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

re Application of Columbus S. Power Co., Slip Opinion No. 2016-Ohio-1608.] 

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-1608

IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY AND OHIO 

POWER COMPANY FOR AUTHORITY TO ESTABLISH A STANDARD SERVICE 

OFFER UNDER R.C. 4928.143 IN THE FORM OF AN ELECTRIC SECURITY PLAN;

THE KROGER COMPANY ET AL., APPELLANTS AND CROSS-APPELLEES; OHIO 

POWER COMPANY, D.B.A. AEP OHIO, APPELLEE AND CROSS-APPELLANT;

PUBLIC UTILITIES COMMISSION, APPELLEE AND CROSS-APPELLEE. 

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

may be cited as In re Application of Columbus S. Power Co., Slip Opinion 

No. 2016-Ohio-1608.] 

Public utilities―Electric-security plan―Commission’s orders approving 

modified electric-security plan―Retail stability rider―R.C. 

4928.143(B)(2)(d)―Commission erred in approving RSR―RSR allows 

collection of unlawful transition revenue―Orders reversed in part and 

cause remanded.

(No. 2013-0521—Submitted May 19, 2015—Decided April 21, 2016.) 
SUPREME COURT OF OHIO

2 

APPEAL and CROSS-APPEAL from the Public Utilities Commission, Nos. 11-346-

EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-EL-AAM. 

____________ 

KENNEDY, J. 

SUMMARY

{¶ 1} This cause arises from the Public Utilities Commission’s 

modification and approval of the second electric-security plan of the American 

Electric Power operating companies, Ohio Power Company and Columbus 

Southern Power Company.1

 The case below was a major proceeding in which the 

commission authorized new generation rates for the companies (collectively, 

“AEP”). Five parties appealed.2

 AEP also filed a cross-appeal. In total, the 

remaining parties have raised eight propositions of law that challenge various 

elements of the commission’s orders (the original order and two entries on 

rehearing) approving the modified electric-security plan. 

{¶ 2} After review, we conclude that the parties have demonstrated two 

errors: one on appeal and one on cross-appeal. Therefore, for the reasons that 

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

remand the cause for further consideration. 

FACTS AND PROCEDURAL BACKGROUND

{¶ 3} R.C. 4928.141(A) requires electric-distribution utilities to make a 

“standard service offer” of generation service to consumers in one of two ways: 

 

1

 According to a document filed with the Securities and Exchange Commission on January 6, 

2012, Columbus Southern Power Company and Ohio Power Company merged on December 31, 

2011, with Ohio Power Company as the surviving entity. See 

https://www.aep.com/investors/financialfilingsandreports/filings/HTMLView.aspx?ipage=798810

6. The merger was approved by the Ohio Public Utilities Commission in In re Application of 

Ohio Power Co. for Auth. to Merge, Pub. Util. Comm. No. 10-2376-EL-UNC, *56-57 (Dec. 14, 

2011). 

2 FirstEnergy Solutions and Industrial Energy Users-Ohio dismissed their appeals, leaving three 

appellants. See 139 Ohio St.3d 1475, 2014-Ohio-3028, 11 N.E.3d 1196; 144 Ohio St.3d 1436, 

2015-Ohio-5451, 42 N.E.3d 770. 
January Term, 2016 

3 

through a “market-rate offer” (under R.C. 4928.142) or an “electric security plan” 

(under R.C. 4928.143). The market-rate offer, as the name implies, sets rates 

using a competitive-bidding process to harness market forces. 

{¶ 4} On January 27, 2011, AEP filed an application with the commission, 

seeking approval of an electric-security plan (“ESP”). R.C. 4928.143 does not 

provide a detailed mechanism for establishing rates under an ESP. Plans may 

contain any number of provisions in a variety of categories so long as the plan is 

“more favorable in the aggregate” than the expected results of a market-rate offer. 

R.C. 4928.143(C)(1). But the law does contain certain limits, some of which are 

at issue in this case. 

The Commission’s “Capacity Case” Order 

{¶ 5} The ESP case proceeded along a parallel—and for a time a 

consolidated—path with Pub. Util. Comm. No. 10-2929-EL-UNC (the “Capacity 

Case”). The Capacity Case was argued before the court on December 15, 2015 

(case Nos. 2012-2098 and 2011-0228). On December 30, 2015, the court issued 

an order holding this case for a joint release with the Capacity Case. See 144 

Ohio St.3d 1438, 2015-Ohio-5468, 43 N.E.3d 450. 

The Commission’s ESP Order 

{¶ 6} In the order under review in this appeal, the commission approved 

AEP’s modified ESP. 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”). As 

part of the ESP, the commission approved a mechanism called the “Retail 

Stability Rider” (“RSR”). The RSR is “nonbypassable,” meaning that it is paid 

by both shopping and nonshopping customers in AEP’s service territory. 

{¶ 7} The RSR serves two purposes. First, the commission determined 

that the RSR would be used as the mechanism for AEP to recover its deferred 

capacity costs from the Capacity Case. The commission authorized AEP to 

recover a portion of those deferred costs during the ESP period. The commission 
SUPREME COURT OF OHIO

4 

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

would allow the company to recover any remaining deferred capacity costs, 

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

{¶ 8} Second, in addition to serving as the mechanism to recover deferred 

capacity costs, the RSR was intended to provide AEP with sufficient revenue to 

maintain its financial integrity and ability to attract capital during the ESP. 

According to the commission, the RSR was authorized under R.C. 

4928.143(B)(2)(d) as a charge that promotes stable retail-electric-service prices 

and ensures customer certainty regarding retail electric service. ESP Order at 31-

38. 

{¶ 9} Appeals of the ESP Order were filed by the Kroger Company, the 

Office of the Ohio Consumers’ Counsel (“OCC”), and the Ohio Energy Group. 

AEP filed a cross-appeal. The appellants primarily challenge the commission’s 

authorization of the RSR. In AEP’s cross-appeal, the company contends that the 

commission erred in setting the threshold for the significantly-excessive-earnings 

test and also violated the company’s statutory right to withdraw the modified 

ESP. 

STANDARD OF REVIEW

{¶ 10} “R.C. 4903.13 provides that a PUCO order shall be reversed, 

vacated, or modified by this court only when, upon consideration of the record, 

the court finds the order to be unlawful or unreasonable.” Constellation 

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 PUCO decision as to questions 

of fact when the record contains sufficient probative evidence to show that the 

commission’s decision was not manifestly against the weight of the evidence and 

was not so clearly unsupported by the record as to show misapprehension, 

mistake, or willful disregard of duty. Monongahela Power Co. v. Pub. Util. 

Comm., 104 Ohio St.3d 571, 2004-Ohio-6896, 820 N.E.2d 921, ¶ 29. The 
January Term, 2016 

5 

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. 

{¶ 11} 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). 

DISCUSSION

The Appeals of Appellants: OCC, Kroger, and Ohio Energy Group 

{¶ 12} The appellants, taken together, raise five propositions of law, each 

containing several supporting arguments. The issues involving the RSR are the 

most prominent and generally relate to each other, so we will discuss them first. 

I. Challenges to the commission’s approval of the RSR 

{¶ 13} The appellants raise several challenges to the commission’s 

approval of the RSR. After review, we find that one argument has merit. 

