Court Opinion

ID: 9882372
Source: CourtListenerOpinion
Date Created: 2023-10-05 22:08:50.391156+00
Date Added: 2024-06-11T15:00:26.067718
License: Public Domain

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In
re Application of E. Ohio Gas Co., Slip Opinion No. 2023-Ohio-3289.]

                                         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. 2023-OHIO-3289
 IN RE APPLICATION OF EAST OHIO GAS COMPANY D.B.A. DOMINION ENERGY
     OHIO FOR APPROVAL OF AN ALTERNATIVE FORM OF REGULATION TO
 ESTABLISH A CAPITAL EXPENDITURE PROGRAM RIDER MECHANISM; OFFICE
 OF THE OHIO CONSUMERS’ COUNSEL ET AL., APPELLANTS; PUBLIC UTILITIES

     COMMISSION, APPELLEE; EAST OHIO GAS COMPANY D.B.A. DOMINION
                      ENERGY OHIO, INTERVENING APPELLEE.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
    may be cited as In re Application of E. Ohio Gas Co., Slip Opinion No.
                                    2023-Ohio-3289.]
Public utilities—R.C. 4929.05(A)—R.C. 4929.111(C)—Alternative rate plan—Rate
        of return for natural-gas company’s alternative rate plan is just and
        reasonable based on company’s last base-rate case—Orders affirmed.
    (No. 2022-0458—Submitted May 3, 2023—Decided September 20, 2023.)
       APPEAL from the Public Utilities Commission, No. 19-468-GA-ALT.
                                  __________________
                            SUPREME COURT OF OHIO

       STEWART, J.
       {¶ 1} Appellee, the Public Utilities Commission of Ohio, issued an opinion
and order approving a stipulation (or settlement) that authorizes intervening
appellee, East Ohio Gas Company d.b.a. Dominion Energy Ohio (“Dominion”), to
implement its Capital Expenditure Program Rider (the “CEP Rider”). Following a
rehearing, the commission filed an entry modifying the earlier order. Appellants,
Office of the Ohio Consumers’ Counsel (“OCC”) and Northeast Ohio Public
Energy Council (“NOPEC”), have appealed. Broadly speaking, appellants argue
that the commission (1) erred in approving the rate of return applicable to the CEP
Rider, (2) engaged in improper ex parte communications with its staff, and
(3) misapplied the standard for assessing the reasonableness of the stipulation.
Because we conclude, upon consideration of the record, that the commission’s
orders are not unlawful or unreasonable, we affirm them.
                              I. BACKGROUND
       {¶ 2} Ohio law authorizes a natural-gas company to apply to the
commission for approval to “implement a capital expenditure program” for certain
enumerated purposes. R.C. 4929.111(A). Beginning in 2012, the commission
issued a series of orders authorizing Dominion to implement a capital-expenditure
program and defer post-in-service carrying costs, depreciation expenses, and
property-tax expenses associated with its capital-expenditure-program investments.
See In re Application of E. Ohio Gas Co., Pub. Util. Comm. Nos. 11-6024-GA-
UNC and 11-6025-GA-AAM, 2012 Ohio PUC LEXIS 852 (Dec. 12, 2012); In re
Application of E. Ohio Gas Co., Pub. Util. Comm. Nos. 12-3279-GA-UNC and 12-
3280-GA-AAM, 2013 Ohio PUC LEXIS 221 (Oct. 9, 2013); In re the Application
of E. Ohio Gas Co., Pub. Util. Comm. Nos. 13-2410-GA-UNC and 13-2411-GA-
AAM, 2014 Ohio PUC LEXIS 151 (July 2, 2014). None of these orders authorized
Dominion to recover the costs of its capital-expenditure programs.         Rather,

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Dominion would have to seek approval to recover its costs in a future proceeding.
See id. *9.
         {¶ 3} In May 2019, Dominion filed an application to recover the costs of its
capital-expenditure program by establishing the CEP Rider. Dominion styled its
application as a request for approval of an alternative rate plan.                            See R.C.
4929.05(A) (“A natural gas company may request approval of an alternative rate
plan by filing an application under section 4909.18 of the Revised Code, regardless
of whether the application is for an increase in rates”). An “alternative rate plan”
is a “method, alternate to the method of section 4909.15 of the Revised Code, for
establishing rates and charges.” R.C. 4929.01(A). Among other things, R.C.
4909.15(A)(2) requires that the commission determine a “fair and reasonable rate
of return” to the utility when “fixing and determining just and reasonable rates,
fares, tolls, rentals, and charges.”
         {¶ 4} In its application, Dominion proposed a 9.91 percent rate of return for
the CEP Rider based on the rate of return that the commission authorized in
Dominion’s most recent base-rate case,1 which was decided in 2008. See In re
Application of E. Ohio Gas Co., Pub. Util. Comm. Nos. 07-829-GA-AIR, 07-830-
GA-ALT, 07-831-GA-AAM, 08-169-GA-ALT, and 06-1453-GA-UNC, 2008
Ohio PUC LEXIS 655 (Oct. 15, 2008).                       The rate of return is one of many
components Dominion used to calculate the costs that it proposed to collect under
the CEP Rider.
         {¶ 5} The commission’s staff issued a report recommending that the
commission approve the application.                     Dominion and the commission’s staff
thereafter jointly filed a stipulation asking the commission to approve the

1. A base-rate case is a “formal proceeding before a utility regulatory body in which a utility files
an application to increase its distribution rate. The distribution rate is simply * * * the cost to deliver
* * * natural gas * * * to customers.” Public Utilities Commission of Ohio, What is a distribution
rate case?, https://puco.ohio.gov/news/news-bureau-what-is-a-rate-case (accessed June 1, 2023)
[https://perma.cc/2QA8-5JPN].

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application subject to the staff’s recommendations in its report, except where the
stipulation specified otherwise. The stipulation retained the 9.91 percent rate of
return that Dominion had proposed in its application.
       {¶ 6} OCC asked the commission to either reject or modify the stipulation;
NOPEC asked the commission to reject it. Relevant here, appellants’ witness, Dr.
Daniel Duann, who is the assistant director of analytical services with OCC,
testified that a 9.91 percent rate of return was unreasonably high and outdated in
light of current market conditions. Dr. Duann advocated that the commission use
data from 2019 and 2020 to achieve a 7.20 percent rate of return rather than use the
rate of return from Dominion’s 2008 base-rate case.
       {¶ 7} The commission modified and approved the stipulation. In doing so,
the commission ordered Dominion to file a new base-rate case by October 2023
rather than October 2024. The commission noted that “Dominion [could not] deny,
that, since the approval of its last base rate case in 2008, the Company’s cost of
debt initially dropped from 6.50 percent to 4.23 percent and [that], currently, its
cost of debt is 2.25 percent.” Dominion’s filing of a new base-rate case, the
commission reasoned, would create a “more expedient alignment of the Company’s
cost of capital and capital structure with market conditions.”        Even so, the
commission approved the stipulated 9.91 percent rate of return, citing its practice
of applying the rate of return approved in a utility’s most recent base-rate case to
the utility’s later alternative-rate-plan and rider proceedings. The parties do not
dispute that with the commission’s approval of the stipulation, Dominion will
recover approximately $73 million through the CEP Rider.
       {¶ 8} In approving the stipulation, the commission’s chairwoman stated at
the commission’s December 30, 2020 public meeting: “I just want to give a big
shout out to [the director of rates and analysis] and her staff because without her
and their help, this case probably would’ve taken even longer, and I just want to
really thank her for her attentiveness and working with commissioners and better

