Case Name: Office of Consumers' Counsel, Appellant, v. Public Utilities Commission of Ohio et al., Appellees
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1994-09-14
Citations: 70 Ohio St. 3d 244
Docket Number: No. 93-1710
Parties: Office of Consumers’ Counsel, Appellant, v. Public Utilities Commission of Ohio et al., Appellees.
Judges: Moyer, C.J., A.W. Sweeney, Douglas, Wright, Resnick, F.E. Sweeney and Pfeifer, JJ., concur.
Reporter: Ohio State Reports, Third Service
Volume: 70
Pages: 244–251

Head Matter:
Office of Consumers’ Counsel, Appellant, v. Public Utilities Commission of Ohio et al., Appellees.
[Cite as Consumers’ Counsel v. Pub. Util. Comm. (1994), 70 Ohio St.3d 244.]
(No. 93-1710
Submitted May 25, 1994
Decided September 14, 1994.)
Robert S. Tongren, Consumers’ Counsel, David C. Bergmann and Andrea M. Kelsey, Associate Consumers’ Counsel, for appellant.
Lee Fisher, Attorney General, James B. Gainer and Ann E. Henkener, Assistant Attorneys General, for appellee.
J. Raymond Prohaska, for intervening appellee McClure Telephone Company.

Opinion:
Per Curiam.
We affirm the commission's order for the following reasons.
In its first proposition of law, OCC argues that the commission was without authority to adopt the alternative regulatory requirements on its own initiative, citing the language of R.C. 4927.04(B), which provides that alternative regulations may be established "[u]pon the application of any telephone company having fewer than fifteen thousand access lines." (Emphasis added.) In its second proposition of law, OCC argues that because the commission lacked authority to adopt alternative regulatory requirements on its own initiative, the requirements adopted in PUCO No. 89-564-TP-COI are actually procedural rules promulgated under R.C. 4927.04(D) which are invalid because they exceed statutory authority.
These issues were not stated in OCC's application for rehearing. R.C. 4903.10 provides, in part, that an application for rehearing "shall be in writing and shall set forth specifically the ground or grounds on which the applicant considers said order to be unreasonable or unlawful. No party shall in any court urge or rely on any ground for reversal, vacation, or modification not so set forth in said application." We have held that setting forth specific grounds for rehearing is a jurisdictional prerequisite for our review. Cincinnati Bell Tel. Co. v. Pub. Util. Comm. (1984), 12 Ohio St.3d 280, 290, 12 OBR 356, 365, 466 N.E.2d 848, 857, appeal dismissed (1986), 476 U.S. 1166, 106 S.Ct. 2884, 90 L.Ed.2d 972; Akron v. Pub. Util. Comm. (1978), 55 Ohio St.2d 155, 161-162, 9 O.O.3d 122, 125-126, 378 N.E.2d 480, 485; Cincinnati v. Pub. Util. Comm. (1949), 151 Ohio St. 353, 39 O.O. 188, 86 N.E.2d 10, paragraph seventeen of the syllabus; and Travis v. Pub. Util. Comm. (1931), 123 Ohio St. 355, 9 Ohio Law Abs. 443, 175 N.E. 586, paragraph six of the syllabus.
OCC does not contend that these propositions of law were specifically raised on rehearing. Rather, it argues that the commission does not have jurisdiction to consider such issues and, thus, that they may be raised for the first time on appeal. An administrative agency such as the commission may not pass upon the constitutionality of a statute. Cleveland Gear Co. v. Limbach (1988), 35 Ohio St.3d 229, 520 N.E.2d 188; Atwood Resources, Inc. v. Pub. Util. Comm. (1989), 43 Ohio St.3d 96, 100-101, 538 N.E.2d 1049, 1053. However, nothing precludes the commission from passing upon the proper application or construction of a statute, which is the issue here. OCC's failure to contest the commission's construction of R.C. 4927.04(B) on rehearing is fatal.
OCC also argues that these propositions of law are related to allegations of error raised on rehearing and that it has "substantially complied" with R.C. 4903.10. This argument ignores the strict specificity test recognized by this court in Cincinnati, supra:
"It may fairly be said that, by the language which it used, the General Assembly indicated clearly its intention to deny the right to raise a question on appeal where the appellant's application for rehearing used a shotgun instead of a rifle to hit that question." 151 Ohio St. at 378, 39 O.O. at 199, 86 N.E.2d at 23.
