Case Name: City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1978-07-19
Citations: 55 Ohio St. 2d 155
Docket Number: No. 77-613
Parties: City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees.
Judges: O’Neill, C. J.,' Herbert, Celebrezze, W. Brown, P. Brown and Sweeney, JJ., concur.
Reporter: Ohio State Reports, Second Series
Volume: 55
Pages: 155–167

Head Matter:
City of Akron et al., Appellants, v. Public Utilities Commission of Ohio et al., Appellees.
[Cite as Akron v. Pub. Util. Comm. (1978), 55 Ohio St. 2d 155.]
(No. 77-613
Decided July 19, 1978.)
Messrs. Steer, Strauss, White $ Tobias, Mr. F. Bruce Abel, and Mr. Ridhard N. Fanelly, for appellants.
Mr. William J. Brown, attorney general, Mr. Marvin I. Resnik and Mr. Mark C. Sholander, for appellee.
Mr. Russell J. Spetrino and Mr. Anthony J. Alexander, for intervening appellee.

Opinion:
Per Curiam.
A commission finding will not be disturbed unless manifestly against the weight of the evidence and so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Ford Motor Co. v. Pub. Util. Comm. (1977), 52 Ohio St. 2d 142, 152.
Appellants assert in their first proposition of law that the commission erred in setting a rate of return of 9.07 percent based solely upon a stipulation between Ohio Edison and the commission staff. Appellants assert further that the only witness at the hearing mentioning this 9.07 percent rate of return specifically refused to recommend it when questioned on direct examination. Appelants allege that the maximum rate Ohio Edison sought in its application was 8.50 percent, a figure that the utility thought was fully compensable.
This proposition has three parts: (1) the weight accorded the stipulation; (2) the refusal of the staff's witness to recommend the 9.07 rate of return; and (3) the contention that the authorized rate of return was higher than the maximum sought by the utility.
In alleging that the commission gave undue weight to the stipulation, appellants assert that Ohio Edison did not meet its burden of proving its existing rates were unjust and unreasonable. There is no doubt that this burden is on the applicant utility. See Mt. Vernon Telephone Corp. v. Pub. Util. Comm. (1955), 163 Ohio St. 381. Further, it is true that Ohio Edison chose not to present any rate-of-return witnesses to prove its existing rates inadequate, but rather to stipulate to the cost of capital and the rate of return determined by the commission staff. Appellants urge that because Ohio Edison presented no such witnesses, its burden could not have been met as a matter of law.
The commission encourages agreement on issues raised in an application. But here, there was not total agreement — appellants stipulated only to the rate base, not the cost of capital or the rate of return. Thus, the agreement between Ohio Edison and the commission was not a * ' stipulation," as all parties had not agreed to it.
The commission, of course, is not bound to the terms of any stipulation; however, such terms are properly accorded substantial weight. Likewise, the commission is not bound by the findings of its staff. Nevertheless, those findings are the result , of detailed investigations and are-entitled to careful consideration.
Ohio Edison agreed to the staff's determination of rate base, rate of return and cost of capital. Thus, this accord was not a negotiated agreement, but rather an acquiesenee of the staff's findings. The resulting recommendations were given substantial weight by the commission because they were the result of the staff's investigation, mot because they were part of a "stipulation." The record shows that the commission afforded appellants full opportunity to present evidence with respect to all contested issues.
Ohio Edison was justified in relying on the staff report to demonstrate that its present rates were inadequate. There is an inherent risk in so doing, but the staff report, if accepted by the commission, may be sufficent evidence as a matter of law to meet the burden of showing the existing rates inadequate. This has long been the standard followed by this commission. See Re Dayton Power & Light Co. (1961), 39 PUR 3d 390, 403.
The second part of this first proposition concerns appellants' allegation that the only staff witness who mentioned 9.07 percent return specifically refused to recommend it.
In its report filed on September 20, 1976, the staff estimated the weighted cost of capital to be 7.26 percent. In reaching that figure, the cost of common equity used was adjusted downward to account for the inflationary characteristics of the then-effective statutory RCNLD rate base.
Such a downward adjustment, as the staff pointed out in its report, is not permitted under this court's decision in General Telephone Co. v. Pub. Util. Comm. (1976), 46 Ohio St. 2d 281. Therefore, in complying with this court's interpretation of the then-existing law, the staff concluded in its report:
"By excluding the inflation adjustment previously made, the rate of return computed above would increase to 8.96%. While the staff recognizes that 8.96% may be a legally appropriate rate of return, it does not recommend this figure from an economic standpoint." (Emphasis added.)
At the hearing the staff witness updated the cost of capital calculation to include data as of September 30, 1976, resulting in a figure of 9.07 percent.