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understanding everything in the case and how it came about.” Public Utilities
Commission       Meeting       of    December        30,    2020,      available     at
https://www.youtube.com/watch?v=d_ozIp9-4tQ           (accessed     June   1,   2023).
Another commissioner responded that he “echo[ed] [the chairwoman’s] comments
100 percent.” Id.
       {¶ 9} Appellants filed a joint application for rehearing that not only
challenged the opinion and order but also asserted that one could infer from the
commissioners’ statements at the public meeting that the commission had engaged
in improper ex parte communications with its staff in violation of R.C. 4903.081
and Ohio Adm.Code 4901-1-09.           Appellants thus asked the commission to
“explain[] on rehearing to what extent, if at all, the merits of this case were part of
the communications referenced in the Commissioner’s remarks when the order was
signed.” In a second entry on rehearing, the commission stated that it had done
nothing improper. This appeal followed.
                                    II. ANALYSIS
       {¶ 10} “R.C. 4903.13 provides that a [commission] order shall be reversed,
vacated, or modified by this court only when, upon consideration of the record, the
court finds the order to be unlawful or unreasonable.” Constellation NewEnergy,
Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885,
¶ 50. However, this court has “complete and independent power of review as to all
questions of law.” Canton Storage & Transfer Co. v. Pub. Util. Comm., 72 Ohio
St.3d 1, 4, 647 N.E.2d 136 (1995). But we do not “reweigh the evidence or second-
guess the [commission] on questions of fact.” In re Complaints of Lycourt-
Donovan v. Columbia Gas of Ohio, Inc., 152 Ohio St.3d 73, 2017-Ohio-7566, 93
N.E.3d 902, ¶ 35.
       {¶ 11} In this case, the commission partly relied on the following three-part
test as set forth in Ohio Consumers’ Counsel v. Pub. Util. Comm., 110 Ohio St.3d
394, 2006-Ohio-4706, 853 N.E.2d 1153, ¶ 16, to evaluate the reasonableness of the

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contested stipulation: “[W]hether the settlement is a product of serious bargaining
among capable, knowledgeable parties; whether the settlement, as a package,
benefits ratepayers and the public interest; and whether the settlement package
violates any important regulatory principles or practices.” This court has endorsed
the commission’s use of this test. In re Application of Ohio Power Co., 155 Ohio
St.3d 326, 2018-Ohio-4698, 121 N.E.3d 320, ¶ 39. Appellants’ arguments are
based on the three parts of this test.
                    A. Arguments concerning the rate of return
   1. The commission did not violate an important regulatory principle in
                     adopting the 9.91 percent rate of return
        {¶ 12} In their first proposition of law, appellants attack the commission’s
adoption of a 9.91 percent rate of return instead of a 7.20 percent rate of return. In
their view, the 9.91 percent rate of return, which stems from the commission’s
decision in Dominion’s 2008 base-rate case, contravenes the important regulatory
principle that a utility’s rate of return must be based on current market conditions.
Appellants point to several statutes, a commission rule, and two decisions (one from
this court and one from the United States Supreme Court) in support of their
argument. As explained below, we reject appellants’ first proposition of law
because none of their cited authority requires the commission to establish a rate of
return based on current market conditions in this case. See Ohio Consumers’
Counsel v. Pub. Util. Comm., 125 Ohio St.3d 57, 2010-Ohio-134, 926 N.E.2d 261,
¶ 20 (rejecting the appellants’ argument that the commission violated the regulatory
principle of gradualism because they “cited no authority that gradualism is a factor
that the commission is required to apply in every rate-design case”). We begin by
considering the several statutes and the rule that appellants cite, then turn to the
case law they rely on.

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                                January Term, 2023

                                  a. R.C. 4929.05
       {¶ 13} R.C. 4929.05(A) authorizes a natural-gas company to seek the
commission’s approval of an alternative rate plan. Although one requirement for
approval is that the alternative rate plan be “just and reasonable,” R.C.
4929.05(A)(3), nothing in the statute requires that a just and reasonable rate of
return be based on current market conditions as appellants argue. The absence of
the phrase “current market conditions” from the statute—as well as the other
statutes and the rule discussed below—is significant. In matters of statutory
interpretation, this court cannot insert or delete words.     In re Application of
Columbus S. Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶ 26.
                                  b. R.C. 4929.02
       {¶ 14} Another requirement for approval of an alternative rate plan is the
expectation that the natural-gas company “continue to be in substantial compliance
with the policy of this state specified in section 4929.02 of the Revised Code.” R.C.
4929.05(A)(2). R.C. 4929.02(A)(1) provides that the policy of this state is to
“[p]romote the availability to consumers of adequate, reliable, and reasonably
priced natural gas services and goods.” Appellants seem to argue that a natural-gas
service is reasonably priced only when the rate of return is based on current market
conditions. But nothing in R.C. 4929.02 requires that a rate of return be based on
current market conditions.
                               c. R.C. 4929.111(C)
       {¶ 15} R.C. 4929.111(C) requires that to approve an application for a
capital-expenditure program, the commission find that “the capital expenditure
program is consistent with the natural gas company’s obligation under [R.C.
4905.22] to furnish necessary and adequate services and facilities.” Nothing in this
passage states that a rate of return must be based on current market conditions. Nor
is it significant that R.C. 4929.111(C) incorporates R.C. 4905.22, because R.C.

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4905.22 also does not specify that the commission must adopt a rate of return based
on current market conditions.
                                  d. R.C. 4909.18
       {¶ 16} A natural-gas company that seeks approval of an alternative rate plan
may file an application under R.C. 4909.18. R.C. 4929.05(A). Appellants assert
that the filing requirements set forth in R.C. 4909.18 help ensure that rates are just
and reasonable. Yet, nothing in R.C. 4909.18 requires that a rate of return be based
on current market conditions. Rather, the statute speaks to what a natural-gas
company must include in its application when seeking approval of an alternative
rate plan. See R.C. 4909.18(A) through (D).
                         e. Ohio Adm.Code 4901:1-19-06
       {¶ 17} Ohio Adm.Code 4901:1-19-06 prescribes filing requirements for
alternative-rate-plan applications.    Appellants assert that the rule requires an
applicant to submit information bearing “on its current long-term cost of debt and
current cost of equity, upon which to calculate a current overall rate of return.” Yet,
appellants do not point to anything in the rule that requires the commission to find
a rate of return based on current market conditions.
                                      f. Case law
       {¶ 18} Appellants rely on Babbit v. Pub. Util. Comm., 59 Ohio St.2d 81,
391 N.E.2d 1376 (1979), and Bluefield Waterworks & Improvement Co. v. Pub.
Serv. Comm. of West Virginia, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176 (1923),
as further support for their position that the commission must adopt a rate of return
based on current market conditions.
       {¶ 19} In Babbit, this court spoke to the necessity of “bas[ing] rate of return
calculations on current data” and ensuring that the rate of return “be prospective.”
Id. at 93. But this court made these statements in the context of interpreting R.C.
4909.15(A)(2)’s reference to a “fair and reasonable rate of return.” This case does
not turn on how this court construed R.C. 4909.15(A)(2) in Babbit, because an