A. OCC Proposition of Law No. 2: Whether the commission’s order is 

unlawful or unreasonable because it allows the company to collect 

unlawful transition revenue or its equivalent through the RSR 

{¶ 14} OCC argues that the commission erred in approving the RSR 

because it permits AEP to recover unlawful “transition revenues” in the form of 

nonfuel generation revenues, including capacity revenues, that it will lose under 

its ESP. OCC claims that because the statutory time period to recover transition 

revenue has ended, the commission lacked authority to approve the RSR, since it 
SUPREME COURT OF OHIO

6 

allowed the company to recover costs that are otherwise unrecoverable in the 

competitive generation market. We find this argument well taken. 

1. What is transition revenue, and when was its recovery barred? 

{¶ 15} Transition costs (also referred to as stranded costs) are costs 

incurred by the utility before retail competition began that will not be recoverable 

through market-based rates. See FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio 

St.3d 401, 2002-Ohio-2430, 768 N.E.2d 648, ¶ 14; R.C. 4928.37 and 4928.39. In 

general, these are generation costs that the utility incurred to serve its customers 

that would have been recovered through regulated rates before competition began, 

but that are no longer recoverable from customers who have switched to another 

generation provider. See Toledo v. Toledo Edison Co., 118 Ohio Misc.2d 131, 

2000-Ohio-2696, 770 N.E.2d 132, ¶ 18-19, citing Transm. Access Policy Study 

Group v. Fed. Energy Regulatory Comm., 225 F.3d 667, 683, 699-700 

(D.C.Cir.2000). When such customers leave the utility’s generation service, they 

may not have paid their share of costs that the utility incurred on their behalf. The 

idea behind transition revenue is to allow the utility to avoid having to either 

absorb these costs or shift the burden of recovery onto remaining customers. Id. 

at ¶ 22. 

{¶ 16} In 1999, the General Assembly enacted Am.Sub.S.B. No. 3 (“S.B. 

3”), 148 Ohio Laws, Part IV, 7962, “to facilitate and encourage development of 

competition in the retail electric market.” AK Steel Corp. v. Pub. Util. Comm., 95 

Ohio St.3d 81, 765 N.E.2d 862 (2002). Enacted as part of S.B. 3, R.C. 4928.37 

provided each electric utility with a limited opportunity “to receive transition 

revenues that may assist it in making the transition to a fully competitive retail 

electric generation market.” Utilities had until December 31, 2005 (the end of the 

market-development period, see R.C. 4928.01(A)(26)) to receive generation 

transition revenue. R.C. 4928.38 and 4928.40(A). Utilities were also permitted to 

receive transition revenue associated with regulatory assets (i.e., deferred charges, 
January Term, 2016 

7 

see R.C. 4928.01(A)(26)) until December 31, 2010. R.C. 4928.40(A). After that 

date, R.C. 4928.38 prohibits the commission from “authoriz[ing] the receipt of 

transition revenues or any equivalent revenues by an electric utility,” with certain 

exceptions not applicable here. 

{¶ 17} R.C. 4928.141(A), enacted as part of Am.Sub.S.B. No. 221, 

expressly prohibits the recovery of transition costs by providing that a standard 

service offer made through an ESP “shall exclude any previously authorized 

allowances for transition costs, with such exclusion being effective on and after 

the date that the allowance is scheduled to end under the utility’s rate plan.” 

2. The commission’s order on the subject of transition costs is 

unlawful and unreasonable 

{¶ 18} As noted, R.C. 4928.38 bars the commission from authorizing the 

“receipt of transition revenues or any equivalent revenues” after December 31, 

2010. OCC maintains that the commission violated this provision when it 

guaranteed that AEP will receive $826 million in nonfuel generation revenues 

through the RSR in each year of the ESP. OCC argues that the RSR cannot be 

upheld because it allows the company to receive transition revenue or 

“equivalent” revenues that are no longer authorized in the competitive generation 

market after the deadlines in R.C. 4928.38 and 4928.40. 

{¶ 19} In the orders below, the commission found that AEP was not 

receiving unlawful transition revenue through the RSR. The commission offered 

two reasons to support its finding. After review, we find that neither one is well 

taken. 

a. The fact that AEP did not expressly seek transition revenues in this 

case does not defeat a claim that it is recovering transition revenues 

{¶ 20} The commission first found that AEP was not receiving unlawful 

transition revenue because the company did not seek transition revenues in its 

modified ESP application. ESP Order at 32; First Rehearing Entry at 21 (Jan. 30, 
SUPREME COURT OF OHIO

8 

2013). According to the commission, AEP is not receiving transition revenues or 

recovering stranded costs through the RSR, since AEP did not argue that the 

revenues received under its prior electric-transition plan were insufficient to cover 

costs. ESP Order at 32. 

{¶ 21} But the fact that AEP did not explicitly seek transition revenues 

does not foreclose a finding that the company is receiving the equivalent of 

transition revenue under the guise of the RSR. The commission’s overly narrow 

definition of transition revenue overlooks that R.C. 4928.38 bars “the receipt of 

transition revenues or any equivalent revenues by an electric utility” after 2010. 

(Emphasis added.) By inserting the phrase “any equivalent revenues,” the 

General Assembly has demonstrated its intention to bar not only transition 

revenue associated with costs that were stranded during the transition to market 

following S.B. 3 but also any revenue that amounts to transition revenue by 

another name. Therefore, we find that the commission erred in focusing solely on 

whether AEP had sought to receive transition revenues that are now barred. 

{¶ 22} Further, after looking at the nature of the revenue recovered under 

the RSR, we find that the record supports a finding that AEP is receiving the 

equivalent of transition revenues through that rider. As noted above, S.B. 3 

allowed electric utilities to receive transition revenues to aid them in making the 

transition to a fully competitive generation market. R.C. 4928.37(A)(1). See 

FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio St.3d 401, 2002-Ohio-2430, 768 

N.E.2d 648, ¶ 14 (transition revenues represent regulatory assets and other 

generation costs that were incurred by the utility under regulation that would not 

be recovered in a competitive environment); Toledo v. Toledo Edison Co., 118 

Ohio Misc.2d 131, 2000-Ohio-2696, 770 N.E.2d 132, ¶ 19 (C.P.) (“stranded costs 

consist predominately of costs of building generation capacity that utilities 

incurred with the expectation that they would use the additional capacity to serve 

existing customers”). 
January Term, 2016 

9 

{¶ 23} AEP proposed the RSR as a means to ensure that the company was 

not financially harmed during its transition to a fully competitive generation 

market over the three-year ESP period. To be more specific, the RSR was 

intended to guarantee recovery of lost revenue resulting from certain discounted 

capacity prices offered to CRES providers and from expected increases in 

customer shopping during the ESP. According to the company’s witnesses, the 

RSR was designed to generate enough revenue for the company to achieve a 

certain rate of return on its generation assets as it transitions to full auction pricing 

for energy and capacity by June 2015. ESP Order at 31-32. 

{¶ 24} In determining how much revenue would be needed to reach the 

$826 million revenue target for each year, the commission focused on three 

categories of revenue: retail nonfuel generation revenues, CRES capacity 

revenues, and credit for shopped load. In calculating these revenue amounts, the 

commission relied on shopping projections for AEP’s service territory during the 

three-year ESP period. That is, the shopping projections would determine a 

combined amount of revenue that AEP would earn for each category listed above, 

and the RSR would be set at the amount necessary to boost the total to the 

revenue target of $826 million. Importantly, the commission’s calculations show 

that RSR revenues were tied in large part to CRES capacity revenues that AEP 

would expect to lose based on the projected shopping and the below-cost price of 

capacity charged to CRES providers during the ESP period. ESP Order at 34-35. 

