Court Opinion

ID: 2740200
Source: CourtListenerOpinion
Date Created: 2014-10-07 13:05:29.45639+00
Date Added: 2024-06-11T10:04:09.075335
License: Public Domain

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In
re Application of Ohio Power Co., Slip Opinion No. 2014-Ohio-4271.]

                                         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. 2014-OHIO-4271
IN RE APPLICATION OF OHIO POWER COMPANY TO UPDATE ITS TRANSMISSION
      COST RECOVERY RIDER RATES; INDUSTRIAL ENERGY USERS-OHIO,
             APPELLANT; OHIO POWER COMPANY ET AL., APPELLEES.
   [Until this opinion appears in the Ohio Official Reports advance sheets,
              it may be cited as In re Application of Ohio Power Co.,
                         Slip Opinion No. 2014-Ohio-4271.]
Public utilities—Transmission cost recovery rider—R.C. 4928.144(A)(2)—
        Transmission costs recovery rider—Public Utilities Commission order
        permitting utility to recoup underrecovered transmission costs from all
        customers over three years on nonbypassable basis not unlawful or
        unreasonable—Order did not constitute impermissible retroactive
        ratemaking—Collection on nonbypassable basis not unauthorized—
        Orders affirmed.
      (No. 2013-0154—Submitted July 9, 2014—Decided October 7, 2014.)
      APPEAL from the Public Utilities Commission, No. 12-1046-EL-RDR.
                                ____________________
                            SUPREME COURT OF OHIO

       KENNEDY, J.
                                    SUMMARY
       {¶ 1} In the case below, the commission authorized the Ohio Power
Company to recover costs associated with providing transmission service to its
standard-service-offer customers (those who take generation service from the
incumbent distribution utility instead of buying it on the market). The cost of
transmission service is set by the Federal Energy Regulatory Commission
(“FERC”). Under Ohio law, electric-distribution utilities are allowed to recover
from their retail customers all transmission-related costs imposed on the utility by
FERC or by an organization approved by FERC. R.C. 4928.05(A)(2). Ohio
Power recovers these costs through a reconciling rate mechanism called the
Transmission Cost Recovery Rider (“TCRR”).           Ohio Adm.Code 4901:1-36-
03(A). The commission annually reviews and adjusts the TCRR to ensure that the
utility is recovering only its actual costs of providing the service.         Ohio
Adm.Code 4901:1-36-03(B). By commission rule, shopping customers—those
who shop for electric service from a competitive supplier—bypass the TCRR and
thus avoid having to pay the rider. Ohio Adm.Code 4901:1-36-04(B).
       {¶ 2} During the period under review in this case, Ohio Power reported
that it had underrecovered $36 million in transmission costs. The commission’s
order determined that Ohio Power could collect the underrecovered costs from
both shopping and nonshopping customers. The commission found that a large
percentage of shopping customers who were receiving transmission service from
Ohio Power at the time the underrecovery was created had since decided to take
service from an alternative generation provider.        Although these shopping
customers would normally be able to avoid paying the TCRR, the commission
reasoned that it would be unfair to require nonshopping customers to shoulder the
entire burden of paying for the underrecovery, since the underrecovery was
caused in part by these shopping customers.

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                                    January Term, 2014

        {¶ 3} Industrial Energy Users-Ohio (“IEU”) challenges the commission’s
decision to allow the company to recover the underrecovered transmission costs
from shopping customers. For the reasons discussed in detail below, we affirm
the commission.
                       FACTS AND PROCEDURAL BACKGROUND
        {¶ 4} Since competition began in the provision of electric-generation
service, the law has required incumbent electric-distribution utilities to transfer
control of their transmission assets to “one or more qualifying transmission
entities.” R.C. 4928.12(A). On October 1, 2004, Ohio Power transferred control
of its transmission assets to PJM Interconnection, L.L.C., one of six regional
power grids regulated by FERC.1                 PJM, a qualifying entity under R.C.
4928.12(B)(1), now coordinates and directs the operation of Ohio Power’s
transmission network.
        {¶ 5} Ohio Power, as a member of PJM, is charged for securing
transmission service through the organization. Currently, PJM bills Ohio Power
based on rates set by FERC for transmission service associated with serving the
company’s customer load. In turn, Ohio law permits Ohio Power (and all other
electric-distribution utilities) to recover from the utility’s retail customers the
FERC-approved transmission charges billed by PJM.                       R.C. 4928.05(A)(2)
(allowing      electric distribution utilities to recover “all transmission and
transmission-related costs * * * imposed on or charged to the utility by * * * a
regional transmission organization * * * approved by” FERC). This provision
authorizes the commission to provide for recovery through a “reconcilable rider”
added to the electric utility’s distribution rates. Id.

