[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In 

re Comm. Rev. of Capacity Charges of Ohio Power Co., Slip Opinion No. 2016-Ohio-1607.] 

NOTICE 

This slip opinion is subject to formal revision before it is published in 

an advance sheet of the Ohio Official Reports. Readers are requested 

to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 

65 South Front Street, Columbus, Ohio 43215, of any typographical or 

other formal errors in the opinion, in order that corrections may be 

made before the opinion is published. 

SLIP OPINION NO. 2016-OHIO-1607

IN RE COMMISSION REVIEW OF THE CAPACITY CHARGES OF OHIO POWER 

COMPANY AND COLUMBUS SOUTHERN POWER COMPANY; 

OFFICE OF OHIO CONSUMERS’ COUNSEL, APPELLANT/CROSS-APPELLEE; OHIO 

POWER COMPANY, APPELLEE/CROSS-APPELLANT; PUBLIC UTILITIES 

COMMISSION, APPELLEE/CROSS-APPELLEE. 

[Until this opinion appears in the Ohio Official Reports advance sheets, it 

may be cited as In re Comm. Rev. of Capacity Charges of Ohio Power Co., 

Slip Opinion No. 2016-Ohio-1607.] 

Public utilities—Commission complied with procedural requirements of R.C. 

4905.26—Commission committed error in calculating energy credit—

Commission orders affirmed in part and reversed in part. 

(Nos. 2012-2098 and 2013-0228—Submitted December 15, 2015—Decided April 

21, 2016.) 

APPEAL and CROSS-APPEAL from the Public Utilities Commission, 

No. 10-2929-EL-UNC. 

____________ 
SUPREME COURT OF OHIO

2

KENNEDY, J. 

I. SUMMARY

{¶ 1} This case arises from the Public Utilities Commission’s approval of 

a capacity charge for the American Electric Power operating companies, Ohio 

Power Company and Columbus Southern Power (collectively, “AEP”). 

Competitive retail electric service (“CRES”) providers that sell generation service 

in Ohio must ensure that they have sufficient capacity to meet customer demand. 

Because AEP is responsible for providing capacity to all suppliers of electricity 

within its service area, CRES providers who operate in the company’s territory 

rely on AEP’s capacity resources to meet their generation needs. In the orders on 

appeal, the commission authorized AEP to implement a new cost-based charge for 

capacity service that AEP offers to CRES providers. 

{¶ 2} The commission orders addressed many issues, and the Ohio 

Consumers’ Counsel (“OCC”) appealed.1

 AEP also filed a cross-appeal. We 

have determined that AEP has demonstrated one commission error. Therefore, 

we affirm the commission’s orders in part and reverse them in part, and remand 

the cause for further proceedings. 

II. FACTS AND PROCEDURAL BACKGROUND

{¶ 3} The Federal Energy Regulatory Commission (“FERC”) regulates 

capacity markets under its preemptive authority over wholesale electricity. See 16 

U.S.C. 824(b)(1). “Capacity” refers to the ability to supply sufficient electrical 

power to meet the highest level of customer demand. In order to maintain the 

reliability of the power grid, generators will produce more electricity than 

necessary to meet anticipated demand, plus a reserve margin to guard against 

unforeseen events. 

 

1

 FirstEnergy Solutions Corp. and Industrial Energy Users-Ohio also appealed, but they 

subsequently dismissed their appeals. 
January Term, 2016 

3

{¶ 4} AEP participates in the PJM Interconnection, L.L.C. (“PJM”) 

capacity market. See Pub. Util. Comm. No. 10-2929-EL-UNC, at 3 (July 2, 2012) 

(the “Capacity Order”). AEP is a party to the PJM Reliability Assurance 

Agreement (“RAA”). The RAA is a FERC-approved rate schedule that is 

intended to ensure that there are adequate capacity resources to maintain 

reliability in the region covered by PJM at the lowest possible cost. PJM 

Reliability Assurance Agreement, available at 

http://www.pjm.com/documents/agreements.aspx (accessed Jan. 27, 2016); Am. 

Elec. Power Serv. Corp., 134 FERC ¶ 61,039, 2011 WL 182468, at **1 (Jan. 20, 

2011). 

{¶ 5} The RAA uses an auction process as the primary method by which 

capacity is purchased and priced in the PJM region. However, the RAA also 

contains an alternative method for meeting capacity obligations, the “Fixed 

Resource Requirement Alternative (“FRR Alternative”). In lieu of participating 

in the PJM auctions, a load-serving entity,2

 such as AEP, may elect to satisfy all 

capacity obligations in its service territory. AEP has chosen the FRR Alternative, 

and hence, it was responsible for satisfying all PJM-determined capacity-resource 

obligations for all loads (for both shopping and nonshopping customers) in its 

service territory through May 31, 2015. See Capacity Order at 10. 

