract doubled the winter-demand service costs to its 
customers. 
{¶40} The PUCO also held that Vectren improperly shifted, from 
Vectren’s shareholders to Vectren’s customers, the costs incurred in replacing the 
reserve represented by the propane removed by DP & L.  The PUCO found that 
the risks associated with Vectren’s business decision not to pursue the propane-
                                                 
7.  Propane can be used to meet customer needs on the coldest days. Vectren uses propane as a 
complement to natural gas to meet peak demands and to avoid exceeding hourly pipeline 
limitations.  
January Term, 2007 
13 
depletion issue with DP & L prior to closing on the asset-transfer transaction 
should not be borne by Vectren’s customers. 
{¶41} Vectren disputes the PUCO’s determination that Vectren offered 
no justification for obtaining the equivalent of nearly 26 times the amount of the 
missing propane.  Vectren maintains that it attempted to obtain a ten-day service 
contract but that suppliers were willing to provide only 60-day service contracts.  
According to Vectren, the PUCO refused to recognize that the 60-day service 
contract was dictated by the market.  Vectren, however, has offered no evidence 
to support its claim.  Vectren refers to written testimony from one of its witnesses, 
but this witness testified that the volume obtained through the WDS-2 contract 
was justified by Vectren’s annual-supply plan.  Vectren’s witness mentioned 
nothing about market conditions; rather, he testified that Vectren “exercised 
judgment and secured supply it determined to be needed.” 
{¶42} Vectren also challenges the PUCO’s reason for disallowing the 
WDS-2 contract: in Vectren’s words, “that there was enough propane in 
[Vectren’s] system to cover the need [Vectren] satisfied through the WDS-2 
contract and that [Vectren’s] propane facilities were being used at only one-half 
capacity.” Vectren has again failed to offer record evidence that the factual 
findings it disputes are in error. In addition, the PUCO never said that Vectren had 
enough propane on hand to cover the need satisfied through the WDS-2 contract.  
Rather, the PUCO found that the “WDS-1 contract and the remaining propane 
could have covered the same concerns that Vectren advances to justify the WDS-
2 contract.”  (Emphasis added.) This and the fact that the natural gas supply 
obtained under the WDS-2 contract was the equivalent of nearly 26 times the 
amount of the missing propane it was intended to replace were the primary 
reasons that the PUCO found that the WDS-2 contract was imprudent. 
{¶43} Vectren also challenges the PUCO’s ordered adjustment of 
$556,437, which reflected the difference between the cost of the commodity 
SUPREME COURT OF OHIO 
14 
purchased under the WDS-2 contract and the market price to replace the missing 
propane inventory at or near the time of the transfer.  Vectren maintains that this 
refund must be overturned because it was based on the assumption that Vectren 
could have used propane on the days that the WDS-2 gas supply was actually 
used. We disagree.  The PUCO did not assume anything; instead, Vectren 
admitted that if the propane had been available during the 2000-2001 winter 
heating season, Vectren would have used it to meet customer demand. 
{¶44} Finally, Vectren claims that “the Commission’s suggestion that 
[Vectren’s] shareholders somehow made money is erroneous, as a matter of law, 
and had nothing to do with [Vectren’s] decision-making.” It is not clear to us how 
this “suggestion,” assuming its existence, is erroneous as a matter of law.  In any 
event, the PUCO merely held that Vectren’s customers should not be saddled with 
the cost of replacing the propane inventory sold off by DP & L when Vectren 
made a business decision to go forward with the asset transfer rather than pursue 
the issue of the depleted propane inventory with DP & L. 
{¶45} Vectren has not shown that the PUCO’s decision was unlawful, 
unreasonable, or against the manifest weight of the evidence.  We overrule the 
second proposition of law. 
Proposition of Law No. III 
{¶46} In its third proposition of law, Vectren contends that the PUCO 
unlawfully permitted its staff to participate in the proceedings without filing a 
report or testimony.  Vectren made this argument before the commission in a 
motion to strike the staff’s posthearing briefs.  Vectren argued that, pursuant to 
R.C. 4901.16, the staff must present any information it acquires in a report to the 
commission or in testimony in commission proceedings.  Because the staff did not 
present a report or testimony, Vectren maintains that the PUCO was precluded 
from considering the staff’s briefs as a basis for any decision.  The commission, 
however, found that R.C. 4901.16 did not apply to the staff’s posthearing briefs 
January Term, 2007 
15 
and that the staff, like other parties, was permitted to participate in this proceeding 
pursuant to R.C. 4903.02. 
{¶47} Vectren now asserts that the PUCO’s determination that its staff 
was another party that participated in this proceeding “like the other parties” is 
unreasonable and that the multiple roles played by the staff produced a process 
that is contrary to law and fundamentally unfair.  Vectren takes issue with the 
PUCO’s finding that it was within the staff’s prerogative not to submit testimony 
in support of its positions in the proceedings before the commission. Yet R.C. 