{¶ 25} In sum, we find that the commission erred in focusing solely on 

whether AEP had expressly sought to receive transition revenues rather than 

looking at the nature of the costs recovered through the RSR. R.C. 4928.38 bars 

the “the receipt of transition revenues or any equivalent revenues by an electric 

utility.” Based on the record before us, we find that the RSR in this case recovers 

the equivalent of transition revenue and the commission erred when it found 

otherwise. 
SUPREME COURT OF OHIO

10 

b. The commission erred when it found that anything above PJM 

auction capacity prices cannot be labeled as transition costs or 

stranded costs 

{¶ 26} The commission found that the revenues recovered through the 

RSR were lawful because AEP was entitled to recover its “actual costs of 

capacity.” AEP’s capacity charge is higher than the auction price of capacity in 

the PJM region. According to the commission, because AEP is the sole provider 

of capacity service in its territory, “anything over” PJM auction capacity prices 

“cannot be labeled as transition costs or stranded costs.” ESP Order at 32. We 

disagree. 

1. The commission’s rejection of AEP’s two-tiered capacity-pricing 

mechanism and its determination of an appropriate capacity charge 

{¶ 27} At the outset, it is important to understand that AEP had proposed 

two separate capacity-pricing plans to the commission: one in the Capacity Case 

and a completely different plan in the ESP Case. The following background is 

therefore provided to place this issue in proper context. 

{¶ 28} Before the commission issued its order in the ESP Case, the 

commission found in the Capacity Case that AEP was allowed to recover its 

actual costs to provide capacity to CRES providers. Pub. Util. Comm. No. 10-

2929-EL-UNC, at 33 (July 12, 2012). In the Capacity Case, AEP had claimed 

that a capacity charge of $355.72 per megawatt-day would enable it to fully 

recover its costs and earn a reasonable return on its investments. Id. at 24. The 

commission rejected that assertion, finding instead that a charge of $188.88 per 

megawatt-day was sufficient to fairly compensate the company for providing 

capacity. Id. at 33. 

{¶ 29} The commission, however, was concerned that AEP’s cost-based 

capacity charge would have a negative impact on retail competition in the 

company’s service territory. As a result, the commission ordered AEP to charge 
January Term, 2016 

11 

CRES providers at the PJM auction price during the ESP period, a discount from 

the commission-ordered cost-based capacity charge of $188.88 per megawatt-day. 

The commission further ordered in the Capacity Case that AEP defer its recovery 

of the difference between the discounted capacity charge and the cost-based 

capacity charge until after the ESP ends. Id. at 33-35, 23. 

{¶ 30} While the Capacity Case was still pending before the commission, 

AEP offered a capacity-pricing plan in the ESP Case that was different from the 

company’s litigated position in the Capacity Case. In its modified ESP 

application, the company proposed to sell capacity to CRES providers at a 

discount from the $355.72 per megawatt-day price, which is the rate that AEP 

claimed represented its costs to provide capacity. Under this proposal, AEP 

would provide capacity to CRES providers under a two-tiered pricing plan, with 

the tier-one rate set at $145.79 per megawatt-day and the tier-two rate at $255 per 

megawatt-day. As part of this two-tiered pricing plan, AEP asked the commission 

to approve the RSR as the mechanism that would enable the company to recover 

the difference between the discounted capacity sold to CRES providers under the 

two tiers and what it claimed was its fully embedded costs of capacity (the 

$355.72 per megawatt-day rate). ESP Order at 50. 

{¶ 31} After the commission rejected AEP’s capacity charge of $355.72 

per megawatt-day in the Capacity Case, it issued the order in the ESP Case. 

Having found that a capacity charge of $188.88 per megawatt-day would enable 

AEP to fully recover its capacity costs, the commission rejected the two-tiered 

pricing mechanism that AEP had proposed in its modified ESP application. The 

commission, however, approved the RSR in the ESP Case, even though it had 

been proposed as a component of the now-rejected two-tiered capacity plan. As 

noted above, with the approval of the RSR, AEP was able to recover an additional 

$508 million in revenue during the ESP period. See ESP Order at 31-32, 35-36. 
SUPREME COURT OF OHIO

12 

2. The commission has allowed AEP to recover more than its actual 

capacity costs through the nondeferral portion of the RSR 

{¶ 32} We do not agree with the commission’s finding that “anything 

over” PJM auction capacity prices “cannot be labeled as transition costs or 

stranded costs.” According to the commission, AEP is not receiving unlawful 

transition revenue through the RSR because AEP is entitled to recover its actual 

capacity costs based on its status as the sole provider of capacity in its service 

territory. ESP Order at 21. But the commission ignores that it has allowed AEP 

to recover more than its actual capacity costs through the nondeferral part of the 

RSR. 

{¶ 33} As we note in the preceding section, AEP will recover its actual 

capacity costs (based on a charge of $188.88 per megawatt-day). AEP will 

recover its costs in the following manner: (1) charging CRES providers during the 

ESP period at the PJM auction price (a discount from AEP’s cost-based capacity 

charge of $188.88 per megawatt-day), (2) deferring for later recovery the 

difference between the discounted charge and AEP’s cost-based capacity charge, 

(3) collecting a portion of the deferred capacity costs during the ESP through the 

RSR, and (4) collecting any remaining balance of the deferred costs (plus carrying 

charges) after the ESP period ends. Capacity Case Order at 33-35, 23; ESP Order 

at 31-38. 

{¶ 34} Yet despite the fact that the commission authorized AEP to recover 

its actual capacity costs, the commission also allowed AEP to recover $508 

million in additional revenue through the RSR during the ESP period, the amount 

of which appears to be tied in large part to AEP’s recovery of CRES capacity 

charges. ESP Order at 34-35. Again, the commission calculated the RSR amount 

in part based on expected decreases in CRES capacity revenues during the ESP 

due to (1) the projected level of shopping in AEP’s territory and (2) the 

discounted capacity price (well below AEP’s costs) charged to CRES providers. 
January Term, 2016 

13 

Thus, the commission awarded AEP additional capacity revenues through the 

nondeferral portion of the RSR, even though it had found that AEP would fully 

recover its incurred CRES capacity costs at a rate of $188.88 per megawatt-day. 

Accordingly, we find that the company is being overcompensated for providing 

capacity service through the nondeferral part of the RSR. 

{¶ 35} Although the commission cited various reasons for approving the 

RSR, none justifies the additional capacity revenue recovery associated with the 

RSR. The commission first implied that the RSR was necessary to “ensure [that] 

AEP-Ohio has sufficient funds to maintain its operations efficiently and revise its 

corporate structure, as opposed to a deferral only mechanism.” ESP Order at 36-

37. But the commission found in the Capacity Case that “a capacity charge of 

$188.88/MW-day, in conjunction with the authorized deferral of the Company’s 

incurred capacity costs,” would “reasonably and fairly compensate the Company 

and should not significantly undermine the Company’s ability to earn an adequate 

return on its investment.” 10-2929-EL-UNC, at 36. The ESP Order was issued 

five weeks after the commission made this finding in the Capacity Case. Yet the 

commission fails to explain in the ESP Order why, only five weeks later, the costbased capacity charge and “deferral only mechanism” authorized in the Capacity 

Case were no longer adequate. 