The staff witness used methods long employed by economists testifying before the commission to calculate the cost of capital of applicant utilities. The record shows that, as an economist, the staff witness would not recommend a 9.07 percent rate. In other words, that witness apparently did not agree with this court's holding in General Telephone, supra. While the witness may be "free" to disagree on an economic basis, the commission may not ignore the then-existing statute and its interpretation by this court. Appellants have not shown that this legally appropriate rate is unreasonable or unlawful.
The third portion of this proposition alleges that, in its application, the maximum rate Ohio Edison sought was 8.50 percent, which it believed to be "fully compensable. ' '
The rate of return is the dollar return generated under the proposed rates as a certain percentage of the statutory rate base. The commission adopted a rate base which was some $91 million less than that originally proposed by Ohio Edison, about a 15 percent reduction. Thus, it is inaccurate for appellants to imply, if not state, that the approved 9.07 percent rate generates more revenue than the 8.50 percent rate which the utility originally sought. The 8.50 percent figure which the utility believed to be fully compensable is not a meaningful figure because the commission used a different rate base in arriving at the final 9.07 percent rate. What remains meaningful is the dollar increase, which was about 67 percent of that requested. This increase has not been shown to be unreasonable or unlawful.
Accordingly, appellants' first proposition of law is overruled.
As their second proposition, appellants allege that when a public utility raises common, debt and preferred capital in the public markets and further eonsistantly presents a consolidated capital structure to potential investors, the utility has the burden of proof to show why the consolidated capital structure is inappropriate for use in a rate analysis case.
Ohio Edison is the sole shareholder of a Pennsylvania utility. The commission used only the Ohio Corporate capital structure rather than the consolidated structure in calculating the weighted cost of capital. Appellants assert that since Ohio Edison paints a consolidated picture to potential investors, it should be estopped from including only the Ohio structure here.
The commission's determination was reasonable and lawful. There is a substantially different set of laws for federal and state securities regulation and for ratemaking in Ohio. The securities laws are quite specific as to what information must be disclosed to potential investors, some of which may be irrelevant or misleading for state rate-making purposes. Consistency between these two diverse fields is not a desired goal. Therefore, this proposition is overruled.
Appellants allege as their third proposition that the commission erred in refusing to adjust revenues or expenses relating to fuel costs in a test year where fuel costs tripled, in order to match higher-cost fuel purchased at the end of the year with revenues collected shortly after the test year.
Although the record does not clearly indicate that fuel costs "tripled," it is clear that the costs rose dramatically because of the 1974 oil embargo and a mine workers' strike. At the hearing, there was expert testimony that the increase was the sharpest anyone could remember in one year.
Because Ohio Edison has to purchase and use its fuel before passing on this cost to its customers, there is always a "lag" in collection of revenues of approximately 45 days. Thus, monies collected for the first month and a half of the test year actually cover expenses prior to the test year.
It is well-settled that this court will not substitute its judgment for that of the commission unless it appears, from the record that the finding and order were manifestly against the weight of the evidence. Cremean v. Pub. Util. Comm. (1976), 48 Ohio St. 2d 163. Further, it is well-settled that this court mil not reverse an order of the commission as unreasonable or unlawful because of an error of the commission, if such error did not prejudice the party seeking such reversal. Cincinnati v. Pub. Util. Comm. (1949), 151 Ohio St. 353, paragraph six of the syllabus.
Appellants have not sufficiently alleged any prejudicial effect of the commission's determination, even assuming that an error occurred. The commission asserts convincingly that even if a lag adjustment were made, such adjustment would have had no effect on the final approved cost of capital rate. Accordingly, this proposition is overruled.
As their fourth proposition, appellants assert that parties to a utility rate proceeding cannot preempt this court's authority by stipulating between themselves that the hearing will be reopened before the commission in the event that its order is reversed. Appellants assert further violations of due process in view of the law in this state that utilities are not required to refund monies collected pursuant to a commission order which is subsequently found on appeal to have been unlawful.
Appellants did not assert this proposition in their application for rehearing before the commission, and also did not assert it in their notice of appeal to this court. In Cincinnati v. Pub. Util. Comm., supra, this court stated, in paragraph 17 of the syllabus:
"On an appeal from an order of the Public Utilities Commission, the Supreme Court cannot consider any matter which was not specifically set forth in an application to the commission for a rehearing as a ground on which the appellant considered the order of the commission to be unreasonable or unlawful."
Since this issue is thus not properly before this court, it is overruled.
The order of the commisson is neither unreasonable nor unlawful and, accordingly, is affirmed.
Order affirmed.
O'Neill, C. J.,' Herbert, Celebrezze, W. Brown, P. Brown and Sweeney, JJ., concur.
Such downward adjustment for inflationary characteristics has been made possible in subsequent cases, filed after January 1, 1976, by Am. Sub. S. B. No. 94 which replaces the RCNLD statutory scheme. However, Ohio Edison filed its application on December 30, 1975, and therefore prior case law interpreting the older previous rate statutes is controlling.