1
 PJM is a multiutility transmission organization designated by FERC to coordinate the movement
of wholesale electricity in all or part of 13 states—including Ohio—and the District of Columbia.
See generally Ohio Consumers’ Counsel v. Pub. Util. Comm., 111 Ohio St. 3d 384, 2006-Ohio-
5853, 856 N.E.2d 940, ¶ 5-6.

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       {¶ 6} Consistent with this statutory provision, Ohio Power asked the
commission to approve the TCRR to recover such costs as part of the company’s
first Electric Security Plan (“ESP”). The commission approved the TCRR as
proposed by the company. See In re Application of Columbus S. Power Co. for
Approval of Elec. Sec. Plan, Pub. Util. Comm. Nos. 08-917-EL-SSO and 08-918-
EL-SSO, 49-50 (Mar. 18, 2009). The TCRR was then carried over as part of
Ohio Power’s second and current ESP, covering 2012 through 2014. See Pub.
Util. Comm. Nos. 11-346-EL-SSO, 5, 63-64 (Aug. 8, 2012).
       {¶ 7} The TCRR is structured as a pass-through mechanism, meaning that
it is designed so that Ohio Power can recover the same amount in transmission
costs from its customers as the amount billed by PJM. Once a year Ohio Power
projects the amount of transmission costs it expects to be billed by PJM, and those
costs are used as a revenue requirement to calculate the TCRR rate over the next
12-month period.     Because the costs included in the TCRR are based on
projections that will vary from actual costs, the TCRR contains a true-up
mechanism to reconcile any over- or underrecovered charges from the preceding
12-month period.
       {¶ 8} Pursuant to Ohio Adm.Code 4901:1-36-03(B), Ohio Power files an
application each year with the commission to update the rates charged under the
TCRR and to reconcile any over- or underrecoveries stemming from the prior
period. R.C. 4928.05(A)(2) and Ohio Adm.Code 4901:1-36-03(B). This case
began when Ohio Power filed an application with the commission to update the
TCRR rates for the period from September 2012 through August 2013. The
application reflected that Ohio Power’s TCRR had failed to recover enough
revenue to recoup the costs that Ohio Power incurred to provide transmission
service during the period of July 2011 through June 2012.
       {¶ 9} The    amount     of   underrecovered     transmission   costs    was
approximately $36 million. According to Ohio Power, these underrecovered costs

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were caused primarily by (1) the difference between the costs projected in the
company’s most recent TCRR update case and the actual costs incurred to provide
transmission service over that period (i.e., transmission charges billed to Ohio
Power by PJM from July 2011 through June 2012) and (2) a substantial increase
(from less than 10 percent to nearly 40 percent) in the number of customers in
Ohio Power’s service territory shopping for generation service.
        {¶ 10} Ohio Power would normally recoup any underrecovered amounts
through the TCRR over the next 12-month period. But to mitigate the impact of
the rate increase on customers, Ohio Power proposed to collect the underrecovery
balance with carrying charges over a three-year period. By commission rule, the
TCRR is imposed on Ohio Power’s standard-service-offer customers since these
customers are the ones who were provided the transmission service.                   Ohio
Adm.Code 4901:1-36-04(B). Therefore, customers can avoid paying the TCRR
by choosing to shop for generation service from a competitive supplier.2 Ohio
Power proposed that the rate impact could be further mitigated by collecting the
underrecovered costs from all customers (shopping and nonshopping) pursuant to
R.C. 4928.144.
        {¶ 11} As an initial matter, the commission determined that it was not
necessary to hold an evidentiary hearing in the case. In re Application of Ohio
Power Co. to Update the Co.’s Transmission Cost Recovery Rider, Pub. Util.
Comm. No. 12-1046-EL-RDR, 6 (Oct. 24, 2012) (the “TCRR Order”). The
commission has discretion under Ohio Adm.Code 4901:1-36-05 to decide