{¶ 6} The RAA also addresses how load-serving entities—i.e., generators 

like AEP that supply wholesale power to the PJM region grid—are compensated 

for capacity services. As noted, the RAA primarily uses auctions to set the price 

for capacity resources in the various PJM region. See id.; Am. Elec. Power Serv. 

Corp., 134 FERC ¶ 61,039, 2011 WL 182468, at **1; RAA, Schedule 8.1. The 

RAA, however, also allows for capacity pricing to be determined through a “state 

compensation mechanism,” in states that have implemented retail choice. Under 

 

2

 A load-serving entity is any entity that provides electric energy to end-users located within the 

PJM region. RAA, Article I, Section 1.44. 
SUPREME COURT OF OHIO

4

this provision, the state public-utility commission determines the cost that CRES 

providers must pay FRR Alternative entities—such as AEP—for this capacity 

service. RAA Schedule 8.1, Section D.8. 

{¶ 7} Since the start of the PJM capacity market, AEP had been receiving 

compensation from CRES providers for capacity service at market prices, as 

determined by PJM auctions. However, in November 2010, AEP filed an 

application with FERC seeking to change how it was compensated for providing 

capacity to CRES providers. Specifically, AEP wanted to change from auction 

pricing to cost-based pricing.3

 

{¶ 8} This case was opened when the commission found that an 

investigation was necessary to determine the impact of AEP’s proposed change. 

Capacity Order at 3. After opening the case, the commission formally adopted a 

state compensation mechanism for AEP’s capacity charge and set that charge 

based on the most recent capacity auction conducted by PJM. Capacity Order at 

3-4; Pub. Util. Comm. No. 10-2929-EL-UNC, at 2 (Dec. 8, 2010). 

{¶ 9} On July 2, 2012, the commission issued its order finding that AEP 

was entitled to recover the actual costs it incurs to supply wholesale capacity to 

CRES providers in its territory. According to the commission, AEP was entitled 

to recover its actual costs based on its status as the sole provider of capacity in its 

service territory. 

{¶ 10} The commission found that it had statutory authority to establish a 

cost-based “state compensation mechanism” to price capacity—rather than rely 

on PJM auctions. The commission rejected the contention of some parties that it 

was bound by R.C. Chapter 4928 in setting the capacity charge, which governs 

competitive retail electric service. The commission found instead that the 

 

3

 AEP relied on RAA Schedule 8.1, Section D.8, which allows an FRR Alternative Entity, if no 

state compensation mechanism exists, to make a filing with the FERC to seek compensation based 

on costs. 
January Term, 2016 

5

capacity service at issue is not a competitive retail electric service, because AEP 

was not providing capacity to end-use energy consumers. Rather, AEP was 

providing capacity to CRES providers, who resold that service to retail customers. 

The commission therefore determined that it could rely on R.C. 4905.04, 4905.05, 

and 4905.06 to approve a cost-based charge, because the transaction is 

appropriately characterized as an intrastate wholesale transaction. 

{¶ 11} On rehearing, the commission clarified that it also had authority 

under R.C. 4905.26 to open the investigation in this case and to set the rate for 

capacity service. Pub. Util. Comm. No. 10-2929-EL-UNC, at 29 (Oct. 17, 2012). 

{¶ 12} The commission also found that its decision was consistent with 

the FERC-approved RAA, which as previously mentioned, allows state publicutility commissions to establish a “state compensation mechanism” to price 

wholesale capacity. The commission also noted that a state compensation 

mechanism, once established, prevails over other compensation methods under 

the RAA. 

{¶ 13} After finding that it had authority to approve a cost-based capacity 

charge, the commission determined that AEP’s cost to provide capacity was 

$188.88 per megawatt-day. But because this was well above the market price for 

capacity in the PJM region at the time (as established by PJM auctions), the 

commission was concerned that AEP’s capacity charge would inhibit retail 

shopping in its service area. For this reason, the commission ordered that CRES 

providers would be required to pay only the market price for capacity, under the 

theory that this would provide incentive for CRES providers to offer lower retail 

electric prices, which would promote retail competition. 

{¶ 14} The commission then authorized AEP to defer recovery of the 

difference between the market price charged to CRES providers and the $188.88 

megawatt-day price (which reflected the company’s actual capacity costs) and 

also authorized AEP to collect carrying charges on the deferral. The commission 
SUPREME COURT OF OHIO

6

further ordered that an appropriate mechanism to recover the deferred charges 

would be established in AEP’s second electric-security-plan (“ESP”) case.4 

{¶ 15} Following three rounds of rehearing, the Office of the Ohio 

Consumers’ Counsel (“OCC”) appealed the commission’s decision in this case 

(“the capacity case”) and AEP filed a cross-appeal. 