{¶ 36} Second, according to the commission, “no party disputes that the 

approval of the RSR will provide AEP-Ohio with sufficient revenue to ensure it 

maintains its financial integrity as well as its ability to attract capital.” ESP Order 

at 31. While no party may have disputed that this was the intended purpose of the 

RSR, several parties challenged whether the RSR was necessary to achieve that 

purpose. To be sure, after the commission had determined an appropriate costbased capacity charge for AEP in the Capacity Case, several parties argued in the 

ESP Case that the additional revenue generated from the proposed RSR was no 

longer necessary. 
SUPREME COURT OF OHIO

14 

{¶ 37} Beyond the lack of reasoning, we have carefully reviewed the ESP 

Order and find that it contains no evidence that would support approval of the 

additional capacity revenue recovered through the RSR under the circumstances 

presented in this case. See In re Application of Columbus S. Power Co., 128 Ohio 

St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 24-25 (lack of record support for 

portion of order justifies reversal). The critical problem is that the evidence relied 

on by the commission to approve the RSR was evidence that AEP had submitted 

to support the RSR under the two-tiered capacity-pricing plan. But the foundation 

for the RSR was eliminated when the commission rejected the two-tiered plan and 

found instead that AEP would be fully compensated for providing capacity under 

the cost-based charge approved in the Capacity Case. And no evidence was 

submitted in the ESP Case after the commission issued its decision in the 

Capacity Case. In short, none of the evidence cited in the ESP Order is relevant 

to whether it was necessary for AEP to recover additional revenue through the 

RSR beyond the costs that the company incurred to provide capacity service. 

3. Conclusion as to transition-revenue issue 

{¶ 38} Based on the foregoing, we find that the commission erred when it 

found that AEP was not recovering transition revenue or its equivalent through 

the RSR.3

 The commission’s finding that the RSR does not recover unlawful 

 

3

 R.C. 4928.143(B) provides: 

“Notwithstanding any other provision of Title XLIX of the Revised Code to 

the contrary except division (D) of this section, divisions (I), (J), and (K) of section 

4928.20, division (E) of section 4928.64, and section 4928.69 of the Revised Code: 

* * * 

(2) The [electric security] plan may provide for or include, without 

limitation, any of the following [listing nine categories of permissible terms].” The 

“[n]otwithstanding” provision can be read as creating an exception to the prohibition 

against transition revenue. But because the commission did not rely on this language 

in the case below, and no party appears to have raised the issue, we decline to 

consider it on appeal. 
January Term, 2016 

15 

transition revenue lacks sound reasoning and record support. Therefore, it cannot 

be upheld. 

{¶ 39} As to the question of remedy, we note that AEP is currently 

collecting the deferred capacity costs with carrying charges through the RSR. 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, at 11-12 (Apr. 2, 

2015). In addition, in the Capacity Case appeals, we affirmed the commission’s 

decision that AEP is entitled to charge a cost-based state compensation 

mechanism and that the $188.88 per megawatt-day rate is reasonable. 

{¶ 40} Because AEP is entitled to recover only its actual capacity costs, 

we order the commission to adjust the balance of its deferred capacity costs to 

eliminate the overcompensation of capacity revenue recovered through the 

nondeferral part of the RSR during the ESP. However, because of the method 

employed by the commission to calculate the RSR, we are unable to determine 

exactly how much of the revenue recovered through the nondeferral part of the 

RSR is allocable to CRES capacity revenues. We therefore remand this matter to 

the commission to determine that amount and offset the balance of deferred 

capacity costs by the amount determined. 

B. Ohio Energy Group Proposition of Law No. 1: Whether the 

commission erred in incorporating deferred capacity costs in the RSR 

and deferring those costs under R.C. 4928.144 

{¶ 41} Ohio Energy Group next argues that the commission’s order 

violated R.C. 4928.144 by deferring capacity costs that were approved in the 

Capacity Case and not as part of the ESP. R.C. 4928.144 provides that the 

commission “may authorize any just and reasonable phase-in of any electric 

distribution utility rate or price established under sections 4928.141 to 4928.143 

of the Revised Code.” According to Ohio Energy Group, because the capacity 

charges were not established under R.C. Chapter 4928, the commission erred 
SUPREME COURT OF OHIO

16 

when it deferred those costs through the RSR for later recovery. We find that this 

argument lacks merit. 

{¶ 42} Ohio Energy Group challenges only the $144 million in revenue 

that was collected through the RSR to pay down the balance of the deferred 

capacity costs. But these costs were not deferred; they were collected during the 

ESP. Therefore, Ohio Energy Group’s challenge under R.C. 4928.144 in this 

context is misplaced. 

C. Challenges to the commission’s determination that the RSR was 

authorized under R.C. 4928.143(B)(2)(d) 

{¶ 43} In its modified ESP application, AEP sought approval of the 

nonbypassable RSR under R.C. 4928.143(B)(2)(d). This section states that an 

ESP may include 

[t]erms, conditions, or charges relating to limitations on customer 

shopping for retail electric generation service, bypassability, 

standby, back-up, or supplemental power service, default service, 

carrying costs, amortization periods, and accounting or deferrals, 

including future recovery of such deferrals, as would have the 

effect of stabilizing or providing certainty regarding retail electric 

service. 

Thus, a proposed item in an ESP is authorized if it meets three criteria: (1) it is a 

term, condition, or charge, (2) it relates to one of the listed items (e.g., limitations 

on customer shopping, bypassability, carrying costs), and (3) it has the effect of 

stabilizing or providing certainty regarding retail electric service. The 

commission found that the RSR was authorized under this section as a charge that 

relates to default service, promotes stable retail-electric-service prices, and 

ensures customer certainty regarding retail electric service. ESP Order at 31-32; 
January Term, 2016 

17 

First Rehearing Entry at 15. Appellants raise several challenges to the 

commission’s determination. None have merit. 

1. OCC’s Proposition of Law No. 3 (Sections A.1 and A.2): Whether the 

commission failed to apply the statutory definition of “default service” 

when construing R.C. 4928.143(B)(2)(d) 

{¶ 44} OCC first argues that the commission misconstrued the term 

“default service” in R.C. 4928.143(B)(2)(d) when it approved the RSR. 

According to OCC, the commission erred when it failed to apply the statutory 

definition of “default service” set forth in R.C. 4928.14. We find that OCC has 

forfeited this argument. 

{¶ 45} In its First Rehearing Entry on January 30, 2013, the commission 

decided for the first time that the RSR was authorized under R.C. 

4928.143(B)(2)(d) as a charge that relates to default service. OCC filed a second 

application for rehearing, but it never alleged in its second application that the 

commission erred when it failed to apply the statutory definition of default 

service. Instead, it argued that the commission’s finding that the RSR related to 

default service was unsupported by the record and not based on specific findings 

of fact, thereby violating R.C. 4903.09 and 4903.13. 

{¶ 46} R.C. 4903.10 requires the commission’s ruling on any particular 

issue to be challenged through an application for rehearing before that issue can 

be appealed. OCC may not argue for the first time in this court that the 

commission’s entry violated R.C. 4928.14. It must first raise the issue with the 

commission, giving the commission an opportunity to correct the alleged error. 