2
  Customers who shop do not have to pay the TCRR to Ohio Power, Ohio Adm.Code 4901:1-36-
04(B), but they do not entirely avoid paying transmission costs. Shopping customers pay for
transmission service through their new contracts with competitive suppliers.

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whether a hearing on the application is necessary.3 No party challenged the
commission’s decision not to conduct a hearing.4
        {¶ 12} As to the merits, the commission’s opinion and order approved
Ohio Power’s proposed TCRR rates for the next annual period. The commission
also agreed with Ohio Power that it was necessary to minimize the rate impact
that would otherwise occur if Ohio Power were to collect $36 million in
transmission costs in just one year. The commission therefore ordered Ohio
Power to collect the underrecovered transmission costs over a three-year period,
with carrying costs. The commission also found that it was unfair to require
nonshopping customers to shoulder the entire burden of paying for the
underrecovery since the underrecovery was caused in part by customers who were
now shopping but who had received transmission service from Ohio Power at the
time the underrecovery was created. To that end, the commission ordered that
Ohio Power should collect the underrecovered balance from all customers
(shopping and nonshopping) and authorized Ohio Power to establish a separate,
nonbypassable charge until those costs were fully collected. TCRR Order at 7.
        {¶ 13} IEU timely applied for rehearing, which was denied.                        In re
Application of Ohio Power Co. to Update its Transmission Cost Recovery Rider
Rates, Pub. Util. Comm. No. 12-1046-EL-RDR (Dec. 12, 2012) (“TCRR

3
  The rule provides that “[u]nless otherwise ordered, * * * the commission shall approve the
application or set the matter for hearing within seventy-five days after the filing of a complete
application” to recover transmission costs. The commission did not rule on the application within
75 days because the attorney examiner suspended the deadline in order to give the commission’s
staff additional time to review Ohio Power’s application. TCRR Order at 2.
4
  IEU states in its reply brief that there is no evidence in the record as to what caused the
underrecovery balance because the commission did not conduct an evidentiary hearing in this
matter. IEU has forfeited any arguments that the commission’s order lacked record support. We
have jurisdiction only over arguments raised on rehearing before the commission, and IEU never
challenged the commission’s refusal to conduct an evidentiary hearing in an application for
rehearing. See R.C. 4903.10; Office of Consumers’ Counsel v. Pub. Util. Comm., 70 Ohio St. 3d
244, 247, 638 N.E.2d 550 (1994).

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                               January Term, 2014

Rehearing Entry”).      IEU then filed the instant appeal challenging the
commission’s orders.
                             STANDARD OF REVIEW
       {¶ 14} “R.C. 4903.13 provides that a PUCO order shall be reversed,
vacated, or modified by this court only when, upon consideration of the record,
the court finds the order to be unlawful or unreasonable.”          Constellation
NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St. 3d 530, 2004-Ohio-6767, 820
N.E.2d 885, ¶ 50. We will not reverse or modify a PUCO decision as to questions
of fact where the record contains sufficient probative evidence to show that the
commission’s decision was not manifestly against the weight of the evidence and
was not so clearly unsupported by the record as to show misapprehension,
mistake, or willful disregard of duty. Monongahela Power Co. v. Pub. Util.
Comm., 104 Ohio St. 3d 571, 2004-Ohio-6896, 820 N.E.2d 921, ¶ 29.              The
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.
       {¶ 15} Although we have “complete and independent power of review as
to all questions of law” in appeals from the PUCO, Ohio Edison Co. v. Pub. Util.
Comm., 78 Ohio St. 3d 466, 469, 678 N.E.2d 922 (1997), we may rely on the
expertise of a state agency in interpreting a law when “highly specialized issues”
are involved and when “agency expertise would, therefore, be of assistance in
discerning the presumed intent of our General Assembly.” Consumers’ Counsel
v. Pub. Util. Comm., 58 Ohio St. 2d 108, 110, 388 N.E.2d 1370 (1979).
                                  DISCUSSION
       {¶ 16} IEU challenges the order on three grounds: (1) the commission
engaged in unlawful retroactive ratemaking, (2) the commission erred in relying
on R.C. 4928.144 to authorize the recovery of costs on a nonbypassable basis, and
(3) the commission failed to follow precedent. After review, we find that none of