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alternative rate plan, by definition, is a method “alternate to the method of section
4909.15 of the Revised Code for establishing rates and charges,” R.C. 4929.01(A).
       {¶ 20} The question presented in Bluefield was whether rates prescribed in
a state’s utilities-commission order were so low as to be confiscatory, such that
enforcement of the rate order “deprive[d] the public utility company of its property
in violation of the Fourteenth Amendment” to the United States Constitution. Id.
at 690. In analyzing this question, the United States Supreme Court announced
principles that a state’s utilities commission should account for when setting a rate
of return—among them, that a utility’s return should be “equal to that generally
being made at the same time and in the same general part of the country in other
business undertakings” that share “corresponding risks and uncertainties.” Id. at
692. Appellants ask us to follow that principle in this case, but this case does not
involve a confiscation claim.
         2. The commission did not inconsistently apply its precedent
       {¶ 21} Appellants next argue that the commission inconsistently applied its
precedent in adopting a 9.91 percent rate of return. This court has “instructed the
commission to ‘respect its own precedents in its decisions to assure the
predictability which is essential in all areas of the law, including administrative
law.’ ” In re Complaint of Suburban Natural Gas Co., 162 Ohio St.3d 162, 2020-
Ohio-5221, 164 N.E.3d 425, ¶ 29, quoting Cleveland Elec. Illum. Co. v. Pub. Util.
Comm., 42 Ohio St.2d 403, 431, 330 N.E.2d 1 (1975), superseded on other grounds
by statute as recognized in Babbit, 59 Ohio St.2d 81, 391 N.E.2d 1376. The
commission did not depart from this instruction. The commission asserted that it
set the rate of return according to its self-described long-standing practice to utilize
the last approved rate of return in a utility’s rate case in subsequent alternative
regulation and rider proceedings. In support, the commission pointed to a line of
its own decisions from the natural-gas arena. One of those decisions involved a
situation remarkably similar to the one presented here: a natural-gas company’s

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request to implement a CEP Rider. See In re Application of Columbia Gas of Ohio,
Inc., Pub. Util. Comm. No. 17-2202-GA-ALT, 2018 Ohio PUC LEXIS 1188, *6
(Nov. 28, 2018).
       {¶ 22} According to appellants, however, the commission inconsistently
applied In re Application of Columbia Gas to this case. They contend that the
commission initially determined in a procedural entry that it would not follow its
decision in In re Application of Columbia Gas but then reversed course without any
explanation. Dominion correctly points out that appellants did not articulate this
argument in their rehearing application. But even on the merits, this argument is
unavailing because appellants mischaracterize what the commission did in its
procedural entry. The entry on which appellants rely was filed on June 19, 2019;
it dealt with Dominion’s request to waive certain filing requirements at an early
stage of the proceedings. Contrary to appellants’ assertions, the commission did
not discuss the merits of adopting Dominion’s requested rate of return in that entry,
nor did it discuss whether to apply its decision in In re Application of Columbia
Gas to this case.
       {¶ 23} Lastly, appellants cite three commission decisions that they contend
cut against the approach applied by the commission below: In re Application of
Columbus S. Power Co., Pub. Util. Comm. No. 05-1194-EL-UNC, 2005 PUC
LEXIS 655 (Dec. 15, 2005); In re Application of Columbus S. Power Co., Pub. Util.
Comm. No. 10-155-EL-RDR, 2010 Ohio PUC LEXIS 1083 (Oct. 22, 2010); and
In re Application of Cleveland Elec. Illum. Co., Pub. Util. Comm. Nos. 81-146-ET-
AIR and 81-1565-EL-UNC, 1982 Ohio PUC LEXIS 7 (Mar. 17, 1982).                    In
appellants’ view, these cases stand for the general proposition that the better
practice is to use recent data when calculating a rate of return, especially when the
utility’s financial conditions have changed. Notably, appellants cite these decisions
for the first time in their reply brief. Although we earlier denied Dominion’s motion
to strike appellants’ discussion of these decisions, see 169 Ohio St.3d 1438, 2023-

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Ohio-482, 203 N.E.3d 725, we now disregard appellants’ reliance on these three
decisions because they are used in support of an argument that was raised for the
first time in their reply brief. See State v. Quarterman, 140 Ohio St.3d 464, 2014-
Ohio-4034, 19 N.E.3d 900, ¶ 18 (faulting a party for failing to address “dispositive
issues” until the filing of the party’s reply brief). In summary, we conclude that
appellants have not shown that the commission inconsistently applied its precedent.
                3. The commission did not violate R.C. 4903.09
       {¶ 24} Appellants also assert that the commission violated R.C. 4903.09
when it adopted a rate of return from a prior proceeding rather than making an
independent finding from the record. The statute provides that the commission
must file “findings of fact and written opinions setting forth the reasons prompting
the decision[] arrived at, based upon said findings of fact.” Id. Although “strict
compliance” with R.C. 4903.09 is not required, Tongren v. Pub. Util. Comm., 85
Ohio St.3d 87, 89, 706 N.E.2d 1255 (1999), the commission “must show, in
sufficient detail, the facts in the record upon which the order is based, and the
reasoning followed by the [commission] in reaching its conclusion,” MCI
Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St.3d 306, 312, 513
N.E.2d 337 (1987).
       {¶ 25} The commission’s opinion and order at issue here contains sufficient
facts regarding the 9.91 percent rate of return. The opinion and order cited five
sources that bear on that figure: (1) Dominion’s application, (2) the testimony of
Dominion’s regulatory and pricing director, who sponsored the stipulation at the
commission hearing, (3) a report prepared by a third-party consultant, (4) the
hearing transcript, and (5) Dominion’s last base-rate case.
       {¶ 26} The commission’s reasoning is also sufficiently detailed.         The
opinion and order stated that the commission was adhering to its “long-standing
practice to utilize the last approved rate of return in a utility’s rate case in
subsequent alternative regulation and rider proceedings.”       In support of this

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statement, the commission cited a line of its own decisions involving natural-gas
companies, including In re Columbia Gas of Ohio, Inc., Pub. Util. Comm. No. 17-
2202-GA-ALT, 2018 Ohio PUC LEXIS 1188.
       {¶ 27} Appellants’ reliance on In re Application of FirstEnergy Advisors
for Certification as a Competitive Retail Elec. Serv. Power Broker & Aggregator,
166 Ohio St.3d 519, 2021-Ohio-3630, 188 N.E.3d 140, does not require a different
result. In that case, the commission approved a company’s application to provide
regulated utility services without making the required findings under R.C. 4903.09
and Ohio Adm.Code 4901:1-24-10(C)(1) and (2) that the company was fit to
provide the services. Instead, the commission pointed to a report prepared by its
staff in which the staff merely stated that the company had provided requested
information, that it had reviewed the information, and that in its view the company
met all requirements for approval of its application. This court held that the
commission’s failure to explain in its order how the company was fit to provide
regulated utility services and the lack of any citation to the record constituted a
violation of R.C. 4903.09. In re Application of FirstEnergy Advisors at ¶ 27. This
case is distinguishable. The commission’s opinion and order cites multiple places
in the record in support of the 9.91 percent rate of return, and the commission’s
reasoning for adopting that rate is readily apparent from the opinion and order.
       {¶ 28} Next, appellants argue that the commission erred under R.C. 4903.09
by failing to analyze “the accuracy of the data” submitted in Dominion’s
application, examine Dr. Duann’s testimony, or consider whether adopting a rate
of return based on current market conditions constitutes an important regulatory
principle. But the question for determining compliance with R.C. 4903.09 is
whether the commission showed “in sufficient detail, the facts in the record upon
which the order is based, and the reasoning followed by [it] in reaching its
conclusion,” MCI Telecommunications Corp., 32 Ohio St.3d at 312, 513 N.E.2d
337. As noted above, we find that the commission did this.