4903.02 provides: 
{¶48} “The public utilities commission may, either through the public 
utilities commissioners or by inspectors or employees authorized by it, examine 
under oath, at any time and for assisting the commission in the performance of 
any powers or duties of the commission, any officer, agent, or employee of any 
public utility or railroad or any other person, in relation to the business and affairs 
of such public utility or railroad and may compel the attendance of such witness 
for the purpose of such examination.” 
{¶49} The commission has broad authority in the conduct of its hearings 
and “may adopt and publish rules to govern its proceedings and to regulate the 
mode and manner of all * * * hearings relating to parties before it.”  R.C. 
4901.13; Weiss v. Pub. Util. Comm. (2000), 90 Ohio St.3d 15, 19, 734 N.E.2d 
775.  The commission may “permit or require the filing of briefs or memoranda at 
any time during a proceeding.”  Ohio Adm.Code 4901-1-31(A).  Further, the 
commission’s staff is considered a party for purposes of the briefing rule.  Ohio 
Adm.Code 4901-1-10(C).  The PUCO was well within its authority to permit its 
staff to cross-examine witnesses and file posthearing briefs. 
{¶50} Notwithstanding this authority, Vectren maintains that “[b]ecause 
the Staff filed no comments, testimony, or a report to the Commission in the 
docket of this proceeding, the record is simply ‘devoid of what data, information, 
SUPREME COURT OF OHIO 
16 
or facts the staff reviewed or considered in support of its recommendation.’  
Tongren v. Pub. Util. Comm., 85 Ohio St.3d 87 at 90 [706 N.E.2d 1255] (1999).”  
Tongren is inapposite.  The commission’s order in Tongren was based largely on 
its staff’s recommendations and findings, but neither the commission’s order nor 
the staff’s recommendations and findings contained adequate evidentiary support.  
Tongren, 85 Ohio St.3d at 90-91, 706 N.E.2d 1255.  In this case, the PUCO’s 
order is sufficiently supported by evidence admitted at the hearing. 
{¶51} Vectren also argues that, even presuming that the staff is 
authorized to examine persons under oath pursuant to R.C. 4903.02, the staff 
“may present the information thus acquired only by report to the Commission or 
in testimony in a Commission proceeding as dictated by R.C. 4901.16.”  
According to Vectren, “Ohio law and Commission rules dictate that Staff must 
make its recommendations to the Commission in the public evidentiary record by 
report or testimony as required by R.C. 4901.16.” 
{¶52} Vectren’s reliance on R.C. 4901.16 is misplaced.  R.C. 4901.16 
provides that no PUCO employee or agent is permitted to disclose information 
acquired in the course of his or her duties except as provided therein.  
Specifically, the statute prevents employees or agents of the PUCO who examine 
the accounts, records, or memoranda kept by public utilities pursuant to R.C. 
4905.13 from divulging information regarding “the transaction, property, or 
business” of the public utility other than in reports to the PUCO or testimony in 
court or commission proceedings.  Contrary to Vectren’s assertion, R.C. 4901.16 
does not preclude the PUCO’s staff from presenting evidence through the cross-
examination of witnesses or from advancing its theory of the case in its brief.  
R.C. 4901.16 imposes a duty of confidentiality on PUCO employees and agents; 
it does not purport to govern the procedures for presenting evidence or filing 
briefs in PUCO proceedings. 
January Term, 2007 
17 
{¶53} Finally, Vectren makes assorted claims that the proceedings before 
the commission were somehow tainted or that it was not afforded due process.  
These claims are without merit.  This gas-cost-recovery proceeding centered 
around Liberty’s audit report, of which Vectren had ample notice.  Vectren had a 
full hearing before the commission.  It was permitted to present evidence through 
the calling of its own witnesses, the cross-examination of the other parties’ 
witnesses, and the filing of exhibits.  Vectren was also able to argue its position 
through the filing of posthearing briefs and challenge the PUCO’s findings 
through an application for rehearing.  Based on the foregoing reasons, we reject 
Vectren’s third proposition of law. 
Proposition of Law No. IV 
ProLiance Contract 
{¶54} In its fourth proposition of law, Vectren challenges the PUCO’s 
findings in relation to its asset-management agreement with ProLiance. Upon 
acquiring DP & L’s gas assets in 2000, Vectren had in place an asset-management 
contract with ProLiance, an affiliate of Vectren’s parent corporation.  The 
agreement provided that ProLiance would provide all gas supply for Vectren’s 
requirements and that Vectren would assign all pipeline contracts to ProLiance.  
Any pipeline capacity not used to provide service to Vectren customers could be 
remarketed by ProLiance, in which event it would pay Vectren a transportation 
credit, which Vectren could pass on to its customers. 
{¶55} Other terms of the contract included Vectren’s right to recall 
capacity for assignment to its gas-choice customers, and Vectren’s ability to 
periodically require certain reductions in the amount of capacity demanded.  The 
agreement additionally required Vectren to pay ProLiance annual fees for the 
management services, the first being $450,000.8 
                                                 