In its third proposition of law, OCC argues that the retention of R.C. 4905.22 under the "exemption" language of R.C. 4927.04(B), and the retained applicability of that section under the commission's alternative regulations, give ratepayers a substantive right to "just and reasonable" rates and a right to fully participate in the ratemaking process to protect their interests. Although OCC states that such right would not necessarily require an evidentiary hearing, but only a fair fact-finding process, it effectively seeks an evidentiary hearing to resolve the factual issues presented by its objections below.
Relying primarily on the MCI cases, infra, appellee argues that an evidentiary hearing is not required in this case and that the "objection and comment" procedure employed is a valid basis for resolving the factual issues raised by OCC and for approving the rates in the stipulation.
1. Right to an evidentiary hearing.
We have repeatedly held that the right to participate in a ratemaking proceeding is statutory, not constitutional, and that absent express statutory provision, a ratepayer has no right to notice and hearing under the Due Process Clauses of the Ohio and United States Constitutions. MCI Telecommunications Corp. v. Pub. Util. Comm. (1988), 38 Ohio St.3d 266, 269, 527 N.E.2d 777, 780; MCI Telecommunications Corp. v. Pub. Util. Comm. (1987), 32 Ohio St.3d 306, 310, 513 N.E.2d 337, 342; Armco, Inc. v. Pub. Util. Comm. (1982), 69 Ohio St.2d 401, 409, 23 O.O.3d 361, 366, 433 N.E.2d 923, 928; Cleveland v. Pub. Util. Comm. (1981), 67 Ohio St.2d 446, 453, 21 O.O.3d 279, 283, 424 N.E.2d 561, 566; Committee Against MRT v. Pub. Util. Comm. (1977), 52 Ohio St.2d 231, 239, 6 O.O.3d 475, 480, 371 N.E.2d 547, 552 (P. Brown, J., dissenting). Cincinnati v. Pub. Util. Comm. (1978), 55 Ohio St.2d 168, 9 O.O.3d 130, 378 N.E.2d 729, certiorari denied (1979), 440 U.S. 912, 99 S.Ct. 1225, 59 L.Ed.2d 461, which OCC cites as implicitly recognizing a ratepayer's right to due process in commission proceedings, involved a hearing required by statute; the court's reasoning in that case was consistent with Ohio Bell Tel. Co. v. Pub. Util. Comm. (1937), 301 U.S. 292, 57 S.Ct. 724, 81 L.Ed. 1093, that in such circumstances the hearing afforded must be "fair and open."
At common law, a utility had the same right as other businesses to set the rate for its services. Its customers had no substantive right to a fixed rate, and thus had no procedural rights in the ratemaking process. See Sellers v. Iowa Power & Light Co. (S.D.Iowa 1974), 372 F.Supp. 1169, 1172. With the advent of regulation, ratemaking became solely a legislative function and, absent express statutory provision, ratepayers had no right to participate in that process through the ballot box. See Rivera v. Chapel (C.A.1, 1974), 493 F.2d 1302, 1304; Georgia Power Co. v. Allied Chem. Corp. (1975), 233 Ga. 558, 559, 212 S.E.2d 628, 630; Pub. Util. Comm. of California v. United States (C.A.9, 1966), 356 F.2d 236, 241; Franchise Tax Bd. v. Superior Court (1951), 36 Cal.2d 538, 549, 225 P.2d 905, 911.
Under Ohio's traditional ratemaking process, the General Assembly provides for quasi-judicial ratemaking hearings in which ratepayers in general (R.C. 4909.18, 4909.19, 4903.221) and OCC in particular (R.C. 4911.02) may participate. However, by enacting R.C. 4927.04(B), the General Assembly delegated authority to the commission to exempt small telephone companies entirely from the traditional ratemaking procedure, in which case the process could be entirely legislative, and ratepayers would have no opportunity to participate, or to promulgate alternative regulations, which, at least in this case, presented some opportunity to participate, short of an evidentiary hearing.
That the intent of R.C. 4927.04(B) is to dispense with the notice and hearing requirements in the ratemaking process for small telephone companies is evident from the legislative history of Am.Sub.H.B. No. 563. J.R. Prohaska testified on behalf of the Ohio Telephone Association that:
"The small companies, like others, would still have to render adequate service [a reference to R.C. 4905.22], still have to have reasonable rates [a reference to R.C. 4905.22], still be subject to complaint procedures [a reference to R.C. 4905.26], but would be spared the expense of needless paperwork, procedures and hearings."