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        {¶ 29} Appellants also argue in their reply brief that the commission
departed from R.C. 4903.09 by not discussing the effect of the COVID-19
pandemic on the proper rate of return. We earlier denied Dominion’s motion to
strike this argument, see 169 Ohio St.3d 1438, 2023-Ohio-482, 203 N.E.3d 725,
but we now disregard the argument, given that it was raised for the first time in
appellants’ reply brief. See Quarterman, 140 Ohio St.3d 464, 2014-Ohio-4034, 19
N.E.3d 900, at ¶ 18.
        4. Appellants’ manifest-weight-of-the-evidence argument fails
        {¶ 30} Appellants’ remaining argument under its first proposition of law is
that the commission’s approval of the 9.91 percent rate of return was against the
manifest weight of the evidence. In support of this argument, they say they were
the only parties to present expert testimony concerning Dominion’s cost of long-
term debt, cost of equity, and capital structure on which to calculate a current rate
of return.
        {¶ 31} This court “will not reverse or modify a commission 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.” In re Application of Ohio
Power Co., 155 Ohio St.3d 326, 2018-Ohio-4698, 121 N.E.3d 320, at ¶ 9. “An
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.
        {¶ 32} It is true that appellants presented evidence in support of a rate of
return based on current market conditions. For example, Dr. Duann’s rate-of-return
analysis used recent financial data from 2019 and 2020. Neither the commission’s
staff nor Dominion cross-examined Dr. Duann. And neither the staff nor Dominion
furnished an alternative rate-of-return calculation based on current market

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conditions. But appellants have failed to cite any authority that requires the
commission to adopt a rate of return based on current market conditions in this case.
Because the linchpin of appellants’ manifest-weight argument rests on a
requirement that does not exist in the current statutory scheme, we must reject it.
       {¶ 33} The opinion concurring in part and concurring in judgment only in
part agrees that “nothing in the statutory scheme explicitly requires [the
commission] to set a rate of return for an alternative rate plan that precisely matches
the company’s most recent costs of acquiring capital,” concurring opinion, ¶ 73,
and that “[t]he consumers have failed to identify any statute that was violated or
any legal error that was committed by [the commission],” id. at ¶ 76.              But
additionally, the opinion concurring in part and concurring in judgment only in part
points out that there are ways that the commission could have reasonably
considered current market conditions in this alternative-rate-plan proceeding,
including by advancing Dominion’s next base-rate case by one year, as it did here.
See id. at ¶ 81.    Nothing in this opinion should be read as prohibiting the
commission from considering current market conditions in an alternative-rate-plan
proceeding. We simply limit our discussion to the arguments presented to us and
our statutorily prescribed scope of review under which we may reverse, vacate, or
modify an order of the commission only when, upon consideration of the record,
we find the order to be unlawful or unreasonable. See R.C. 4903.13. So regardless
of what the opinion concurring in part and concurring in judgment only in part
believes is “necessarily implicate[d]” by the statutory scheme, concurring opinion
at ¶ 69, what is important here is that this court unanimously agrees that the
commission’s orders at issue in this case are neither unlawful nor unreasonable.
                B. Arguments concerning ex parte communications
       {¶ 34} As a preliminary matter, we note that the commission has asserted
that this court lacks jurisdiction over appellants’ second proposition of law, part of
which focuses on ex parte communications, because appellants did not preserve it

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in a second rehearing application. Dominion raises a similar argument. Because
we previously denied the commission’s motion to dismiss in which it asserted the
same argument, see 167 Ohio St.3d 1476, 2022-Ohio-2642, 192 N.E.3d 495, we
proceed to consider the merits of appellants’ second proposition of law.
       {¶ 35} Appellants argue that the commission and its staff engaged in
improper ex parte communications in violation of R.C. 4903.081 and Ohio
Adm.Code 4901-1-09. They base this argument on the chairwoman’s statement
during the commission’s December 30, 2020 meeting in which she thanked the staff
for its “attentiveness and working with commissioners and better understanding
everything in the case and how it came about.” Public Utilities Commission
Meeting of December 30, 2020, available at https://www.youtube.com
/watch?v=d_ozIp9-4tQ (accessed June 1, 2023).
       {¶ 36} R.C. 4901.19 authorizes the commission to “appoint * * * experts,
engineers, accountants, and such other officers as it considers necessary.” All
parties generally agree that this statute authorizes the commission to appoint and
consult with staff for the purpose of helping it carry out its statutory duties. After
a case has been assigned a formal docket number, however, no commission member
“shall discuss the merits of the case with any party or intervenor to the proceeding,
unless all parties and intervenors have been notified and given the opportunity of
being present or a full disclosure of the communication insofar as it pertains to the
subject matter of the case has been made.” R.C. 4903.081; accord Ohio Adm.Code
4901-1-09. “[T]he purpose of the statute is to prevent a party from gaining an unfair
advantage over an opposing party through ex parte communications with the
decisionmaker.” Myers v. Pub. Util. Comm., 64 Ohio St.3d 299, 303, 595 N.E.2d
873 (1992).
       {¶ 37} Appellants claim that the commission’s staff is a “party” for
purposes of R.C. 4903.081 based on Ohio Adm.Code 4901-1-10(C), which
provides that “[e]xcept for purposes of rule[] * * * 4901-1-30, * * * the commission

                                         15
                             SUPREME COURT OF OHIO

staff shall not be considered a party to any proceeding.” Ohio Adm.Code 4901-1-
30(A) addresses the commission’s procedures for handling stipulations; it specifies
that “[a]ny two or more parties may enter into a written or oral stipulation
concerning issues of fact, the authenticity of documents, or the proposed resolution
of some or all of the issues in a proceeding.” When read together with R.C.
4903.081, Ohio Adm.Code 4901-1-10(C) and 4901-1-30(A) convey that a
signatory to a stipulation—as the commission’s staff was here—is a party for
purposes of the statute.
       {¶ 38} The commission disputes this reading, asserting that because Ohio
Adm.Code 4901-1-10(C) does not expressly identify Ohio Adm.Code 4901-1-09
as one of the contexts in which its staff shall be considered a party, the staff is not
a party for purposes of Ohio Adm.Code 4901-1-09 and R.C. 4903.081. We
conclude that the commission’s reading is incorrect. Even assuming that the
absence of a reference to Ohio Adm.Code 4901-1-09 in Ohio Adm.Code 4901-1-
10(C) means that the commission’s staff is excluded from the former’s
requirements regarding ex parte discussion of cases, the requirements of R.C.
4903.081, which are mirrored in Ohio Adm.Code 4901-1-09, still remain. And
nothing in R.C. 4903.081 empowers the commission to waive by rule the
requirements that the statute imposes on commission members and parties
regarding discussions about the merits of a case.
       {¶ 39} Even so, to establish a violation of R.C. 4903.081, appellants must
show that a commission member “discuss[ed] the merits of the case” with the staff
in its capacity as a party. See Cincinnati v. Pub. Util. Comm., 64 Ohio St.3d 279,
280, 595 N.E.2d 858 (1992), fn. 4 (no violation of R.C. 4903.081 when the evidence
“[did] not establish that the merits of [the case] were discussed” between the
commission’s chairman and the chief executive officers of two utility companies).
In legal usage, the term “merits” denotes “[t]he elements or grounds of a claim or
defense; the substantive considerations to be taken into account in deciding a case,