8.  The management fee is included in Vectren’s base rates, as opposed to its gas-cost-recovery 
rates, and was therefore beyond the scope of the gas-cost-recovery proceeding. 
SUPREME COURT OF OHIO 
18 
{¶56} The PUCO held that the Vectren-ProLiance contract was not 
prudent, reasonable, or appropriate.  As a result, the PUCO ordered Vectren to 
refund $1.98 million to Vectren’s customers for the ProLiance contract.9  The 
PUCO found that the ProLiance agreement yielded substantially less revenue for 
Vectren’s customers than the same assets had provided to DP & L’s customers in 
DP & L’s asset-management contract with Columbia Energy Services two years 
earlier.  Additionally, the PUCO found that the capacity-reduction right contained 
in the ProLiance agreement was of little or no value because Vectren could have 
achieved the same results by simply allowing its existing pipeline capacity 
contracts to expire.10  The PUCO also determined that Vectren relied too readily 
upon ProLiance’s expertise and could have better monitored its asset manager to 
ensure that Vectren’s duties and obligations to its customers were being met. 
{¶57} Vectren first maintains that the PUCO’s “$1.98 million 
disallowance rests, essentially, on an unsupported claim that [Vectren] was 
imprudent for not engaging in a competitive solicitation process prior to selecting 
ProLiance.”  Vectren contends that to arrive at the disallowance, the commission 
must have implicitly concluded that if Vectren had used a competitive bid 
process, it would have obtained substantially more revenue from the transfer of 
the pipeline-capacity rights. 
{¶58} Contrary to Vectren’s claim, the PUCO specifically noted that it 
would not declare the ProLiance contract unreasonable simply because it was not 
the result of a competitive bid.  Rather, the PUCO presumed that Vectren had 
acted prudently when it contracted with ProLiance but found that the presumption 
was rebutted.  The primary reasons cited by the PUCO for the ProLiance 
                                                                                                                                     