Because OCC did not give the commission the opportunity to first address this 

argument, we lack jurisdiction to consider the argument now. Discount Cellular, 

Inc. v. Pub. Util. Comm., 112 Ohio St.3d 360, 2007-Ohio-53, 859 N.E.2d 957, 

¶ 66. 
SUPREME COURT OF OHIO

18 

2. OCC’s Proposition of Law No. 3 (Section B): Whether the commission 

erred in concluding that the RSR satisfies R.C. 4928.143(B)(2)(d) 

without finding that it “directly” stabilizes or provides certainty 

regarding retail electric service 

{¶ 47} OCC also contends that the commission erred in finding that the 

RSR has “the effect of stabilizing or providing certainty regarding retail electric 

service,” as required by R.C. 4928.143(B)(2)(d). According to OCC, under the 

plain language of the statute, that effect must be direct. OCC maintains that the 

commission misconstrued the statute when it found that the RSR could be 

approved even if it had only an indirect effect on retail electric service. 

{¶ 48} Our analysis must begin with the language of the statute. See In re 

Application of Ohio Power Co., 140 Ohio St.3d 509, 2014-Ohio-4271, 20 N.E.3d 

699, ¶ 20. R.C. 4928.143(B)(2)(d) does not speak to whether the “effect of 

stabilizing or providing certainty regarding retail electric service” must be direct 

or indirect. While the stated goal is stable or certain retail electric service, the 

statute does not tell the commission how to reach it. This gives the commission 

discretion to determine how the “[t]erms, conditions, or charges” meet the criteria. 

In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio1788, 947 N.E.2d 655, ¶ 68 (“Any lack of statutory guidance on that point should 

be read as a grant of discretion”); Payphone Assn. v. Pub. Util. Comm., 109 Ohio 

St.3d 453, 2006-Ohio-2988, 849 N.E.2d 4, ¶ 25 (“When a statute does not 

prescribe a particular formula, the [commission] is vested with broad discretion”). 

{¶ 49} OCC has not shown an abuse of discretion. R.C. 

4928.143(B)(2)(d) does not expressly exclude effects that are indirect; it does not 

use the word “direct,” or even some equivalent. We would have to insert 

language into the statute to find in favor of OCC’s preferred construction. But in 

construing a statute, we may not add or delete words. State ex rel. Cincinnati Bell 
January Term, 2016 

19 

Tel. Co. v. Pub. Util. Comm., 105 Ohio St.3d 177, 2005-Ohio-1150, 824 N.E.2d 

68, ¶ 32. 

3. Ohio Energy Group’s Proposition of Law No. 1: Whether R.C. 

4928.143(B)(2)(d) allows the commission to order the recovery of 

wholesale charges through the RSR 

{¶ 50} Ohio Energy Group argues that the commission cannot order the 

recovery of deferred wholesale capacity costs from retail customers under R.C. 

4928.143(B)(2)(d). According to Ohio Energy, this provision specifically relates 

to retail electric service, so wholesale costs that are established outside the scope 

of an ESP and deferred for later recovery cannot be recovered under this 

provision. But Ohio Energy points to no language in R.C. 4928.143 that prohibits 

the commission from allowing the recovery of wholesale costs through retail 

rates. See Util. Serv. Partners, Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284, 

2009-Ohio-6764, 921 N.E.2d 1038, ¶ 53 (rejecting argument when proponent 

failed to provide rationale justifying decision in its favor). 

{¶ 51} Ohio Energy also claims that forcing retail customers to pay 

wholesale capacity costs that should be charged to CRES providers does not 

provide stability or certainty regarding retail electric service, as required by R.C. 

4928.143(B)(2)(d). The underlying premise of this argument is factual, yet Ohio 

Energy fails to support its argument with any citations to the record. We reject 

the argument on that basis. Allnet Communications Servs., Inc. v. Pub. Util. 

Comm., 70 Ohio St.3d 202, 206, 638 N.E.2d 516 (1994) (rejecting argument 

where appellant “provided no further reasoning or record citations to support” it). 
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20 

Remaining challenges to the RSR 

1. OCC’s Proposition of Law No. 1: Whether the commission’s order is 

unlawful and unreasonable because it requires retail consumers to 

pay twice for the cost of capacity 

{¶ 52} OCC argues that the commission erred in counting capacity costs 

twice. According to OCC, the company’s generation customers are already 

paying the company for capacity through its standard-service-offer rates. And 

these same customers will have to pay the RSR, which recovers deferred capacity 

costs plus interest. Likewise, OCC contends that shopping customers may also be 

required to pay twice for capacity. These arguments have effectively been 

resolved by our discussion of the transition-revenue issue. 

2. Kroger’s Proposition of Law No. 1: Whether the commission’s order 

is unlawful because it mismatched cost allocation and cost recovery 

for the RSR, in violation of R.C. 4928.02 

{¶ 53} Kroger raises one proposition of law, arguing that the commission 

erred when it approved the rate design of the RSR. Kroger claims that although 

the commission acted appropriately when it permitted AEP to allocate costs for 

the RSR to customer classes on a demand basis, the commission erred when it 

then allowed AEP to recover those costs through an energy charge. According to 

Kroger, the rate design of the RSR is unlawful and unreasonable because it 

discriminates against Kroger, and other high-demand customers whose energy 

usage is low relative to their demand due to greater efficiency, by forcing them to 

subsidize lower-demand, but less efficient, customers. See R.C. 4928.02(A) (state 

policy is to ensure nondiscriminatory and reasonably priced retail electric 

service). Kroger raises two arguments. We reject both. 

a. Kroger has forfeited its primary argument on appeal 

{¶ 54} Kroger’s primary argument on appeal is that the commission failed 

to cite evidence to support its determination. 
January Term, 2016 

21 

{¶ 55} Although not cited by Kroger, 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. 

MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St.3d 306, 312, 513 

N.E.2d 337 (1987); Indus. Energy Users-Ohio v. Pub. Util. Comm., 117 Ohio 

St.3d 486, 2008-Ohio-990, 885 N.E.2d 195, ¶ 30. Kroger is correct that the 

commission’s rehearing entry on this issue contains no citation to the record. 

Nevertheless, we lack jurisdiction to address Kroger’s argument. 

{¶ 56} The commission addressed the rate-design issue for the first time in 

the January 30, 2013 rehearing entry. But Kroger never filed a second application 

for rehearing that alleged error in the commission’s January 30 rehearing entry. 

Therefore, we lack jurisdiction to consider the argument on appeal. Discount 

Cellular, Inc. v. Pub. Util. Comm., 112 Ohio St.3d 360, 2007-Ohio-53, 859 

N.E.2d 957, ¶ 66. 

b. Kroger’s rate-design argument otherwise lacks merit 

{¶ 57} Kroger also argues that the rate design of the RSR violates the 

regulatory principle of cost causation, which requires that rates approved by the 

regulator reflect the costs actually caused by the customer who pays them. Kroger 

maintains that the commission misapplied this principle, resulting in a rate design 

that is inherently flawed and that requires one class of customers to subsidize the 

other. 

{¶ 58} We have long given great deference to the commission on matters 

of rate design. See Ohio Consumers’ Counsel v. Pub. Util. Comm., 127 Ohio 

St.3d 524, 2010-Ohio-6239, 941 N.E.2d 757, ¶ 13. Our “ ‘function is not to 

weigh the evidence or to choose between alternative, fairly debatable rate 

structures. That would be to interfere with the jurisdiction and competence of the 

commission and to assume powers which this court is not suited to exercise.’ ” Id. 
SUPREME COURT OF OHIO

22 

at ¶ 13, quoting Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 46 Ohio St.3d 

105, 108, 346 N.E.2d 778 (1976). 