                                          16
                                 January Term, 2023

as opposed to extraneous or technical points, esp. of procedure.” Black’s Law
Dictionary 1139 (10th Ed.2014).
        {¶ 40} In this case, appellants asked the commission in their rehearing
application to “explain[] on rehearing to what extent, if at all, the merits of this case
were part of the communications referenced in the Commissioners’ remarks when
the Order was signed.” The commission’s second entry on rehearing explained that
the chairwoman’s statement was “nothing more than a statement of appreciation
for [the] Staff’s efforts to assist Commissioners with understanding the background
of the issues in the case.” Appellants’ suggestion that the communication was more
than one of appreciation rests on speculation. See In re Application of Ohio Power
Co., 155 Ohio St.3d 326, 2018-Ohio-4698, 121 N.E.3d 320, at ¶ 50 (“We will not
reverse a commission order based on speculation”).              Without evidence of
wrongdoing, the commission is therefore presumed to have conducted itself within
the bounds of the law. See In re Application of Am. Transm. Sys., Inc., 125 Ohio
St.3d 333, 2010-Ohio-1841, 928 N.E.2d 427, ¶ 23, quoting State ex rel. Shafer v.
Ohio Turnpike Comm., 159 Ohio St. 581, 590, 113 N.E.2d 14 (1953) (“ ‘in the
absence of evidence to the contrary, public officers, administrative officers and
public boards * * * will be presumed to have properly performed their duties and
not to have acted illegally but regularly and in a lawful manner’ ” [ellipsis sic]).
        {¶ 41} Appellants next argue that they were deprived of their due-process
rights because they were “given no opportunity to rebut the extra-record
information [the commission’s] Staff provided to [the] commissioners.” But again,
appellants have not provided evidence to verify their speculation that the
commission’s staff provided “extra-record information” to the commissioners in a
way that violates R.C. 4903.081.
        {¶ 42} Also unavailing is appellants’ reliance on State ex rel. Owens-
Illinois, Inc. v. Indus. Comm., 61 Ohio St.3d 456, 575 N.E.2d 202 (1991). In that
case, this court stated that “due process demands an opportunity to rebut the

                                           17
                             SUPREME COURT OF OHIO

evidence presented.” Id. at 458. Here, appellants participated in a hearing before
the commission in which they were able to challenge the stipulation and other
documentary and testimonial evidence presented by Dominion and the
commission’s staff. In this way, appellants received the due process described in
Owens-Illinois.
       {¶ 43} This is not to say that the commission can enter adverse factual
findings against a party when the party had no opportunity to challenge the evidence
on which those findings are based. Indeed, this court held such a practice to be
unlawful in Tongren, 85 Ohio St.3d 87, 706 N.E.2d 1255. In that case, the
commission had issued an order that referred to and relied on findings by its staff,
but the record did not contain those findings or the facts underlying those findings.
Id. at 90. Therefore, this court held that the order was unlawful for failing to meet
the requirements of R.C. 4903.09, id. at 92-93, which, as previously explained,
requires that in contested cases the commission enter “findings of fact and written
opinions setting forth the reasons prompting the decisions arrived at, based upon
said findings of fact,” R.C. 4903.09. In Tongren, the court explained that the
commission’s order failed to “disclos[e] the sources of its information to those who
most require it, thereby preventing the complaining party from demonstrating
prejudice.” Id. at 92.
       {¶ 44} Tongren is distinguishable, however, because appellants have not
pointed to anything in the proceedings of this case that is comparable to what this
court invalidated in Tongren. Because the opinion and order in this case is
“sufficiently supported by evidence admitted at the hearing,” Vectren Energy
Delivery of Ohio, Inc. v. Pub. Util. Comm., 113 Ohio St.3d 180, 2006-Ohio-1386,
863 N.E.2d 599, ¶ 50, Tongren does not apply.

                                         18
                                 January Term, 2023

     C. Arguments concerning the remaining prongs of the three-part test for
                  evaluating the reasonableness of the stipulation
   1. The commission did not err in determining that the stipulation was a
    product of serious bargaining among capable, knowledgeable parties
        {¶ 45} Appellants also argue in their second proposition of law that the
stipulation was not a product of serious bargaining among capable, knowledgeable
parties. Appellants’ particular concern here is that because the commission’s staff
does not represent the interests of residential utility customers and has no pecuniary
interests in the outcome of the bargaining, the staff used the stipulation to negotiate
away the interests of the residential utility customers represented by OCC and
NOPEC.
        {¶ 46} To begin with, appellants do not point to any evidence that
contradicts the commission’s finding that all parties were invited to the bargaining
table, were allowed the opportunity to circulate settlement proposals, and were
represented by competent counsel and technical experts. Nor does it follow that
the stipulation approved by the commission is legally defective merely because
appellants’ proposals did not carry the day. Moreover, because we are not privy to
the contents of the parties’ settlement discussions, we decline the invitation to draw
an adverse inference about how the commission’s staff conducted itself during the
settlement process. See Bailey v. United States, 721 F.2d 357, 361 (Fed.Cir.1983)
(“Courts are, of course, traditionally hesitant to inquire into the give and take of the
negotiations leading to a settlement”).
    2. The commission did not err in concluding that the settlement, as a
              package, benefits ratepayers and the public interest
        {¶ 47} Appellants assert that the settlement, as a package, does not benefit
ratepayers and the public interest. They assert that the settlement departs from this
aspect of the three-part test for evaluating the reasonableness of a settlement
because it was joined by only two parties, which, they say, relaxed Dominion’s

                                          19
                              SUPREME COURT OF OHIO

burden of proof to justify approval of its application and permitted the commission
to evade appellants’ objections to the settlement. In their view, these flaws amount
to a due-process violation.
       {¶ 48} To begin with, appellants appear to have confused a question of
substance with one of procedure.        In any event, appellants’ arguments are
unpersuasive for several reasons.
       {¶ 49} First, the settlement did not foreclose appellants from raising
objections.   Among other things, appellants objected to the settlement with
documentary     and   testimonial   evidence—including      cross-examination    of
Dominion’s regulatory and pricing director, Vicki Friscic, who sponsored and
testified in support of the settlement—briefs, and a rehearing application. The
commission plainly discussed the analysis of appellants’ witness, Dr. Duann, in its
order, but ultimately decided not to adopt his recommendations. That alone does
not establish error. See Consumers’ Counsel v. Pub. Util. Comm., 114 Ohio St.3d
340, 2007-Ohio-4276, 872 N.E.2d 269, ¶ 28 (“The commission did not ignore the
evidence offered by OCC; the commission rejected it”).
       {¶ 50} Second, the commission did not relieve Dominion of its burden of
proof. “When the commission reviews a contested stipulation, the requirement of
evidentiary support remains operative.” In re Application of Columbus S. Power
Co., 129 Ohio St.3d 46, 2011-Ohio-2383, 950 N.E.2d 164, ¶ 19. As noted above,
the 9.91 percent rate of return approved by the commission is supported by
evidence in the record. Appellants discount this on their assertion that Dominion
should have calculated a new rate of return based on current market conditions. But
as explained above, their argument finds no support in the cited authorities.
       {¶ 51} Third, appellants cite no authority to support their due-process
argument. The analysis in Ohio Edison Co. v. Pub. Util. Comm., 63 Ohio St.3d
555, 589 N.E.2d 1292 (1992), which is the only decision they cite, does not mention
the phrase “current market conditions” at all.