A. The Commission’s ESP Order

{¶ 16} In the ESP case, the commission approved the “Retail Stability 

Rider” (“RSR”) as the mechanism for AEP to recover its deferred capacity 

charges. In re Application of Columbus S. Power Co., Pub. Util. Comm. Nos. 11-

346-EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-EL-AAM (Aug. 8, 

2012) (the “ESP Order”).5

 The RSR was established as a “nonbypassable” rider, 

meaning that it is paid by both shopping and nonshopping customers in AEP’s 

service territory. In addition, the commission authorized AEP to begin its 

recovery of a portion of those costs during the ESP period. The commission 

further instructed AEP to file an application after the ESP ended that, if approved, 

would allow the company to recover any remaining deferred capacity charges 

starting on June 1, 2015, and continuing over the following 32 months. 

B. AEP’s Applications with FERC 

{¶ 17} In March 2013, AEP requested that FERC confirm that the state 

compensation mechanism approved by the commission is consistent with the 

 

4

 The commission decided the ESP case in August 2012. In re Application of Columbus S. Power 

Co., Pub. Util. Comm. Nos. 11-346-EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-ELAAM (Aug. 8, 2012). The decision was appealed to this court and was argued in May 2015. 

Supreme Court case No. 2013-0521. Our decision in that case is also being released today. In re 

Application of Columbus S. Power Co., __ Ohio St.3d __, 2016-Ohio-1608, __ N.E.3d __. 

5

 On April 2, 2015, the commission approved AEP’s application to recover the remaining deferred 

capacity charges, plus carrying charges on the deferral. See In re Application of Ohio Power Co. 

to Adopt a Final Implementation Plan for the Retail Stability Rider, Pub. Util. Comm. No. 14-

1186-EL-RDR (Apr. 2, 2015). The case is currently pending before the commission on rehearing. 
January Term, 2016 

7

RAA. AEP submitted a proposed appendix to the RAA with its request. See PJM 

Interconnection, L.L.C., 143 FERC ¶ 61,164, 2013 WL 2283427 (May 23, 2013). 

{¶ 18} On May 23, 2013, FERC granted AEP’s request and accepted the 

proposed appendix, subject to certain revisions to which AEP ultimately agreed. 

As revised, the appendix reflects that AEP was compensated for capacity 

provided to CRES providers during its ESP period at the rate established by PJM 

auction. FERC found that AEP’s revised appendix is consistent with the RAA 

and does not amend the agreement itself. FERC did not, however, endorse any 

capacity charge above auction pricing. 

{¶ 19} After FERC accepted the amended appendix, its order became final 

and nonappealable. Thereafter, on September 26, 2013, AEP withdrew its 

pending application for FERC approval of a cost-based capacity charge. See 

FERC case Nos. ER11-2183 and EL11-32. 

III. STANDARD OF REVIEW

{¶ 20} “R.C. 4903.13 provides that a [Public Utilities Commission] 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 NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio 

St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885, ¶ 50. We will not reverse or modify 

a Public Utilities Commission decision as to questions of fact when the record 

contains sufficient probative evidence to show that the commission’s 

determination is not manifestly against the weight of the evidence and is 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. The appellant bears the burden of 

demonstrating that the commission’s decision is against the manifest weight of 

the evidence or is clearly unsupported by the record. Id. 
SUPREME COURT OF OHIO

8

{¶ 21} Although this court has “complete and independent power of 

review as to all questions of law” in appeals from the commission, Ohio Edison 

Co. v. Pub. Util. Comm., 78 Ohio St.3d 466, 469, 678 N.E.2d 922 (1997), 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., 58 Ohio St.2d 108, 110, 388 N.E.2d 

1370 (1979). 

IV. DISCUSSION

A. OCC’s Arguments on Appeal 

1. OCC’s first proposition of law challenges the 

commission’s reliance on R.C. 4905.26 

{¶ 22} OCC argues under its first proposition of law that the commission 

failed to comply with all the procedural requirements of R.C. 4905.26 in the 

proceedings below. OCC concedes that R.C. 4905.26 gives the commission 

authority to investigate and hold a hearing to review rates and charges that may be 

unjust, unreasonable, or unlawful. But according to OCC, the plain language of 

the statute requires more than the notice and hearing that was provided in the 

proceedings below. OCC raises two specific challenges. Both lack merit. 

{¶ 23} First, OCC maintains that the commission violated R.C. 4905.26 

when it set a new capacity charge in this case without finding that AEP’s existing 

capacity charge (based on PJM auction pricing) was unjust, unreasonable, or 

unlawful. But R.C. 4905.26 contains no such requirement. The statute provides: 

[U]pon the initiative or complaint of the public utilities 

commission, that any rate * * * [or] charge * * * is in any respect 

unjust, unreasonable, * * * or in violation of law, * * * if it appears 

that reasonable grounds for complaint are stated, the commission 
January Term, 2016 

9

shall fix a time for hearing and shall notify complainants and the 

public utility thereof. 