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these grounds has merit. We address IEU’s propositions of law out of order for
ease of discussion.
I. IEU’s Proposition of Law No. 2: The commission cannot rely on its phase-
   in authority under R.C. 4928.144 to authorize Ohio Power to collect the
               underrecovery balance on a nonbypassable basis
       {¶ 17} In its second proposition of law, IEU argues that the commission
erred when it relied on its statutory phase-in authority to allow the collection of
Ohio Power’s underrecovered transmission costs on a nonbypassable basis. The
statute at issue here is R.C. 4928.144, which provides:

       The public utilities commission by order may authorize any just
       and reasonable phase-in of any electric distribution utility rate or
       price established under sections 4928.141 to 4928.143 of the
       Revised Code * * * as the commission considers necessary to
       ensure rate or price stability for consumers. If the commission’s
       order includes such a phase-in, the order also shall provide for the
       creation of regulatory assets pursuant to generally accepted
       accounting principles, by authorizing the deferral of incurred costs
       equal to the amount not collected, plus carrying charges on that
       amount. Further, the order shall authorize the collection of those
       deferrals through a nonbypassable surcharge on any such rate or
       price so established for the electric distribution utility by the
       commission.

       {¶ 18} IEU raises three arguments under the second proposition: (1) the
commission could not utilize R.C. 4928.144 in the underlying TCRR proceedings
because any phase-in under the statute must be authorized in a standard-service-
offer proceeding, (2) even if R.C. 4928.144 could be utilized in the TCRR

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                                January Term, 2014

proceedings, the commission did not rely on the statute to authorize the recovery
of the TCRR, and (3) the commission could not authorize recovery of the TCRR
on a nonbypassable basis because the TCRR was not a rate or price established
under R.C. 4928.143. We address each argument in turn.
  A. The plain language of R.C. 4928.144 does not support IEU’s argument
      that the statute applies only to standard-service-offer proceedings
       {¶ 19} IEU first argues that the commission’s phase-in authority under
R.C. 4928.144 could not be invoked in the underlying TCRR proceedings. In
IEU’s view, the commission can invoke its phase-in authority only in the same
proceeding that establishes the utility’s standard service offer, the rate charged to
customers who take generation service from the utility instead of a competitive
supplier. See R.C. 4928.141(A) (requiring electric distribution utilities to provide
a standard service offer). Because Ohio Power has chosen to provide its standard
service offer in the form of an electric-security plan, IEU asserts that the
commission could phase in rates only in the orders approving the company’s
electric-security plans. See R.C. 4928.143(A) (“For the purpose of complying
with section 4928.141 of the Revised Code, the electric distribution utility may
file an application for public utilities commission approval of an electric security
plan * * *”).
       {¶ 20} We begin our analysis of this issue with the language of the statute.
See e.g., State v. Hanning, 89 Ohio St. 3d 86, 91, 728 N.E.2d 1059 (2000).
       {¶ 21} R.C. 4928.144 provides that “[t]he public utilities commission by
order may authorize any just and reasonable phase-in of any electric distribution
utility rate or price established under sections 4928.141 to 4928.143 of the
Revised Code * * *.” (Emphasis added.) IEU interprets the italicized language as
limiting the exercise of the commission’s authority to the proceedings that
established the rate or price. IEU contends that because the commission did not
invoke its phase-in authority during Ohio Power’s ESP proceedings, when rates