                                         20
                                January Term, 2023

       {¶ 52} Appellants also argue that the 9.91 percent rate of return is a sign
that the settlement, as a package, does not benefit ratepayers and the public interest,
because the rate of return is too high in light of current market conditions. But the
question is not whether one feature of the settlement viewed in isolation is
unreasonable; rather, this court must consider the reasonableness of the settlement
as a package. On this point, the commission found that based on Friscic’s testimony
and the settlement’s terms, the settlement benefits ratepayers and the public interest
because, among other things, it promotes safe and reliable service through the
replacement of Dominion’s aging facilities, institutes rate caps on customers’ bills,
limits the impact to customers’ utility bills by incorporating a $310 million offset
to depreciation expenses reflected in Dominion’s base rates, and contributes
$750,000 in shareholder funds to Dominion’s heating-assistance program.
Viewing the settlement package in this light, we cannot conclude that the
commission erred in determining that the settlement, as a package, benefits
ratepayers and the public interest. Constellation NewEnergy, Inc., 104 Ohio St.3d
530, 2004-Ohio-6767, 820 N.E.2d 885, at ¶ 49 (rejecting claim that a settlement, as
a package, did not benefit ratepayers and the public interest).
                                III. CONCLUSION
       {¶ 53} The commission’s orders are neither unreasonable nor unlawful. We
therefore affirm them.
                                                                     Orders affirmed.
       KENNEDY, C.J., and FISCHER, BRUNNER, and EPLEY, JJ., concur.
       DEWINE, J., concurs in part and concurs in judgment only in part, with an
opinion joined by DONNELLY, J.
       CHRIS EPLEY, J., of the Second District Court of Appeals, sitting for
DETERS, J.
                               __________________

                                          21
                                  SUPREME COURT OF OHIO

          DEWINE, J., concurring in part and concurring in judgment only in
part.
          {¶ 54} I concur in the majority’s decision to affirm the orders of the Public
Utilities Commission of Ohio (“PUCO”) in this case. I write separately because I
disagree with the majority’s treatment of the first proposition of law. I worry that
the majority opinion will cause confusion in future alternative-rate-plan cases. And
I fear that it will be read to mean that PUCO need not consider current market
conditions when setting a rate of return in alternative-rate-plan cases. In my view,
current market conditions are an appropriate consideration. But here, PUCO did
take into account current market conditions when it ordered Dominion Energy of
Ohio to advance its filing of a new base-rate case to October of this year. In view
of all the circumstances, I do not find its orders to be unreasonable.
        PUCO Approves Dominion’s Alternative Rate Plan but Modifies the
Stipulation to Require that Dominion File a New Base-Rate Case by October
                                              2023
          {¶ 55} At issue is PUCO’s decision to approve an alternative rate plan,
allowing Dominion to charge customers for capital investments that it made in the
past.     No one disputes that Dominion should be able to recover for these
investments. The question is the appropriate rate of return that Dominion should
receive from ratepayers on these investments.
          {¶ 56} In simplified terms, the rate of return is the percentage return that a
utility receives on its assets.2 Cleveland v. Pub. Util. Comm., 164 Ohio St. 442,
444, 132 N.E.2d 216 (1956). It is essentially the amount that a utility may charge
customers over and above its operating costs. So if a utility had a $100 capital base
and a 10 percent rate of return, it would be entitled to collect a $10 return from

2. See Phillips, The Regulation of Public Utilities 375-376 (3d Ed.1993) (“the rate of return is the
amount of money earned by a public utility, over and above operating costs, expressed as a
percentage of the rate base”).

                                                22
                                   January Term, 2023

customers on those assets. Two components are generally used to calculate the rate
of return: the cost of long-term debt and the return on equity. See Babbit v. Pub.
Util. Comm., 59 Ohio St.2d 81, 90-91, 391 N.E.2d 1376 (1979). In essence, a rate
of return needs to be set at a level that is high enough that the utility can borrow
money in capital markets and attract equity investment, thereby allowing the
company to make necessary investments in facilities and equipment. See 1 Priest,
Principles of Public Utility Regulation 195-196 (1969). But, of course, if the rate
of return is set too high, there will be a perverse incentive for the utility to
overinvest in—or “gold plate”—its own facilities.3
        {¶ 57} An alternative rate plan is a statutory alternative to traditional rate
setting. R.C. 4929.01(A). In a traditional rate case, PUCO establishes rates based
upon a statutorily prescribed formula that requires PUCO to make a complex set of
determinations about such things as the valuation of the utility’s property on a date
certain, the utility’s costs in rendering services over a defined test period, taxes, and
“a fair and reasonable rate of return.” R.C. 4909.15. The process for approval of
an alternative rate plan is much simpler. The applicant need establish only that the
plan (1) accords with state law prohibiting discrimination in the supply of natural
gas to its customers, (2) is in “substantial compliance with the policy of this state”
set forth in R.C. 4929.02, and (3) is “just and reasonable.” R.C. 4929.05(A).
        {¶ 58} In its application for an alternative rate plan, Dominion proposed a
9.91 percent pretax rate of return. Dominion represented that that rate of return
reflected the gross-up of the current federal-income-tax rate and the rate-of-return
components authorized in its last base-rate case. Dominion said that it used this
number because it was PUCO’s regular practice to use the rate of return established
in the utility’s last base-rate case when considering an application for approval of

3. See 2 Goodman, The Process of Ratemaking 849 (1998) (“ ‘Gold plating’ refers to a company’s
investing in the most expensive equipment or producing the most expensive service regardless of
the need or efficiency of the operation to maximize returns without diminishing sales”).

                                              23
                                  SUPREME COURT OF OHIO

an alternative rate plan. PUCO’s staff and Dominion entered into a stipulation to
approve the alternative rate plan using Dominion’s proposed rate of return.
         {¶ 59} The Ohio Consumers’ Counsel and the Northeast Ohio Public
Energy Council (collectively, “the consumers”) objected, arguing that a 9.91
percent rate of return was unreasonably high in light of current market conditions.
They introduced testimony from Dr. Daniel Duann, assistant director of analytical
services for the Office of the Ohio Consumers’ Counsel. Dr. Duann explained that
in Dominion’s last base-rate case, PUCO had imposed a stipulated rate of return of
8.49 percent,4 which was imputed from a capital structure of 48.66 percent long-
term debt and 51.34 percent equity, a cost of debt of 6.50 percent, and a return on
equity of 10.38 percent.
         {¶ 60} Dr. Duann opined that the 9.91 percent rate of return is inconsistent
with current market conditions. He noted that Dominion’s cost of debt as of June
2020 was only 2.29 percent, and asserted that that figure should be used for the debt
component of the rate-of-return calculation. He also opined that the 10.38 percent
return on equity established in Dominion’s last base-rate case was out of step with
the return on equity authorized in recent rate cases across the country. Based on
other utilities’ rate cases and his assessment that Dominion faces less risk than other
gas-distribution utilities, Duann proposed that a return on equity of 9.36 percent
should be used. He applied these figures to the capital structure determined in
Dominion’s 2008 base-rate case (48.66 percent long-term debt and 51.34 percent
equity), made an adjustment to account for changes in federal-income-tax laws
since 2008, and arrived at a proposed pretax rate of return of 7.2 percent.
         {¶ 61} PUCO overruled the consumers’ objections and approved a
stipulated settlement between PUCO’s staff and Dominion. In re Application of E.

4. The variance between the 8.49 percent pretax rate of return calculated in the 2008 base-rate case
and the 9.91 percent rate of return at issue here is due to changes in federal tax law. Both Dominion
and the consumers’ expert, Duann, agree that a gross-up factor of 1.2658 is appropriate to account
for the tax-law changes.