{¶ 24} The plain language of the statute requires only that the 

commission’s “initiative or complaint” allege that the rate or charge is unjust or 

unreasonable. It does not require any specific finding before the commission can 

change an existing rate, so we reject OCC’s first claim that R.C. 4905.26 was 

violated. 

{¶ 25} Second, OCC claims that the commission violated R.C. 4905.26 

because it “never established that reasonable grounds existed for a complaint” 

before it held the hearing in the case below. R.C. 4905.26 states that “if it appears 

that reasonable grounds for complaint are stated, the commission shall fix a time 

for hearing and shall notify complainants and the public utility thereof.” This 

requirement also applies when, as here, the commission itself initiates 

proceedings. Allnet Communications Servs., Inc. v. Pub. Util. Comm., 32 Ohio 

St.3d 115, 117, 512 N.E.2d 350 (1987). 

{¶ 26} The commission held an evidentiary hearing that began on April 

17, 2012. The commission found that it had set forth reasonable grounds for 

complaint in entries issued on December 8, 2010, and March 7, 2012. In the 

December 8 entry, the commission initiated proceedings in this case, finding that 

an investigation was necessary in order to determine the impact if AEP’s request 

with FERC to change its capacity charge from a market rate to a cost-based 

mechanism was approved. The commission was specifically concerned with the 

effect that AEP’s proposed change could have on (1) the company’s current 

capacity charges to CRES providers, (2) the manner that the company collected 

capacity costs through retail rates or other capacity charges, and (3) retail 

competition in Ohio. 
SUPREME COURT OF OHIO

10 

{¶ 27} In the March 7 entry, the commission stated that evidence6 had 

been presented that AEP’s then-existing capacity charge might be below the 

company’s costs to provide capacity. The commission further stated that AEP’s 

current market-rate capacity charge could result in an unjust and unreasonable 

result if left unchanged. 

{¶ 28} On appeal, OCC fails to explain exactly how these entries failed to 

comply with R.C. 4905.26. Unsupported legal conclusions do not demonstrate 

error. In re Application of Columbus S. Power Co., 129 Ohio St.3d 271, 2011-

Ohio-2638, 951 N.E.2d 751, ¶ 14-17; In re Application of Columbus S. Power 

Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 56-57. We find 

that the commission set forth reasonable grounds to open the investigation and 

hold an evidentiary hearing. See, e.g., Ohio Util. Co. v. Pub. Util. Comm., 58 

Ohio St.2d 153, 159, 389 N.E.2d 483 (1979) (commission-initiated investigation 

based on belief that existing rates might not be reasonable under new rate law 

satisfied reasonable-grounds requirement); Allnet Communications Servs., Inc. v. 

Pub. Util. Comm., 32 Ohio St.3d at 117-118, 512 N.E.2d 350 (allegation that 

certain charges were unreasonable and unlawful due to the unforeseen magnitude 

of rate increases satisfied reasonable-grounds requirement). 

{¶ 29} In any event, OCC’s real objection appears to be with when the 

commission expressly invoked R.C. 4905.26. OCC notes that the commission did 

not mention R.C. 4905.26 until “three months after-the-fact (in the rehearing 

stage).” But OCC does not explain how it was prejudiced by this delay, which it 

must in order to obtain a reversal. See Myers v. Pub. Util. Comm., 64 Ohio St.3d 

299, 302, 595 N.E.2d 873 (1992) (this court “will not reverse an order of the 

commission absent a showing of prejudice by the party seeking reversal”). 

 

6

 The evidence referenced here was submitted in support of a stipulation filed in the ESP case, 

which was intended to resolve both the capacity case and the ESP case. The commission initially 

approved the stipulation, but later decided to reject it. See Pub. Util. Comm. No. 10-2929-ELUNC, at 2, 10-13 (Feb. 23, 2012). 
January Term, 2016 

11 

{¶ 30} In light of the commission’s clear authority under R.C. 4905.26 to 

investigate rates and order new rates if necessary, we reject OCC’s first 

proposition of law. 

2. OCC’s second and third propositions of law challenge 

the commission’s decision to defer the recovery of capacity costs 

{¶ 31} In its second proposition of law, OCC argues that the commission 

violated R.C. 4928.141 and 4928.02(A) when it allowed AEP to defer the 

recovery of capacity costs in this case. According to OCC, the order is 

unreasonable because it results in customers paying twice for capacity service. 

{¶ 32} OCC argues in subsection A of its third proposition of law that the 

commission’s decision to authorize the deferral violates R.C. 4928.02(H), which 

provides that it is state policy to avoid anticompetitive subsidies in the provision 

of retail electric service. OCC also contends that the decision to defer capacity 

charges violates R.C. 4928.02(L) (requiring the commission to protect at-risk 

populations), and R.C. 4928.06 (requiring the commission to effectuate the policy 

specified in R.C. 4928.02). According to OCC, the deferral provides an unlawful 

subsidy to CRES providers in the form of discounted capacity that will ultimately 

be paid by retail customers when the deferral is recovered in rates. 