 
9.  The PUCO originally ordered a $3.83 million adjustment but reduced that amount on rehearing. 
 
10.  The reduction-right term gave Vectren the right to reduce its capacity portfolio up to specified 
levels in anticipation of some customers switching to competitive suppliers.  This right allowed 
Vectren to avoid paying for that capacity and put ProLiance at risk for using that capacity. 
January Term, 2007 
19 
disallowance were (1) that the ProLiance contract generated much less revenue 
than the DP & L asset-management contract, (2) that the differences between the 
time, terms, and conditions of the two asset-management agreements were 
insufficient to justify the revenue difference, and (3) that Vectren needed to 
improve oversight of its asset manager in order to better evaluate whether it 
received the benefit of its bargain.11 In short, Vectren ignores the credible 
evidence, unrelated to the lack of a competitive bid, that the PUCO cited to justify 
its rejection of the ProLiance agreement. 
{¶59} Vectren also claims that the PUCO ignored unrebutted evidence of 
the market value of the released pipeline-capacity rights.  Vectren presented 
evidence to the commission that it received $3,446,220 from the ProLiance 
contract during the audit period while the fair market value for the released 
capacity rights was $2,899,745.  Vectren argues that this evidence obviated any 
need for the PUCO to resort to an inherently flawed comparison of the DP & L-
Columbia Energy Services agreement. 
{¶60} The PUCO’s order reflects that it considered Vectren’s evidence 
but found other evidence more persuasive.  Specifically, the PUCO found that 
Vectren’s “market analysis” was flawed because it did not consider the higher 
market value contained in the DP & L-Columbia Energy Services agreement.  It 
also noted that in negotiating its asset-management agreement with ProLiance, 
Vectren failed to recognize that ProLiance had the ability to maximize revenues 
generated from unused capacity by combining that capacity with other 
commodities.  In that regard, the PUCO cited Vectren’s failure to track whether 
ProLiance repackages the unused capacity from Vectren with other commodities. 
                                                 
11.  On rehearing, the PUCO accepted Vectren’s claim that the restructuring of the Columbia Gas 
Transmission Corporation market had an effect on the market for Vectren’s unused capacity and, 
in combination with the PUCO’s adjustment in the average annual value of the DP & L contract, 
reduced the original disallowance of $3.83 million to $1.98 million. 
SUPREME COURT OF OHIO 
20 
{¶61} The PUCO recognizes, as Vectren argued, that differences between 
the Vectren-ProLiance and the DP & L–Columbia Energy Services agreements 
could arguably justify the different compensation levels for the unused capacity 
between the two contracts.  In the end, however, the PUCO concluded that it was 
logical to compare the two asset-management agreements because they involved 
virtually the same assets and were relatively contemporaneous with one another 
and that Vectren failed to prove that differences between the two contracts 
justified the different revenue levels. 
{¶62} We find that Vectren has offered no evidence or argument that the 
PUCO’s decision was unlawful or unreasonable.  We also conclude that the 
commission’s findings are not manifestly against the weight of the evidence.  See 
Cincinnati Gas & Elec. Co. v. Pub. Util. Comm. (1999), 86 Ohio St.3d 53, 58, 
711 N.E.2d 670; Cincinnati v. Pub. Util. Comm. (1993), 67 Ohio St.3d 523, 528-
529, 620 N.E.2d 826.  Vectren is, in essence, asking us to reweigh the evidence 
and substitute our judgment for that of the PUCO; we decline the invitation.  See 
Payphone Assn. v. Pub. Util. Comm., 109 Ohio St.3d 453, 2006-Ohio-2988, 849 
N.E.2d 4, at ¶ 16.  Here, the record contains sufficient evidence supporting the 
PUCO’s decision.  Thus, we overrule Vectren’s fourth proposition of law. 
Conclusion 
{¶63} For the reasons explained above, we hold that each of Vectren’s 
four propositions of law is without merit, and we affirm the PUCO’s orders. 
Orders affirmed. 
 