{¶ 59} After review, we find that Kroger has failed to demonstrate any 

error, let alone reversible error. Kroger cites no authority that the commission is 

bound to apply the regulatory principle of cost causation whenever it is deciding 

an issue of rate design. Therefore, we can reject this argument on that ground. 

See Ohio Consumers’ Counsel v. Pub. Util. Comm., 125 Ohio St.3d 57, 2010-

Ohio-134, 926 N.E.2d 261, ¶ 20. 

II. Challenges against the ESP based on discriminatory pricing 

{¶ 60} OCC argues that the commission approved capacity prices that 

discriminate against standard-service-offer (“SSO”) customers (nonshoppers), in 

favor of marketers and shopping customers. We find that OCC has failed to 

demonstrate error. 

{¶ 61} Ohio law does “not require uniformity in utility prices and rates.” 

Ohio Consumers’ Counsel v. Pub. Util. Comm., 109 Ohio St.3d 328, 2006-Ohio2110, 847 N.E.2d 1184, ¶ 24. Rather, the statutes prohibit a utility from charging 

different rates only when performing “ ‘a like and contemporaneous service under 

substantially the same circumstances and conditions.’ ” Id. at ¶ 23, quoting R.C. 

4905.33, and construing R.C. 4905.35 as having “the same effect,” id. OCC, 

however, provides no evidence that SSO customers are situated similarly to CRES 

providers when it comes to the provision of capacity service. 

{¶ 62} Likewise, OCC offers no evidence or explanation of any similarity 

between SSO customers and shopping customers when it comes to capacity 

service. AEP provides capacity to SSO customers as part of its bundled 

generation service, but it does not provide capacity directly to shopping 

customers. Instead, AEP sells generation capacity wholesale to CRES providers, 

who in turn sell generation service directly to shopping customers, with each 
January Term, 2016 

23 

CRES provider deciding how much of the wholesale capacity cost to pass on to 

retail consumers. First Rehearing Entry at 33. 

{¶ 63} In sum, OCC has not carried its burden, and therefore we reject the 

arguments on that ground. See generally In re Application of Duke Energy Ohio, 

Inc., 131 Ohio St.3d 487, 2012-Ohio-1509, 967 N.E.2d 201, ¶ 17-18 (appellant 

bears the burden on appeal of showing that the order is unlawful or unreasonable). 

AEP’s Cross-Appeal 

I. AEP’s Proposition of Law No. V1: Whether the commission erred in 

determining the threshold for the “significantly excessive earnings” 

test 

{¶ 64} AEP first argues on cross-appeal that the commission erred when it 

imposed a significantly-excessive-earnings test (“SEET”) threshold for the term 

of the ESP that was arbitrary and unsupported by the record. Electric-distribution 

utilities that opt to provide service under an electric-security plan must undergo an 

annual earnings review. R.C. 4928.143(F) requires the commission annually to 

consider whether the plan resulted in “significantly excessive earnings” compared 

to companies facing “comparable” risk. If the ESP resulted in significantly 

excessive earnings, the utility must return the excess to its customers. Id. In the 

order below, the commission set the SEET threshold at 12 percent, meaning that 

only a return on investment of more than 12 percent would be considered 

significantly excessive. ESP Order at 37; First Rehearing Entry at 41-42. 

{¶ 65} Whether a plan resulted in excessive earnings must be measured by 

whether the earned return on common equity of the electric 

distribution utility is significantly in excess of the return on common 

equity that was earned during the same period by publicly traded 

companies, including utilities, that face comparable business and 
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24 

financial risk, with such adjustments for capital structure as may be 

appropriate. 

R.C. 4928.143(F). AEP argues that in setting the SEET threshold, the 

commission did not compare AEP’s return on common equity with the returns of 

comparable publicly traded companies that were earned during the same period. 

Moreover, the company asserts that the commission never explained why it failed 

to conduct the statutorily required comparison. 

{¶ 66} AEP is correct that the commission failed to explain its decision. 

AEP complained on rehearing that the threshold was not based on “estimates of 

the ‘return on common equity that was earned during the same period by publicly 

traded companies, including utilities, that face comparable business and financial 

risk’ to AEP Ohio, as the SEET statute requires.” The company also complained 

about the commission’s lack of explanation for departing from the statutory 

process. The commission never offered a response to AEP’s claims and thus 

failed to explain its decision. This was error. See In re Fuel Adjustment Clauses 

for Columbus S. Power Co. & Ohio Power Co., 140 Ohio St.3d 352, 2014-Ohio3764, 18 N.E.3d 1157, ¶ 45. Therefore, we reverse this part of the order and 

remand so that the commission can address this issue in the first instance. 

II. AEP’s Proposition of Law No. V1I: Whether the commission’s order 

impaired the company’s right to withdraw the ESP under R.C. 

4928.143(C)(2)(a) 

{¶ 67} AEP’s second argument on cross-appeal is that the commission’s 

order deprived the company of its right under R.C. 4928.143(C)(2)(a) to withdraw 

the ESP. R.C. 4928.143(C)(1) requires the commission to do one of three things 

when considering an ESP application: (1) “approve,” (2) “modify and approve,” 

or (3) “disapprove” the application. Under R.C. 4928.143(C)(2)(a), if the 

commission issues an order that “modifies and approves an application,” the 
January Term, 2016 

25 

utility “may withdraw the application, thereby terminating it, and may file a new 

standard service offer.” AEP asserts that it cannot meaningfully exercise its 

statutory right to withdraw the modified ESP because the order directed the 

company to accelerate the use of energy auctions, but failed to address auctiondesign and related issues, deferring those issues for resolution in another 

proceeding. This argument lacks merit. 

{¶ 68} Nothing prevented AEP from withdrawing the ESP once the 

commission issued its order modifying the timing of the auctions and informed 

the company of its plan to decide auction-design issues in another case. AEP 

complains that it cannot exercise its right to withdraw when it does not know and 

cannot even anticipate the actual economic effect of the specific design of the 

auctions until later. But AEP overlooks the fact that it was the one who had 

proposed that the commission decide the details of the competitive-auction 

process in a separate proceeding. The company cannot take advantage of an error 

that it itself invited or induced the commission to make. State ex rel. Johnson v. 

Ohio Adult Parole Auth., 95 Ohio St.3d 463, 2002-Ohio-2481, 768 N.E.2d 1176, 

¶ 6; Fostoria v. Ohio Patrolmen’s Benevolent Assn., 106 Ohio St.3d 194, 2005-

Ohio-4558, 833 N.E.2d 720, ¶ 12. 

III. AEP’s Proposition of Law No. VIII: Whether the commission erred 

when it extended the state compensation mechanism to standardservice-offer auctions4

{¶ 69} In its final argument on cross-appeal, AEP contends that the 

commission erred when it extended the state compensation mechanism to SSO 

auctions and SSO customers. But this argument was not set forth in AEP’s notice 

of cross-appeal and is therefore forfeited. R.C. 4903.13 (the procedure for seeking 

reversal of a commission order is through a notice of appeal “setting forth the 

 

4

 At page 47 of its second merit brief, AEP misidentifies its final proposition of law as “No. IV,” 

instead of No. VIII. 
SUPREME COURT OF OHIO

26 

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; 

In re Complaint of Smith v. Ohio Edison Co., 137 Ohio St.3d 7, 2013-Ohio-4070, 

996 N.E.2d 927, ¶ 28. 

CONCLUSION

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

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

review. 

Orders affirmed in part 

and reversed in part, 

and cause remanded. 