{¶ 33} OCC raised these same arguments before the commission. The 

commission, however, did not address the merits of the arguments. The 

commission instead found that OCC’s arguments were prematurely raised and 

beyond the scope of the capacity case because the mechanism to recover the 

deferred capacity charges was not established in that case. Rather, that 

mechanism would be—and ultimately was—established in the ESP case. 

{¶ 34} The critical problem for OCC is that none of the arguments in its 

second proposition of law or in subsection A of its third proposition of law refutes 

the commission’s finding that the arguments were not yet ripe for review. Thus, 

OCC fails to demonstrate error in the commission’s order. See In re Application 
SUPREME COURT OF OHIO

12 

of Duke Energy Ohio, Inc., 131 Ohio St.3d 487, 2012-Ohio-1509, 967 N.E.2d 

201, ¶ 12 and ¶ 14. 

{¶ 35} Under subsection B of its third proposition of law, OCC argues that 

the accounting order granting the deferral harmed utility customers. We lack 

jurisdiction over this argument, however, because OCC failed to set forth this 

claimed error in its notice of appeal. R.C. 4903.13 (establishing that the 

procedure for seeking reversal of a Public Utilities Commission order is through a 

notice of appeal “setting forth the order appealed from and the errors complained 

of”); Cincinnati Gas & Elec. Co. v. Pub. Util. Comm., 103 Ohio St.3d 398, 2004-

Ohio-5466, 816 N.E.2d 238, ¶ 21. 

{¶ 36} Finally, OCC argues in subsection C of its third proposition of law 

that the commission violated the regulatory principle of cost causation when it 

approved the capacity-charge deferrals. OCC, however, did not raise this 

argument on rehearing at the commission as required by R.C. 4903.10, so we lack 

jurisdiction to consider it now. See Consumers’ Counsel v. Pub. Util. Comm., 70 

Ohio St.3d 244, 247-248, 638 N.E.2d 550 (1994); Ohio Partners for Affordable 

Energy v. Pub. Util. Comm., 115 Ohio St.3d 208, 2007-Ohio-4790, 874 N.E.2d 

764, ¶ 15. 

B. AEP’s Arguments on Cross-Appeal 

{¶ 37} AEP raises two arguments on cross-appeal. First, AEP challenges 

the commission’s calculation of the energy credit to be used to reduce the 

company’s cost-based capacity charge. Second, AEP raises a regulatory-taking 

argument. We find that the commission committed one instance of reversible 

error in calculating the energy credit. 

1. AEP’s first proposition of law challenges the inputs the 

commission used to calculate the energy credit 

{¶ 38} AEP first challenges the energy credit that the commission applied 

to reduce the company’s capacity charge. According to AEP, the commission’s 
January Term, 2016 

13 

methodology for calculating the credit is riddled with fundamental errors resulting 

in a grossly overstated energy credit, which in turn rendered the capacity charge 

severely understated. 

a. Background on energy credit 

{¶ 39} The commission applied an energy credit so that AEP would not be 

overcompensated for its capacity resources. The cost of capacity is a fixed cost 

that includes the capital cost of building and maintaining a generation plant in a 

ready state, plus a fair return on the investment. The cost of operating the plant 

consists primarily of the cost of fuel used to generate electricity, and also includes 

some variable maintenance and operating costs. Revenue is generated by 

operating the plant (charging for capacity) and selling the power.7

{¶ 40} The theory behind reducing a company’s capacity charge based on 

energy credit is that the company is likely to receive revenue from generating and 

selling excess power. When capacity provided by a generation asset is sold to 

CRES providers, the asset’s potential to generate energy for sale to third parties is 

freed up. That is, when AEP is relieved of its responsibility to provide power to 

standard-service-offer customers who shop, AEP has excess energy available that 

it can sell to third parties (wholesale customers). This transaction is referred to as 

“off-system sales.” The energy credit is designed to offset AEP’s capacity costs 

with projected revenue that AEP is expected to realize from off-system sales. 

b. Matters requiring the commission’s expertise receive deference 

{¶ 41} We will defer to the commission “where there exists disparate 

competence between the respective tribunals in dealing with highly specialized 

issues.” Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d at 110, 388 

N.E.2d 1370. One area in which this court has consistently deferred to the 

expertise of the commission is in determining rate-of-return matters. Ohio Edison 

 

7

 Revenue in excess of fuel costs is termed “margin.” 
SUPREME COURT OF OHIO

14 

Co. v. Pub. Util. Comm., 63 Ohio St.3d 555, 561, 589 N.E.2d 1292 (1992), fn. 3. 

“Limited judicial review of a rate of return determination is sound” because 

“ ‘cost of capital analyses * * * are fraught with judgments and assumptions.’ ” 

Consumers’ Counsel v. Pub. Util. Comm., 64 Ohio St.2d 71, 79, 413 N.E.2d 799 

(1980), quoting Dayton Power & Light Co., Pub. Util. Comm. No. 78-92-ELAIR, at 26 (Mar. 9, 1979). 