MOYER, C.J., SLABY, O’CONNOR, O’DONNELL and LANZINGER, JJ., 
concur. 
 
LUNDBERG STRATTON, J., concurs in part and dissents in part. 
 
LYNN C. SLABY, J., of the Ninth Appellate District, was assigned to sit for 
RESNICK, J., whose term ended on January 1, 2007. 
January Term, 2007 
21 
 
CUPP, J., whose term began on January 2, 2007, did not participate in the 
consideration or decision of this case. 
__________________ 
 
LUNDBERG STRATTON, J., concurring in part and dissenting in part. 
{¶64} I concur in the majority opinion with regard to the first three 
propositions of law.  However, I dissent from the majority’s decision to affirm the 
commission’s order requiring that Vectren refund $1.98 million to its customers 
in relation to Vectren’s asset-management contract with ProLiance.  While the 
commission upon reconsideration did reduce the refund it initially found was due, 
from $3.83 million to $1.98 million, I believe that the record does not justify any 
commission-ordered refund based on the ProLiance contract. 
{¶65} As the majority explains, the commission disallowed the 
ProLiance contract primarily because it yielded much less revenue for Vectren’s 
customers than the same assets had provided to DP & L’s customers under DP & 
L’s asset-management contract with Columbia Energy Services two years earlier.  
However, in my view, the commission erred when it used the DP & L-Columbia 
Energy Services contract as a basis to evaluate the reasonableness of the 
ProLiance contract.  While the commission found that differences between the 
two contracts did not justify the different revenue levels, I believe that there are 
significant differences in the purpose, terms, and conditions of the ProLiance and 
DP & L contracts that make any comparison inherently flawed. 
{¶66} First, the ProLiance contract served purposes beyond maximizing 
revenues.  For instance, unlike the DP & L contract, Vectren’s agreement with 
ProLiance included contractual rights supporting its Customer Choice Program.  
Under this program, Vectren (1) sells peaking services to Customer Choice 
suppliers, (2) makes pipeline storage available to Choice suppliers, (3) offers 
pipeline capacity to Choice suppliers, and (4) plans deliveries in a manner to 
ensure continued system reliability if a Choice supplier defaults.  In short, Vectren 
SUPREME COURT OF OHIO 
22 
designed a capacity-management strategy to support customer choice, and it 
entered into the ProLiance agreement as a means of enhancing the success of its 
Customer Choice Program. 
{¶67} Other differences between the ProLiance and DP & L contracts 
justified the lower revenues generated by the ProLiance contract.  For example, 
under the agreement, ProLiance paid Vectren approximately $1.5 million per year 
for the right to remarket its capacity.  Yet Vectren retained the right to recall 
capacity from ProLiance and assign it to Customer Choice suppliers, which 
allowed Vectren to maintain control of capacity that might be needed to support 
its Customer Choice Program.  This required ProLiance to assume more risk 
regarding the unused capacity, which in turn reduced the value of the asset-
management contract to ProLiance. 
{¶68} Similarly, the ProLiance agreement provided Vectren with 
valuable capacity-reduction rights that were not included in the DP & L 
agreement.  The reduction rights allowed Vectren to reduce its capacity portfolio 
up to specified levels in anticipation of Vectren’s customer base switching to 
competitive suppliers.  As a result, Vectren was able to mitigate both gas costs 
and stranded costs associated with customer migration to the Customer Choice 
Program and further facilitate the program.  Moreover, the risk of remarketing the 
excess capacity was again shifted to ProLiance because Vectren no longer had to 
pay this cost when it reduced its capacity portfolio. 
{¶69} In addition, Vectren was not required to provide a refund to 
ProLiance in the event that Vectren recalled capacity for system supply.  In 
contrast, DP & L had to pay refunds to Columbia Energy Services whenever the 