O’DONNELL and FRENCH, JJ., concur. 

O’CONNOR, C.J., concurs in part and dissents in part with an opinion that 

LANZINGER, J., joins. 

PFEIFER, J., concurs in part and dissents in part with an opinion that 

O’NEILL, J., joins. 

_________________ 

O’CONNOR, C.J., concurring in part and dissenting in part. 

{¶ 71} I believe that the majority prematurely reaches its conclusions that 

the commission’s order violates R.C. 4928.38 and that AEP is recovering the 

equivalent of unlawful transition revenue through the Retail Stability Rider 

(“RSR”). I thus dissent in part. 

ANALYSIS

{¶ 72} R.C. Chapter 4928 is a labyrinthian scheme that governs Ohio’s 

retail electric service, i.e., “any service involved in supplying or arranging for the 

supply of electricity to ultimate consumers in this state, from the point of 

generation to the point of consumption.” R.C. 4928.01(27). Among its 

provisions are those permitting and forbidding the recovery of transition costs. 
January Term, 2016 

27 

FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio St.3d 401, 2002-Ohio-2430, 768 

N.E.2d 648, ¶ 14; R.C. 4928.37; R.C. 4928.39; R.C. 4928.141(A). 

{¶ 73} In the proceedings below, the commission found that R.C. 

4928.143(B)(2)(d) permitted American Electric Power (“AEP”) to include the 

RSR as part of its electric security plan (“ESP”). Pub. Util. Comm. Nos. 11-346-

EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-EL-AAM, 31-32 (Aug. 

8, 2012) (the “ESP Order”). The practical effect of that decision was that AEP 

collected over $500,000,000 in additional revenue through the RSR, which AEP 

had designed, in part, to recover lost revenue from competitive retail-electricservice providers. 

{¶ 74} Appellant the Office of the Ohio Consumers’ Counsel contends 

that the commission acted improperly in allowing AEP to collect the revenue 

because the statutory period set by the General Assembly for the recovery of 

transition costs had ended. See R.C. 4928.37(A)(1), 4928.38, and 4928.40(A). 

The majority agrees and reverses the approval of the RSR on the basis that AEP is 

recovering the equivalent of unlawful transition revenue through the rider in 

violation of R.C. 4928.38. But in doing so, the majority ignores what could be 

significant language in the ESP statute, R.C. 4928.143(B), by relegating that 

language to a footnote and then ignoring it. Majority Opinion at fn. 3. 

{¶ 75} R.C. 4928.143(B) contains broadly worded language that states 

“[n]otwithstanding any other provision” in R.C. Title 49 “to the contrary,” except 

the provisions in “division (D) of this section, divisions (I), (J), and (K) of section 

4928.20, division (E) of section 4928.64, and section 4928.69 of the Revised 

Code,” an electric security plan may provide or include, without limitation, a host 

of costs the utility incurs in providing electric service.5

 

 

5

 R.C. 4928.143(B) provides: 
SUPREME COURT OF OHIO

28 

 

Notwithstanding any other provision of Title XLIX of the 

Revised Code to the contrary except division (D) of this section, 

divisions (I), (J), and (K) of section 4928.20, division (E) of section 

4928.64, and section 4928.69 of the Revised Code: 

(1) An electric security plan shall include provisions relating 

to the supply and pricing of electric generation service. * * * 

(2) The plan may provide for or include, without limitation, 

any of the following: 

(a) Automatic recovery of any of the following costs of the 

electric distribution utility, provided the cost is prudently incurred: the 

cost of fuel used to generate the electricity supplied under the offer; the 

cost of purchased power supplied under the offer, including the cost of 

energy and capacity, and including purchased power acquired from an 

affiliate; the cost of emission allowances; and the cost of federally 

mandated carbon or energy taxes; 

(b) A reasonable allowance for construction work in progress 

for any of the electric distribution utility’s cost of constructing an 

electric generating facility or for an environmental expenditure for any 

electric generating facility of the electric distribution utility, provided 

the cost is incurred or the expenditure occurs on or after January 1, 

2009. Any such allowance shall be subject to the construction work in 

progress allowance limitations of division (A) of section 4909.15 of the 

Revised Code, except that the commission may authorize such an 

allowance upon the incurrence of the cost or occurrence of the 

expenditure. No such allowance for generating facility construction 

shall be authorized, however, unless the commission first determines in 

the proceeding that there is need for the facility based on resource 

planning projections submitted by the electric distribution utility. 

Further, no such allowance shall be authorized unless the facility’s 

construction was sourced through a competitive bid process, regarding 

which process the commission may adopt rules. An allowance 

approved under division (B)(2)(b) of this section shall be established as 

a nonbypassable surcharge for the life of the facility. 

(c) The establishment of a nonbypassable surcharge for the life 

of an electric generating facility that is owned or operated by the 

electric distribution utility, was sourced through a competitive bid 

process subject to any such rules as the commission adopts under 

division (B)(2)(b) of this section, and is newly used and useful on or 

after January 1, 2009, which surcharge shall cover all costs of the 

utility specified in the application, excluding costs recovered through a 

surcharge under division (B)(2)(b) of this section. However, no 

surcharge shall be authorized unless the commission first determines in 

the proceeding that there is need for the facility based on resource 

planning projections submitted by the electric distribution utility. 

Additionally, if a surcharge is authorized for a facility pursuant to plan 

approval under division (C) of this section and as a condition of the 

continuation of the surcharge, the electric distribution utility shall 

dedicate to Ohio consumers the capacity and energy and the rate 
January Term, 2016 

29 

 associated with the cost of that facility. Before the commission 

authorizes any surcharge pursuant to this division, it may consider, as 

applicable, the effects of any decommissioning, deratings, and 

retirements. 

(d) Terms, conditions, or charges relating to limitations on 

customer shopping for retail electric generation service, bypassability, 

standby, back-up, or supplemental power service, default service, 

carrying costs, amortization periods, and accounting or deferrals, 

including future recovery of such deferrals, as would have the effect of 

stabilizing or providing certainty regarding retail electric service; (e) Automatic increases or decreases in any component of the 

standard service offer price; 

(f) Consistent with sections 4928.23 to 4928.2318 of the 

Revised Code, both of the following: 

(i) Provisions for the electric distribution utility to securitize 

any phase-in, inclusive of carrying charges, of the utility’s standard 

service offer price, which phase-in is authorized in accordance with 

section 4928.144 of the Revised Code; 

(ii) Provisions for the recovery of the utility’s cost of 

securitization. 

(g) Provisions relating to transmission, ancillary, congestion, 

or any related service required for the standard service offer, including 

provisions for the recovery of any cost of such service that the electric 

distribution utility incurs on or after that date pursuant to the standard 

service offer; 

(h) Provisions regarding the utility’s distribution service, 

including, without limitation and notwithstanding any provision of 

Title XLIX of the Revised Code to the contrary, provisions regarding 

single issue ratemaking, a revenue decoupling mechanism or any other 

incentive ratemaking, and provisions regarding distribution 

infrastructure and modernization incentives for the electric distribution 

utility. The latter may include a long-term energy delivery 

infrastructure modernization plan for that utility or any plan providing 

for the utility’s recovery of costs, including lost revenue, shared 

savings, and avoided costs, and a just and reasonable rate of return on 

such infrastructure modernization. As part of its determination as to 

whether to allow in an electric distribution utility’s electric security 

plan inclusion of any provision described in division (B)(2)(h) of this 

section, the commission shall examine the reliability of the electric 

distribution utility’s distribution system and ensure that customers’ and 

the electric distribution utility’s expectations are aligned and that the 

electric distribution utility is placing sufficient emphasis on and 

dedicating sufficient resources to the reliability of its distribution 

system. 