Also, the Legislative Service Commission bill analysis stated:
"The bill does not expressly require notice or hearing or other procedural provisions in the case of such an application [under R.C. 4927.04(B) ]."
Therefore, we find OCC's construction of R.C. 4905.22 is inconsistent with the intent of R.C. 4927.04(B) and the commission's alternative regulations, which expressly do not require hearing under the circumstances involved in this case.
2. The MCI cases and the "notice and comment" procedure.
Both OCC and the commission assume that the alternative regulatory requirements provide for quasi-judicial fact-finding and an order by the commission. On this basis, OCC argues that the record below contains no evidence, that the record is insufficient to support the commission's decision (see R.C. 4903.13), and that the case must be remanded for evidentiary hearing upon which a proper order may be based. The commission apparently assumes that the "objection and comment" procedure is a sufficient basis to make a factual determination as to the reasonableness of the rates set, and that that procedure provides a sufficient basis for this court's review under R.C. 4903.13 (under which the court must ascertain if the commission's order is supported by the manifest weight of the evidence). It relies on the MCI cases, supra, in which this court, at least in part, based its affirmance of the order upon a similar process.
The MCI cases were appeals resulting from a commission-initiated investigation into the reconfiguration of the telecommunications industry after the divestiture of AT & T. The investigation specifically concerned the charges that telephone companies would have to pay for access to Ohio Bell's system in order to provide long distance calling, and the distribution of excess revenues collected under the plan. The commission held an initial hearing in the case, as required by R.C. 4905.26, and in its initial order found that ongoing issues would be addressed by a notice and comment procedure. MCI did not appeal the initial order contesting the procedure, but argued in the 1987 and 1988 appeals that an evidentiary hearing should have been held on the subsequent issues and that the commission's resulting orders were not supported by evidence of record. A majority of this court held that MCI was not constitutionally entitled to a hearing and that the initial hearing satisfied the statutory hearing requirement. The majority went on to affirm the commission based on the totality of the record before it, which included the evidence adduced at hearing as well as the subsequent comments received.
The dissent in each case argued that the commission, as a creature of statute, had no authority to set rates through the quasi-legislative "notice and comment" procedure and that, because no hearing was held on the issues, there was no evidence upon which to base the commission's order.
While MCI struggled with the statutory hearing requirement, there is no such dilemma here. R.C. 4927.04(B) and the commission's alternative regulatory requirements issued thereunder now permit essentially quasi-legislative ratemaking. Under such a method of ratemaking, as found in this qase, there is no evidence to support the commission's determination, and no evidence by which we may perform our review under R.C. 4903.13. If we were to affirm the rates set in this case as reasonable, we would be doing so upon the basis of the untested assertions of the commission's staff and the telephone company's attorney.
Therefore, we interpret R.C. 4927.04(B) and the commission's alternative regulations as permitting the commission to set small company rates without a hearing. Ratepayers have the right to protect the interest they may have in just and reasonable rates under R.C. 4905.22 by filing a complaint under R.C. 4905.26. This procedure is analogous to ratepayers' rights when the commission approves a new service and its rates under R.C. 4909.18. The process satisfies the intent of R.C. Chapter 4927 to streamline the regulatory process in order that companies can respond more quickly to competitive pressures (by earlier approval of rates), and it also benefits consumers by eliminating rate case expense.
OCC contends further that assuming arguendo the commission's alternative regulations resulted in an adequate record being made, that its determination was not supported by that record, and that the resultant rates were unjust and unreasonable. Specifically, OCC argues that ratepayers are improperly bearing the cost of a $1,561 unregulated loss (which was considered in computing net income), that ratepayers are supporting an exorbitant salary for the company's manager, and that ratepayers are subsidizing the manager's personal use of the company vehicle.
As stated above, the commission's determinations as to these issues are based upon the untested comments and responses of its staff and the company. There is no evidence by which the court may consider the reasonableness of the commission's determinations, ie., whether the commission's determinations are supported by the manifest weight of the evidence. OCC's recourse is not through remand in this proceeding, but through a complaint case pursuant to R.C. 4905.26.
The order of the commission is, accordingly, affirmed.
Order affirmed.
Moyer, C.J., A.W. Sweeney, Douglas, Wright, Resnick, F.E. Sweeney and Pfeifer, JJ., concur.