{¶ 42} The energy credit implicates rate-of-return issues, so, in accordance 

with the cases cited above, we will defer to the commission’s determination if it is 

reasonable. 

c. AEP’s challenge to the shopping-level percentage 

{¶ 43} The commission calculated the energy credit based in part on a 

forecast of the level of shopping for generation during the time the energy credit 

would apply. An increase in shopping decreases the energy credit and results in 

an increase in the company’s cost-based capacity rate. Conversely, a decrease in 

shopping would increase the energy credit and decrease the capacity charge. 

{¶ 44} AEP argues that the commission erred by using a static shopping 

level of 26.1 percent, which reflected the level of shopping in AEP’s territory on 

March 31, 2012.8

 AEP does not dispute that 26.1 percent was the level of 

shopping in March 2012. Instead, AEP maintains that the commission 

disregarded uncontroverted evidence that shopping had increased from 26.1 

percent on March 31 to 30.19 percent on April 30, 2012. 

{¶ 45} According to AEP, this 4 percent increase would correspond to a 

decreased energy credit of $4.50 per megawatt-day and an increase in net capacity 

cost in the same amount—resulting in a capacity charge of $193.30 per megawattday (as opposed to the commission approved rate of $188.88 per megawatt-day). 

AEP also claims that the commission found that shopping was expected to 

 

8

 Both the commission and AEP report the date as March 31, but AEP’s evidence reflects the date 

as March 1. 
January Term, 2016 

15 

increase even further in the months after April 2012. AEP therefore asserts that 

the commission’s failure to account for increases in shopping that had already 

occurred and were expected in the future was unreasonable, unlawful, and 

financially harmful to the company. We disagree. 

{¶ 46} The commission explained why it adopted a static shopping level 

of 26.1 percent in this case. Specifically, the commission found that it was 

appropriate to use the actual level of shopping as of a recent date, rather than a 

projection, because the commission expected the shopping level to fluctuate in 

both directions over the time period at issue. The commission reasoned that use 

of the static shopping level provided certainty to both the energy credit and the 

capacity charge. The commission also decided against a nonstatic alternative 

because it would have required the commission to review actual shopping levels 

at regular intervals and recalculate the energy credit based on those reviews. 

{¶ 47} AEP has not come close to showing that the commission erred. 

The commission explained why it adopted a static shopping level in this case: to 

provide certainty to both the energy credit and the capacity charge. The pertinent 

section of AEP’s merit brief, however, does not even mention the commission’s 

reasoning on this issue, let alone make an argument against it. 

{¶ 48} Instead, AEP places significant emphasis on testimony from one of 

its witnesses that shopping had increased more than 4 percent in one month. But 

this argument ignores two critical factors. First, a substantial fluctuation in 

shopping levels over one month runs counter to the commission’s stated goal of 

providing certainty to the energy credit and the capacity charge. Second, AEP 

has, in essence, asked this court to reweigh the evidence and substitute its 

judgment for that of the commission. But that is not our function on appeal. 

Elyria Foundry Co. v. Pub. Util. Comm., 114 Ohio St.3d 305, 2007-Ohio-4164, 

871 N.E.2d 1176, ¶ 39. 
SUPREME COURT OF OHIO

16 

{¶ 49} AEP also points to the commission’s expectation that shopping 

would increase as a result of the decision to allow AEP to continue selling 

capacity to CRES providers at market price. How this supports AEP’s argument 

is not clear to us. It was, after all, an expectation, not an affirmative factual 

finding. 

{¶ 50} For these reasons, we reject AEP’s invitation to alter the static 

shopping-level percentage. 

d. AEP’s challenge to specific inputs used in calculating the energy credit 

{¶ 51} AEP also argues under this proposition of law that the 

methodology used to calculate the energy credit was unreliable because it utilized 

a number of flawed inputs, each resulting in an overstated energy credit. AEP 

claims that it pointed out specific flaws in certain inputs but the commission did 

not substantively address AEP’s arguments or identify evidence in support of the 

order. AEP is correct that the commission failed to address its arguments in any 

substantive manner. Accordingly, we remand the cause to correct this error.

{¶ 52} During the proceedings below, AEP objected to the methodology 

proposed by the commission’s staff to calculate the energy credit. The staff’s 

methodology was based on a model licensed by its consultant in this case, Energy 

Ventures Analysis, Inc. (“EVA”). AEP argued that EVA used inaccurate input 

data and assumptions, which resulted in an overstated energy credit. AEP 

specifically argued that the model (1) was not properly calibrated, which resulted 

in overstated gross energy margins by more than 200 percent,9

 (2) wrongly 

incorporated traditional off-system-sales margins, (3) failed to properly reflect 

AEP’s System Interconnection Agreement (“pool agreement”) for off-system 

sales, (4) overstated forecasted market prices, (5) understated fuel costs for coal 

 

9

 AEP’s brief reports this amount as 20 percent, not 200 percent. 
January Term, 2016 

17 

units, and (6) understated heat rates for generation facilities. Capacity Order at 

28-29. 