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and prices were established under R.C. 4928.143, it could not phase in those rates
or prices in any subsequent proceeding.
        {¶ 22} R.C. 4928.144 does limit the commission’s authority.             The
commission may phase in only those rates and prices that are established under
R.C. 4928.141 to 4928.143.         It also requires that the phase-in be “just and
reasonable.” The statute, however, says nothing about when the commission may
invoke its phase-in authority. The error in IEU’s argument is that it interprets the
statute as though it included the italicized words:
        {¶ 23} The public utilities commission by order under sections 4928.141
to 4928.143 of the Revised Code may authorize any just and reasonable phase-in
of any electric distribution utility rate or price.
        {¶ 24} But R.C. 4928.144 simply does not read that way. In construing a
statute, a court may not add or delete words. State ex rel. Cincinnati Bell Tel. Co.
v. Pub. Util. Comm., 105 Ohio St. 3d 177, 2005-Ohio-1150, 824 N.E.2d 68, ¶ 32.
        {¶ 25} The statute imposes few other restrictions on the commission’s
authority over the design of the phase-in. R.C. 4928.144 allows the commission
to “authorize any just and reasonable phase-in” of electric-security-plan rates “as
the commission considers necessary to ensure rate or price stability for
consumers.” While the end result must be “just and reasonable,” the emphasized
language grants the commission considerable discretion to determine if and when
to phase in rates. See In re Application of Columbus S. Power Co., 129 Ohio
St.3d 568, 2011-Ohio-4129, 954 N.E.2d 1183, ¶ 10. See also Payphone Assn. of
Ohio v. Pub. Util. Comm., 109 Ohio St. 3d 453, 2006-Ohio-2988, 849 N.E.2d 4,
¶ 25 (“When a statute does not prescribe a particular formula, the PUCO is vested
with broad discretion”).
        {¶ 26} IEU, then, is challenging a judgment call, but it has not come close
to showing an abuse of discretion. Notably, IEU focuses solely on the phrase
“rate or price established under sections 4928.141 to 4928.143 of the Revised

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Code,” yet never discusses it in context. Context matters, and at no point does
IEU identify any language in the statute that imposes timing limitations.
       {¶ 27} In the end, IEU’s interpretation fails on the plain language of the
statute. The statutory language not only supports the commission’s reading, but
no other part of the statute expressly contradicts it.         The commission’s
interpretation of R.C. 4928.144—that it allows the commission to invoke its
phase-in authority outside of standard-service-offer proceedings—is reasonable.
And given that this statute implicates a matter of rate design, we defer to the
commission’s reasonable interpretation. See Consumers’ Counsel v. Pub. Util.
Comm., 10 Ohio St. 3d 49, 50, 461 N.E.2d 303 (1984) (the setting of a “phase-in
period” in which to recover certain expenses “is clearly within the discretionary
purview of the commission”); Consumers’ Counsel v. Pub. Util. Comm., 125
Ohio St. 3d 57, 2010-Ohio-134, 926 N.E.2d 261, ¶ 20 (commission possesses
“broad discretion” to design rates); Citywide Coalition for Util. Reform v. Pub.
Util. Comm., 67 Ohio St. 3d 531, 534, 620 N.E.2d 832 (1993) (“We have afforded
the commission considerable discretion in matters of rate design * * *”).
             B. The commission properly invoked R.C. 4928.144
       {¶ 28} IEU next argues that the commission failed to state that it relied on
R.C. 4928.144 to authorize Ohio Power to recoup the underrecovered TCRR
balance on a nonbypassable basis.      And, according to IEU, the commission
repeated this error on rehearing when instead of stating that it had invoked its
phase-in authority under R.C. 4928.144, it merely “stated that the TCRR Order
was ‘consistent with the Commission’s authority under Section 4928.144,
Revised Code.’ ” This argument lacks merit for two reasons.
       {¶ 29} First, the commission by clear implication did rely on R.C.
4928.144. In the initial order, the commission approved Ohio Power’s application
to update its TCRR, which included the proposal to phase in rates on a
nonbypassable basis pursuant to R.C. 4928.144. In doing so, the commission