                                                 24
                                January Term, 2023

Ohio Gas Co., Pub. Util. Comm. No. 19-468-GA-ALT, 2020 Ohio PUC LEXIS
1857, *85-87 (Dec. 30, 2020). In authorizing the 9.91 percent rate of return, PUCO
cited its “long-standing practice” of applying the rate of return approved in a
utility’s most recent base-rate case to the utility’s later alternative-rate-plan and
rider proceedings. Id. at *62-63. It further explained that it had recently used this
practice when calculating credits for Dominion’s customers in another case and that
fairness dictated that the same practice be employed for calculating Dominion’s
cost recovery. Id. at *62. It also pointed out that Dominion’s cost of capital was
tied to its capital structure and that modifying the long-term-debt rate “would
necessarily involve ‘cherry picking,’ while ignoring any cost increases that have
occurred since the [2008 base-rate case].” Id. It noted further that while the
consumers focused on Dominion’s current cost of debt, Dominion’s investments
from 2011 through 2018 were made at higher costs. Id. at *64. In addition, it
explained that it was compelled to consider the stipulation “as a package” and that
the stipulation provided numerous benefits to Dominion’s customers, including
residential caps on rates, which limited Dominion’s ability to pass on capital
expenses to its customers. Id. at *59-60.
       {¶ 62} The consumers filed for rehearing.        As one of its arguments,
Northeast Ohio Public Energy Council asserted that if it was PUCO’s position that
a rate of return could only be calculated in a base-rate case, PUCO should direct
Dominion to file a new base-rate case by the end of 2021. PUCO partly agreed
with the suggestion. See In re Application of E. Ohio Gas Co., Pub. Util. Comm.
No. 19-468-GA-ALT, 2022 Ohio PUC LEXIS 216, *20 (Feb. 23, 2022). It ordered
Dominion to file a new base-rate case no later than October 2023, instead of the
October 2024 date set forth in the stipulation. Id. PUCO explained:

       In the pending case, [the consumers] argued, and Dominion cannot
       deny, that, since the approval of its last base rate case in 2008, the

                                         25
                              SUPREME COURT OF OHIO

        Company’s cost of debt initially dropped from 6.50 percent to 4.23
        percent and, currently, its cost of debt is 2.25 percent. * * * [I]t has
        been the Commission’s long-standing practice to utilize the cost of
        capital and capital structure approved in the utility’s last base rate
        case in subsequent alternative rate plan and rider cases. However,
        in consideration of the significant decrease in the Company’s
        current cost of debt rate since its last rate case, and considering that
        Dominion refinanced all of its long-term outstanding debt at the
        current lower rate, as well as that the agreed upon date for Dominion
        to file its next base rate case is nearly three years away, the
        Commission finds that a more expedient alignment of the
        Company’s cost of capital and capital structure with market
        conditions is appropriate and necessary. This is particularly so
        given that it has been more than a decade since the Company’s last
        base rate case. Accordingly, upon further consideration of the issues
        raised by [the consumers] regarding the cost of capital, rate of return,
        and capital structure, the Commission finds that the Stipulation
        should be modified to require Dominion to file its next base rate case
        application by October 2023 * * *.

(Citations omitted.) Id. at *21-22. With this modification, PUCO approved the
alternative rate plan.
    The Majority Affirms PUCO’s Approval of the Alternative Rate Plan
        {¶ 63} The consumers appealed. In their first proposition of law, they take
aim at the rate of return. The crux of their argument is that PUCO acted unlawfully
in using a 12-year-old rate of return instead of one based on current market
conditions. The consumers cite the requirement that in evaluating a proposed
stipulation, PUCO must consider whether the stipulation “violates any important

                                          26
                                January Term, 2023

regulatory principle or practices.” Babbit, 59 Ohio St.2d 81, 391 N.E.2d 1376.
They also cite R.C. 4929.05 and other statutes and regulations that they contend
require PUCO to consider current market conditions. PUCO argues that there is no
such regulatory principle, and that nothing in the relevant statutory or
administrative provisions requires consideration of current market conditions.
        {¶ 64} The majority agrees with PUCO. In disposing of the consumers’
arguments, it goes through relevant statutory provisions, noting that the phrase
“current market conditions” is not explicitly written into any of them. From this, it
infers that PUCO need not consider current market conditions in the approval of an
alternative rate plan.
        {¶ 65} The majority begins its analysis with R.C. 4929.05(A), which
requires as a condition for approval of an alternative rate plan that PUCO determine
that the plan is “just and reasonable,” R.C. 4929.05(A)(3). It then jumps to its
conclusion:

        [N]othing in the statute requires that a just and reasonable rate of
        return be based on current market conditions as [the consumers]
        argue. The absence of the phrase “current market conditions” from
        the statute—as well as the other statutes and the rule discussed
        below—is significant. In matters of statutory interpretation, this
        court cannot insert or delete words. In re Application of Columbus
        S. Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶
        26.

Majority opinion, ¶ 13.
        {¶ 66} The majority performs a nearly identical analysis for other statutory
provisions, treating its review like a game of word search. It looks through the
relevant statutory provisions, fails to find the phrase “current market conditions,”

                                         27
                               SUPREME COURT OF OHIO

and announces that the matter is settled. In my view, such an analysis is overly
simplistic and will cause problems in future cases. As I will explain, a much more
robust review is required.
         Current Market Conditions Are an Appropriate Consideration in
           Determining the Reasonableness of an Alternative Rate Plan
          {¶ 67} A reader could easily conclude from the majority opinion that PUCO
need not even consider current market conditions when deciding whether to
approve an alternative rate plan. I don’t think that’s a fair account of the law of this
state.
          {¶ 68} The criteria PUCO must use to approve an alternative rate plan is
established by statute.      See R.C. 4929.05(A)(1).     Before it may approve an
alternative rate plan, PUCO must find that three substantive criteria are met. First,
that the natural-gas company is in compliance with the statutory policy prohibiting
discrimination in the supply of natural gas to its customers. R.C. 4929.05(A)(1),
citing R.C. 4905.35. Second, that the natural-gas company is in “substantial
compliance with the policy of this state” set forth in R.C. 4929.02.               R.C.
4929.05(A)(1) and (2). Finally, and most relevant here, that the alternative rate
plan is “just and reasonable.” R.C. 4929.05(A)(3).
          {¶ 69} This third requirement—that the plan be “just and reasonable”—
necessarily implicates the current market conditions for obtaining capital. The rate
of return is a key element of the amount that customers will pay for natural gas
under a plan. And the rate of return is based on the cost of obtaining money in
equity and capital markets. So “current market conditions”—i.e., what it costs to
obtain money in those markets today—is obviously a relevant consideration in
determining whether a rate is just and reasonable.
          {¶ 70} The majority dismisses any consideration of current debt and equity
markets on the basis that the words “current market conditions” are not found
anywhere in the text of the relevant statutes. But that makes little sense. No one

                                          28
                                January Term, 2023

disputes that the words “current market conditions” aren’t in the statutory text. But
a utility’s costs obviously affect whether its rates are “just and reasonable.” See
generally Bluefield Waterworks & Improvement Co. v. Pub. Serv. Comm. of West
Virginia, 262 U.S. 679, 693, 43 S.Ct. 675, 67 L.Ed. 1176 (1923) (“A rate of return
may be reasonable at one time and become too high or too low by changes affecting
opportunities for investment, the money market and business conditions
generally”). Current market conditions, of course, are not the only determinant of
whether a rate is “just and reasonable.” But they are certainly something that bears
on the analysis.
       {¶ 71} The same goes for the requirement that PUCO find that the natural-
gas company is in “substantial compliance with the policy of this state” set forth in
R.C. 4929.02, R.C. 4929.05(A)(1) and (2). Among other things, the policy of the
state is to “[p]romote the availability to consumers of adequate, reliable, and
reasonably priced natural gas services.”      R.C. 4929.02(A)(1).     The majority
dismisses any claim that this provision is implicated, saying simply, “[N]othing in
R.C. 4929.02 requires that a rate of return be based on current market conditions.”
Majority opinion at ¶ 14. But again, while nothing in R.C. 4929.02 requires that a
rate of return be based on current market conditions, current market conditions are
certainly something that factors into the analysis of whether natural-gas services
are “reasonably priced.” Few people would think that an item is “reasonably
priced” if it is priced so high that its producer receives profits that are
disproportionate to what other producers earn in the same market.
       {¶ 72} Other policies of this state with which PUCO must determine the
utility is in substantial compliance include “encourag[ing] * * * market access for
cost-effective supply- and demand-side natural gas services and goods,” R.C.
4929.02(A)(4), and “facilitat[ing] the state’s competitiveness in the global
economy,” R.C. 4929.02(A)(10). The utility’s compliance with each of these
policies fundamentally depends on current market conditions. What is “cost