{¶ 53} R.C. 4903.09 requires the commission to explain its decisions and 

identify, in sufficient detail to enable review, the record evidence upon which its 

orders are based. MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio 

St.3d 306, 312, 513 N.E.2d 337 (1987) (R.C. 4903.09 requires the commission to 

set forth the reasons for its decisions and prohibits summary rulings and 

conclusions that do not develop the supporting rationale or record); Indus. Energy 

Users-Ohio v. Pub. Util. Comm., 117 Ohio St.3d 486, 2008-Ohio-990, 885 N.E.2d 

195, ¶ 30 (the commission abuses its discretion if it decides an issue without 

record support). Yet the commission approved the staff’s proposed energy credit 

without specifically addressing any of AEP’s challenges to the inputs used in 

EVA’s methodology. The commission’s entire discussion of why it rejected 

AEP’s challenges consists of the following: 

Upon review of all the testimony, the Commission finds that it is 

clear that the dispute between [AEP] and Staff amounts to a 

fundamental difference in methodology in everything from the 

calculation of gross energy margins to accounting for operation of 

the pool agreement. [AEP] claims that Staff’s inputs to the 

AURORAxmp model result in an overstated energy credit, while 

Staff argues the Company’s energy credit is far too low. 

Essentially, [AEP] and Staff have simply offered two quite 

different approaches in their attempt to forecast market prices for 

energy. The commission concludes that [AEP] has not shown that 

the process used by Staff was erroneous or unreasonable. We 

further find that the approach put forth by EVA is a proper means 
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18 

of determining the energy credit and produces an energy credit that 

will ensure that [AEP] does not over recover its capacity costs. 

Capacity Order at 36. 

{¶ 54} The commission added little to this analysis on rehearing. In 

relevant part, the commission stated, “[W]e do not believe that the Company has 

demonstrated that the inputs actually used by EVA are unreasonable. * * * 

Essentially, the Commission was presented with two different methodologies for 

calculating the energy credit * * *. Overall, the Commission believes that EVA’s 

approach is the more reasonable of the two * * *.” Entry on Rehearing at 35-36 

(Oct. 17, 2012). 

{¶ 55} We find that the commission erred in two respects. First, the 

commission’s order contains no record citations relevant to the pertinent issue, 

despite a claim that it reviewed all of the testimony. The commission did cite 

evidence on rehearing, but only for the purpose of showing that the staff’s 

witnesses “sufficiently described [EVA’s] methodology,” and not for the purpose 

of directly addressing or refuting AEP’s challenges to the inputs. Id. at 35. 

{¶ 56} Second, the commission’s analysis completely misses the mark. 

The dispute here is not one involving competing methodologies, as the 

commission found. Rather, the dispute is over how the staff and EVA applied 

their preferred methodology to calculate the energy credit. And because AEP’s 

objection here was to the inputs and not the choice of methodologies, the 

commission’s reference to the fact that “Staff argues the Company’s energy credit 

is far too low,” Capacity Order at 36, is not helpful. While the staff did indeed 

argue against AEP’s proposed energy credit, AEP was not asking the commission 

to pick its preferred energy credit over the staff’s in the context of this argument. 

Rather, AEP was challenging the accuracy of the staff’s calculation of the energy 

credit by arguing that it was overstated as a result of faulty inputs. Even the 
January Term, 2016 

19 

commission, arguing in defense of the order, seems to concede that the order falls 

short, when it uses 11 pages of its third merit brief to “individually address each 

of [AEP’s] claims.” 

{¶ 57} In sum, the commission’s error is clear and prejudicial (if the 

energy credit is overstated, it results in an understated capacity charge). 

Accordingly, we reverse this part of the order and direct the commission on 

remand to substantively address AEP’s input arguments. 

2. AEP’s second proposition of law asserts that the commission committed a 

regulatory taking when it precluded AEP from recovering the difference 

between its cost of capacity and the auction rate 

{¶ 58} AEP’s second and final proposition on cross-appeal argues that any 

recovery that is less than its actual capacity costs would constitute a regulatory 

taking. In the event that the court’s decision results in AEP’s not recovering all of 

its costs, AEP requests that we rule that “ ‘just compensation’ (the difference 

between [AEP’s] capacity costs and the auction rate) is owed to [AEP].” 