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rejected IEU’s argument that R.C. 4928.144 was inapplicable and therefore could
not serve as a basis for making the TCRR nonbypassable. TCRR Order at 7. The
commission also specifically noted that the TCRR had been approved in each of
Ohio Power’s ESP proceedings, in reference to the requirement under R.C.
4928.144 that the phased-in “rate or price [be] established under sections
4928.141 to 4928.143 of the Revised Code.” TCRR Order at 7.
       {¶ 30} Moreover, even leaving aside the commission’s initial order, the
commission expressly stated on rehearing that a phase-in of the recovery of the
underrecovered TCRR balance is appropriate under R.C. 4928.144, that it was
proper to apply R.C. 4928.144 under the circumstances of this case, and that the
conditions in R.C. 4928.144 for phasing in rates had been met.       See TCRR
Rehearing Entry at 4, 8-9.
       {¶ 31} Second, IEU overlooks a basic point of procedure that is necessary
to reverse a commission order: this court “will not reverse an order of the
commission absent a showing of prejudice by the party seeking reversal.” Myers
v. Pub. Util. Comm., 64 Ohio St. 3d 299, 302, 595 N.E.2d 873 (1992). See also
Parma v. Pub. Util. Comm., 86 Ohio St. 3d 144, 149, 712 N.E.2d 724 (1999); and
Ohio Commt. of Cent. Station Elec. Protection Assn. v. Pub. Util. Comm., 50 Ohio
St.2d 169, 174, 364 N.E.2d 3 (1977). Moreover, IEU does not even attempt to
show how it or its constituents suffered harm from the commission’s failure to
expressly rely on R.C. 4928.144 in the orders below.
       {¶ 32} In sum, IEU failed to show reversible error. We therefore reject
this argument.
 C. IEU’s argument regarding R.C. 4928.143 lacks a coherent legal theory
       {¶ 33} Finally, IEU argues that the commission cannot authorize recovery
of the TCRR on a nonbypassable basis because the TCRR was not a “rate or price
established under sections 4928.141 to 4928.143 of the Revised Code,” as
required by R.C. 4928.144. The commission found that the TCRR was approved

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as part of Ohio Power’s first and second electric-security plans, consistent with
R.C. 4928.143.       IEU challenges that determination, contending that the
commission did not rely on R.C. 4928.143 when it authorized the TCRR. Rather,
IEU claims that the commission authorized the TCRR under R.C. 4928.05. IEU
has again failed to demonstrate reversible error.
       {¶ 34} R.C. 4928.143 governs electric-security plans (“ESPs”) and the
types of rate components that may be included in such plans.                     R.C.
4928.143(B)(2)(g) provides that an ESP may include “[p]rovisions relating to
transmission * * * service required for the standard service offer, including
provisions for the recovery of any cost of such service that the electric distribution
utility incurs * * * pursuant to the standard service offer.”          In 2009, the
commission approved a TCRR mechanism as a part of the company’s ESP. See
Pub. Util. Comm. No. 08-918-EL-SSO, 49-50 (Mar. 18, 2009). In Ohio Power’s
second ESP case, covering the time period from 2012 through 2014, the
commission approved the current version of the TCRR. See Pub. Util. Comm.
No. 11-348-EL-SSO, 63-64 (Aug. 8, 2012).
       {¶ 35} IEU does not dispute that R.C. 4928.143 allows Ohio Power to
include a TCRR mechanism in the company’s ESP. Nor does it claim that the
commission failed to approve the TCRR in the company’s ESP proceedings. Its
only complaint is that the commission did not expressly rely on R.C. 4928.143
when it approved the TCRR in the ESP orders. It is true that the commission did
not mention R.C. 4928.143 in approving the TCRR in either ESP case. Even so,
IEU does not explain why it was necessary to do so in light of the commission’s
clear authority under R.C. 4928.143 to approve a TCRR mechanism as part of an
ESP. IEU’s failure to offer a coherent legal theory is grounds for rejecting its
argument. See, e.g., In re Complaint of Wilkes v. Ohio Edison Co., 131 Ohio
St.3d 252, 2012-Ohio-609, 963 N.E.2d 1285, ¶ 10; Util. Serv. Partners, Inc. v.
Pub. Util. Comm., 124 Ohio St. 3d 284, 2009-Ohio-6764, 921 N.E.2d 1038, ¶ 53.