                                         29
                               SUPREME COURT OF OHIO

effective” or what “facilitates competitiveness” will vary widely depending on the
market. And allowing Ohio’s utilities to receive a rate of return that is higher than
what out-of-state utilities receive, and thus charge higher prices, will not facilitate
the state’s competitiveness.
       {¶ 73} The majority is, of course, correct that nothing in the statutory
scheme explicitly requires PUCO to set a rate of return for an alternative rate plan
that precisely matches the company’s most recent costs of acquiring capital. But
the statutory scheme does task PUCO with determining that an alternative rate plan
complies with broad statutory criteria—like whether it is reasonable. In my view,
these criteria will almost always necessarily require some consideration by PUCO
of current market conditions, as well as a myriad of other factors.
             PUCO’s Orders Were Not Unreasonable or Unlawful
       {¶ 74} Our standard of review for PUCO orders is set by statute. We may
reverse, modify, or vacate a PUCO order only when, upon consideration of the
record, we conclude that the order was “unlawful or unreasonable.” R.C. 4903.13.
Unlawfulness and unreasonableness are distinct concepts within our standard of
review. See In re Application of Firelands Wind, L.L.C., __ Ohio St.3d __, 2023-
Ohio-2555, __ N.E.3d __, ¶ 11. A PUCO order is unlawful if it rests on an
erroneous interpretation of the law or if PUCO fails to follow procedures prescribed
by statute or its own regulations. See id. at ¶ 12 (collecting cases construing the
“unlawful” part of the standard of review). An order is “unreasonable” when
PUCO’s exercise of its discretion in making determinations within broad statutory
criteria falls outside the “zone of permissible statutory construction,” id. at ¶ 15.
We have also found an order of a state administrative agency to be unreasonable
when the decision is “manifestly contrary to the evidence in the record or when the
evidence clearly isn’t enough to support the decision” or when the order is
“internally inconsistent.” Id. at ¶ 16. Our review of such questions of law is de
novo. Id. at ¶ 13.

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                                January Term, 2023

        {¶ 75} The consumers focus mostly on the “unlawful” part of the standard
of review, suggesting that various statutes and caselaw establish a rule that a rate
of return always must be based on the most current market data. But as the majority
points out, none of the cited authorities say exactly that. And in contrast to the
statutory formula for a base-rate case, there is no explicit requirement for the
calculation of a rate of return in the alternative-rate-plan statute. See R.C. 4929.05.
Unlike the majority, I read the relevant statutes to make current market conditions
a consideration in determining the reasonableness of a rate of return. But I don’t
read them to mandate that the rate of return must always replicate the most recent
market data. So I don’t think PUCO acted unlawfully by not calculating the rate of
return in the manner that the consumers proposed.
        {¶ 76} Moreover, PUCO did consider current market conditions.                It
explicitly modified its order on rehearing to require that Dominion advance the
filing of its next base-rate case because of its concern that the rate of return
established in Dominion’s last rate case may no longer be reflective of market
conditions. See In re Application of E. Ohio Gas, Pub. Util. Comm. No. 19-468-
GA-ALT, 2022 Ohio PUC LEXIS 216, *1. Thus, I have little difficulty in
concluding that PUCO’s orders are not unlawful. The consumers have failed to
identify any statute that was violated or any legal error that was committed by
PUCO.
        {¶ 77} The “unreasonable” part of the standard of review comes into play
for our review of PUCO’s determination that Dominion’s alternative rate plan
comported with the broad statutory criteria established by the legislature in R.C.
4929.05—most notably, is the plan “just and reasonable”? By using this kind of
open-textured language, the legislature has necessarily granted to PUCO a degree
of discretion in its implementation of the statute. See In re Application of Firelands
Wind, L.L.C., __ Ohio St.3d __, 2023-Ohio-2555, __ N.E.3d __, at ¶ 11, 15. Our

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                                 SUPREME COURT OF OHIO

task is to determine whether PUCO’s exercise of its implementation authority fell
within the zone of permissible statutory construction. See id. at ¶ 15.
        {¶ 78} In my view, it did. First, PUCO relied upon its regular practice of
using the rate of return established in a utility’s most recent base-rate case. There
are good reasons for that practice. The legislature created “alternative rate plans”
to allow for a proceeding that is faster and less evidence-intensive than a traditional
base-rate case. See Am.Sub.H.B. No. 476, 146 Ohio Laws, Part III, 5244, 5254-
5259. The rate-of-return analysis is a complex procedure that requires not just a
determination of the cost of debt, but also the cost of equity of the company’s capital
structure. PUCO rightfully noted the “cherry-picking” concern of focusing on one
element of the rate-of-return analysis without also considering the capital
structure.5
        {¶ 79} PUCO also cited fairness reasons for using its regular practice here,
explaining that it had used the same rate-of-return analysis when calculating credits
for Dominion customers. See In re Application of E. Ohio Gas, Pub. Util. Comm.
19-468-GA-ALT, 2020 Ohio PUC LEXIS 1857, at *61. It also pointed out that
much of Dominion’s debt had initially been incurred at a time when borrowing
costs were higher. Id. at *64. Further, PUCO’s responsibility was to determine
whether the package as a whole was “just and reasonable.” The rate of return was
one element of the alternative rate plan. But PUCO identified other elements that
it found to benefit Dominion’s customers, including rate caps. Id. at *59-60.
        {¶ 80} This is not to say the consumers did not make a strong argument that
Dominion’s current rate of return is out-of-whack with its current cost of debt.
They did. And had PUCO simply affirmed the stipulation, I might well agree that
PUCO acted unreasonably.

5. Because the return on equity is traditionally higher than the cost of debt, a change in the
debt/equity ratio will necessarily affect the rate of return. See generally Bonbright, Danielsen &
Kamerschen, Principles of Public Utility Rates, Chapter 14: The Fair Rate of Return (2d Ed.1988).

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                                January Term, 2023

       {¶ 81} But PUCO did not affirm the stipulation. It imposed an additional
requirement that Dominion advance its next base-rate case, ensuring that the rate
of return is recalculated at an earlier date than it otherwise would have been. In my
view, PUCO reasonably adhered to its consistent practice of deferring rate-of-
return determinations to base-rate cases while at the same time addressing the
consumers’ concerns that Dominion’s rate of return should be reviewed. Thus, I
do not find its orders to be unreasonable.
                                    Conclusion
       {¶ 82} I agree with the majority’s conclusion that PUCO did not act
unreasonably or unlawfully in approving Dominion’s application for an alternative
rate plan. But I disagree with much of the majority’s analysis of the consumers’
first proposition of law. So I concur in judgment only as to its resolution of that
proposition. I concur in the rest of the majority’s opinion.
       DONNELLY, J., concurs in the foregoing opinion.
                               _________________
       Bruce Weston, Ohio Consumers’ Counsel, and John Finnigan and William
J. Michael, Assistant Consumers’ Counsel, for appellant Office of the Ohio
Consumers’ Counsel.
       Bricker & Eckler, L.L.P., and Dane Stinson; and Glenn S. Krassen, General
Counsel, for appellant Northeast Ohio Public Energy Council.
       Dave Yost, Attorney General, and John H. Jones, Werner L. Margard III,
Shaun P. Lyons, and Rhiannon D. Plant, Assistant Attorneys General, for appellee.
       Dominion Energy Services, Inc., and Andrew J. Campbell; Whitt
Sturtevant, L.L.P., Christopher T. Kennedy, and Albert D. Sturtevant; and McGuire
Woods, L.L.P., and Robert W. Loftin, for intervening appellee.
                               _________________

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