{¶ 59} This argument is merely hypothetical. Our decision in this case 

allows AEP to recover its actual capacity costs, which the commission calculates 

at a rate of $188.88 per megawatt-day. Likewise, our decision in the ESP case, 

also released today, does not prevent AEP from recovering its actual capacity 

costs. Thus, the question of a regulatory taking is hypothetical, so we refuse to 

address it. See, e.g., State ex rel. Elyria Foundry Co. v. Indus. Comm., 82 Ohio 

St.3d 88, 89, 694 N.E.2d 459 (1998) (holding that abstract and hypothetical 

questions are inappropriate for judicial review). Therefore, we reject this 

proposition of law. 

C. The Motions to Dismiss of AEP and the Commission 

{¶ 60} AEP filed an amended motion to dismiss portions of this appeal, 

arguing that FERC’s May 23, 2013 ruling prevents this court from exercising 

jurisdiction over the preemption claims of Industrial Energy Users-Ohio (“IEU”) 
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20 

and FirstEnergy Solutions. AEP and the commission also filed a joint motion to 

dismiss, arguing that certain propositions of law of OCC and IEU should be 

dismissed. As a result of our granting the applications to withdraw the appeals of 

IEU and FirstEnergy Solutions and our decision herein rejecting OCC’s 

arguments on appeal, these motions have been rendered moot. 

V. CONCLUSION

{¶ 61} For the foregoing reasons, we reverse the commission’s orders in 

part and affirm them in part, and we remand the cause to the commission for 

further review. 

Orders affirmed in part 

and reversed in part, 

and cause remanded. 

O’DONNELL, LANZINGER, and FRENCH, JJ., concur. 

O’CONNOR, C.J., concurs in judgment only. 

PFIEFER, J., dissents with an opinion that O’NEILL, J., joins. 

____________ 

PFEIFER, J., dissenting. 

{¶ 62} I dissent because, as I explain in my separate opinion in the 

companion case released today, In re Application of Columbus S. Power Co., ___ 

Ohio St.3d ___, 2016-Ohio-1608, __ N.E.3d __, the Public Utilities Commission 

(“PUCO”) does not have the statutory authority to act as it did. 

{¶ 63} American Electric Power (“AEP”) charges all of its, for lack of a 

better word, regular customers for the cost of capacity, which is considered a 

fixed cost and includes the cost of building and maintaining its plant plus a fair 

rate of return on its investment. That number has been determined to be $188.88 

per megawatt-day. But that rate is higher than the current market price. In order 

for competitive retail electric service (“CRES”) providers to be able to sell their 

service, they need access to capacity at a rate lower than actual cost. No one will 
January Term, 2016 

21 

pay them $188.88 per mega-watt day when the market rate from other providers is 

less than that. 

{¶ 64} Ostensibly to promote a competitive market, the PUCO 

proclaimed, through its ratemaking capability, that AEP can charge CRES 

providers less than actual cost and that AEP’s other customers will make up the 

difference between the actual cost of capacity and the cost the CRES providers 

can afford to pay. It’s a great system for AEP, which doesn’t care where the 

money comes from; it’s a great system for the CRES providers, who pay less than 

the actual cost of capacity; and it is a horrible system for AEP’s regular 

customers, who have to pay the actual cost of capacity and the difference between 

that cost and what the CRES providers pay. 

{¶ 65} The cost of capacity should be borne by all entities receiving 

electricity from the generation plant, not just those who don’t shop. The PUCO 

should be protecting the customers who remain loyal to their providers, not 

increasing their burden by forcing them to pay for somebody else’s discount. It’s 

unconscionable. 

{¶ 66} The great irony of this case and its companion case is how little 

they matter at this point. By now, much of the rate charges at issue have been 

collected. This means that even if the court found against AEP, which it most 

assuredly did not, there would be little impact on AEP. This court, as if 

intentionally proving how fallible it is, has steadfastly refused to allow rates that 

have been collected to be refunded, even if the rates were unjustified. In re 

Application of Columbus S. Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 

N.E.3d 863, ¶ 56. 

{¶ 67} I dissent. 

 O’NEILL, J., concurs in the foregoing opinion. 

____________ 
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22 

 Bruce J. Weston, Consumers’ Counsel, and Kyle L. Kern and Maureen R. 

Willis, Assistant Consumers’ Counsel; and Dane Stinson, for appellant/crossappellee, Ohio Consumers’ Counsel. 

 Mike DeWine, Attorney General, William L. Wright, Section Chief, and 

John H. Jones, Thomas W. McNamee, and Steven L. Beeler, Assistant Attorneys 

General, for appellee/cross-appellee, Public Utilities Commission of Ohio. 

 Matthew J. Satterwhite and Steven T. Nourse; Porter, Wright, Morris & 

Arthur, L.L.P., Kathleen M. Trafford, Daniel R. Conway, and L. Bradfield 

Hughes; Murray, Murphy, Moul, & Basil, L.L.P., and James B. Hadden; 

MoloLamken, L.L.P., and Jeffrey A. Lamken, for appellee/cross-appellant, Ohio 

Power Company. 

____________