(i) Provisions under which the electric distribution utility may 

implement economic development, job retention, and energy efficiency 

programs, which provisions may allocate program costs across all 
SUPREME COURT OF OHIO

30 

{¶ 76} The provision could be construed to allow an ESP to include 

charges that other provisions of R.C. Title 49 prohibit. Here, even assuming that 

the majority is correct that R.C. 4928.38 bars the recovery of transition revenue, 

R.C. 4928.143(B) nevertheless could be read to create an exception to the 

prohibition on transition revenue as long as the revenues are recoverable under the 

requirements of R.C. 4928.143(B)(2). Stated differently, the word 

“notwithstanding” could render R.C. 4928.38 inapplicable if the revenues are 

recoverable under one of the many provisions of R.C. 4928.143(B)(2). 

{¶ 77} I recognize that the commission did not rely on the 

“notwithstanding” provision of R.C. 4928.143(B) in the proceedings below. And 

although it appears that no party has squarely raised the issue to this court, two 

parties, FirstEnergy Solutions and IEU, cited the “notwithstanding” provision of 

R.C. 4928.143(B) before the commission in relation to another rider (the 

Generation Resource Rider). ESP Order at 21. In that context, the parties’ 

interpretation of the provision suggests that the “notwithstanding” clause could be 

read broadly as an exception. The commission, however, decided the question on 

other grounds and never addressed the “notwithstanding” argument, see ESP 

Order at 19-25, and I am unaware of any case in which the commission has 

considered or clarified the particular language of R.C. 4928.143(B). 

{¶ 78} We could decide the meaning of the provision in the first instance. 

But we can, and should, consider the expertise of a state agency in interpreting a 

law where, as here, there are “highly specialized issues” involved and where 

“agency expertise” would be “of assistance in discerning the presumed intent of 

 classes of customers of the utility and those of electric distribution 

utilities in the same holding company system. 

(Emphasis added.) 
January Term, 2016 

31 

our General Assembly.” Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 

108, 110, 388 N.E.2d 1370 (1979). 

{¶ 79} Given that the “notwithstanding” provision could create an 

exception to the prohibition against the recovery of transition revenue and that the 

commission has offered no guidance on the meaning of that provision, I would 

remand the cause to the commission to consider and interpret the statutory 

language before rendering a decision on whether AEP is improperly recovering 

transition costs. See, e.g., In re Application of Columbus S. Power Co., 128 Ohio 

St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 31-35. By doing so, we would not 

only respect the role of the General Assembly to create the framework by which 

utilities must provide service to the millions of Ohio consumers who rely on safe, 

affordable electrical service, but also the collective expertise of the commission in 

a complex area of law that implicates important public-health and financial-policy 

considerations. 

LANZINGER, J., concurs in the foregoing opinion. 

_________________ 

PFEIFER, J., concurring in part and dissenting in part. 

{¶ 80} I concur in the portion of the majority opinion that concludes that 

the Public Utilities Commission (“PUCO”) erred when it allowed Ohio Power to 

collect the equivalent of transition revenues. 

{¶ 81} But I dissent from the portion of the majority opinion that allows 

the recapture of a discount offered to marketers from retail customers. Pursuant 

to the PUCO order before us, Ohio Power is allowed to sell capacity to marketers 

at a rate that is less than its retail customers pay. That does not, by itself, offend 

any sense of justice or fair play. But requiring the retail customers, who already 

pay full cost, to make up the difference between the rate Ohio Power charges the 

marketers and the rate it charges the public does. We are not talking about a 

small number. The discount that Ohio Power has offered to marketers, some of 
SUPREME COURT OF OHIO

32 

whom might be its own subsidiaries, amounts over a period of years to close to 

$650 million. No statutory authority enabled the PUCO to allow Ohio Power to 

recoup from its retail customers the discount it grants to marketers. The PUCO 

justifies the recapture of the discount by saying that it promotes stable electric 

service prices. Perhaps that is true, but it also results in artificially high retail 

utility costs. 

{¶ 82} The PUCO has determined that Ohio Power’s cost of providing 

capacity is $188.88 per megawatt day. In re Comm. Rev. of Capacity Charges of 

Ohio Power Co., Pub. Util. Comm. No. 10-2929-EL-UNC, at 33 (July 2, 2012). 

In its brief, the Office of the Ohio Consumers’ Counsel stated that the current 

standard-service-offer rate charged to retail customers includes a capacity charge 

of approximately $355.72 per megawatt-day. If true, this outrageous overcharge 

to Ohio Power’s own nonshopping retail customers is unwarranted and outside 

the purview of the rate-setting mechanism. R.C. 4928.144, which ostensibly 

justifies the PUCO’s action, allows rates to be phased in, it does not allow the 

recapture of a discount offered to marketers from retail customers. In essence, the 

PUCO is requiring retail customers, who in the main do not shop for service, to 

subsidize customers who do shop. The authority to do this is not found in 2008 

Am.Sub.S.B. No. 221 or anywhere else in the Revised Code. 

{¶ 83} In the past, Ohio Power’s capacity charges have been based on 

rates established by auctions held by PJM Interconnection, L.L.C. See Pub. Util. 

Comm. No. 10-2929-EL-UNC at 14. I would send this case back to the PUCO 

with instructions for it to determine the appropriate market price for capacity 

generation and to limit the rates it allows Ohio Power to charge to that market 

price. 

{¶ 84} The outcome of this case appears to provide another extra-legal gift 

from the PUCO to the management and shareholders of AEP, the owner of Ohio 

Power, this time of roughly $500 million from the retail stability charge. For 
January Term, 2016 

33 

other examples, see In re Application of Ohio Power Co., 144 Ohio St.3d 1, 2015-

Ohio-2056, 40 N.E.3d 1060, ¶ 48 (Pfeifer, J., dissenting) (Ohio Power received 

an unwarranted $130 million); In re Application of Columbus S. Power Co., 138 

Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶ 56 (Pfeifer, J., dissenting) (AEP 

allowed to retain $368 million of charges that were unjustified). 

{¶ 85} Based on the foregoing, I concur in part and dissent in part. 

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

_________________ 

 Bruce J. Weston, Consumers’ Counsel, and Maureen R. Grady, Terry L. 

Etter, and Joseph P. Serio, Assistant Consumers’ Counsel, for appellant and crossappellee Ohio Consumers’ Counsel. 

 Boehm, Kurtz & Lowry, Michael Kurtz, David Boehm, and Jody Kyler 

Cohn, for appellant and cross-appellee Ohio Energy Group. 

 Taft, Stettinius & Hollister, L.L.P., Mark S. Yurick, and Zachary D. 

Kravitz, for appellant Kroger Company. 

 Michael DeWine, Attorney General, and William L. Wright, Werner L. 

Margard III, and Steven L. Beeler, Assistant Attorneys General, for appellee and 

cross-appellee, Public Utilities Commission of Ohio. 

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

Arthur, L.L.P., Kathleen M. Trafford, James B. Hadden, Daniel R. Conway, and 

L. Bradfield Hughes; and MoloLamken, L.L.P., Jeffrey A. Lamken, and Martin 

V. Totaro, for appellee and cross-appellant, Ohio Power Company. 

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