capacity that Columbia Energy Services had purchased became unavailable due to 
DP & L’s supply needs.  In other words, ProLiance again assumed greater 
financial risk by paying Vectren for projected capacity regardless of whether this 
capacity was actually available for ProLiance to resell on the open market. 
January Term, 2007 
23 
{¶70} Second, the ProLiance and the DP & L asset-management 
agreements were entered into at different times.  Specifically, Vectren entered 
into its agreement with ProLiance at a time when changes to the natural gas 
market rendered any comparison between the contracts untenable. 
{¶71} Evidence before the commission showed that the value of 
Vectren’s unused capacity had declined substantially in 2000, after the DP & L-
Columbia Energy Services contract and prior to the Vectren-ProLiance contract.  
This devaluation occurred when Columbia Gas Transmission restructured its 
market areas and essentially eliminated firm rights to secondary delivery points 
outside the Dayton area.  This restructuring limited Vectren’s ability to transfer 
unused capacity to certain markets on the Columbia Gas Transmission system.  
According to a Vectren witness, this action gutted the value of Vectren’s unused 
Columbia Gas Transmission capacity, the very capacity that Columbia Energy 
Services had obtained from DP & L and relied upon to deliver gas cheaply to 
competitive Eastern markets. 
{¶72} Admittedly, the commission did take the devaluation of the 
Columbia Gas Transmission market into account on rehearing when it reduced 
Vectren’s ordered refund for the ProLiance contract from $3.83 million to $1.98 
million.  Yet the commission continued to use the flawed comparison between the 
two agreements as the foundation for the refund order. 
{¶73} Even without the differences between the two contracts, market 
data during the audit period revealed that the compensation ProLiance paid for the 
right to remarket Vectren’s unused capacity was reasonable.  Vectren submitted 
evidence that it received $3,446,220 from the ProLiance contract during the audit 
period, while the fair market value for the released capacity rights was 
$2,899,745.  Vectren also presented evidence from after the audit period that 
showed that Vectren had secured reasonable value from ProLiance for its capacity 
in a diminishing market. 
SUPREME COURT OF OHIO 
24 
{¶74} Finally, Vectren reasonably made a conservative, less risky 
selection when it chose ProLiance as an asset manager.  Vectren selected 
ProLiance because ProLiance was an affiliate of Vectren’s parent corporation.  
Thus, Vectren was able to better monitor ProLiance’s risk policies and financial 
viability.  Indeed, Vectren presented evidence that of the portfolio managers 
identified as potential candidates, many had either entered bankruptcy, were no 
longer in business, or had been implicated in various investigations of price 
manipulation. 
{¶75} In sum, the record reflects that Vectren made a prudent and 
reasonable decision to enter into an asset-management contract with ProLiance.  
The ProLiance contract allowed Vectren to obtain fair market value for its unused 
capacity while shifting much of the risk of remarketing that capacity to 
ProLiance.  Comparison to the DP & L-Columbia Energy Services contract is 
simply unwarranted.  I would therefore reverse the commission’s order requiring 
that Vectren refund $1.98 million to its customers for the ProLiance contract.  
Instead, I would hold that Vectren is not required to refund any gas costs 
recovered through the ProLiance contract.  Accordingly, I concur in part and 
dissent in part. 
__________________ 
 
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Gretchen J. 
Hummel, Lisa G. McAlister, and Daniel J. Neilsen, for appellant. 
 
Marc Dann, Attorney General, and Duane W. Luckey, Werner L. Margard 
III, and Thomas G. Lindgren, Assistant Attorneys General, for appellee Public 
Utilities Commission of Ohio. 
 
Janine L. Migden-Ostrander, Ohio Consumers’ Counsel, and Joseph P. 
Serio and Ann M. Hotz, Assistant Consumers’ Counsel, for appellee Ohio 
Consumers’ Counsel. 
______________________