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    II. IEU’s Proposition of Law No. 3: Without a lawful and reasonable
   justification for its change of direction, the commission departed from
  commission precedent requiring that the TCRR remain fully bypassable
       {¶ 36} In its third proposition of law, IEU argues that the commission
declined to follow precedent, namely, In re Application of Duke Energy Ohio, Inc.
for Approval of a Market Rate Offer, Pub. Util. Comm. No. 10-2586-EL-SSO
(Feb. 23, 2011). IEU maintains that the commission established the following
precedent in Duke: reconcilable riders (such as the TCRR) that are originally
avoidable by shopping customers must remain so and can never be collected from
shopping customers. We disagree.
       {¶ 37} The rider at issue in Duke—Rider SCR—was designed to be
avoidable for customers taking generation service from a competitive supplier.
Duke had proposed to make the rider unavoidable to such customers if amounts
underrecovered through the rider reached a certain threshold. The commission
rejected Duke’s proposal with the following statement:

              In considering Duke’s request to include a “circuit breaker”
       provision in Rider SCR, the Commission does not believe that
       such a provision would advance the policy of the state as
       articulated in Section 4928.02, Revised Code. Specifically, [R.C.
       4928.02(H)] provides that it is the policy of the state to avoid
       anticompetitive subsidies flowing from a noncompetitive retail
       electric service to a competitive retail electric service and vice
       versa. If Duke were permitted to recover the costs included in
       Rider SCR from shopping customers, under any circumstances, we
       believe that it would create an anticompetitive subsidy. * * *
       Accordingly, the Commission does not believe that Rider SCR
       could be approved as a potentially unavoidable charge.

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                              January Term, 2014

Pub. Util. Comm. No. 10-2586-EL-SSO, at 63-64.
       {¶ 38} According to IEU, the commission held in Duke that a true-up of a
bypassable rider cannot be collected on a nonbypassable basis “ ‘under any
circumstances.’ ” But IEU’s selective reading of the quoted passage from the
Duke order gives a misleading impression of what the case stands for. As can be
gleaned from reading the entire excerpt in context, the commission did not hold
that a reconcilable rider that was originally made bypassable can never be
collected from shopping customers under any circumstances.         Rather, the
commission merely held that Duke could not collect Rider SCR (which was
proposed as a bypassable rider) from shopping customers under any
circumstances, because to do so would create an anticompetitive subsidy. In
short, the commission did not depart from precedent in the case below because
Duke never established the precedent that IEU alleges.     We therefore reject
proposition of law No. 3.
   III. Proposition of Law No. 1: The commission engaged in retroactive
 ratemaking when it authorized the collection of the TCRR under-recovery
                       balance on a nonbypassable basis
       {¶ 39} IEU argues in proposition of law No. 1 that the commission
engaged in unlawful retroactive ratemaking when it allowed Ohio Power to
collect under-recovered transmission costs from shopping customers. IEU asserts
that the commission’s TCRR Order is unlawful because it makes shopping
customers—who avoided paying the TCRR before the order—retroactively
responsible for paying transmission costs that Ohio Power had incurred to serve
nonshopping customers. For the reasons that follow, we find that the commission
did not engage in unlawful retroactive ratemaking.

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                             SUPREME COURT OF OHIO

     A. R.C. 4928.144 authorized the commission to defer the collection
      of the TCRR, and the statute mandates that deferrals be collected
                       through a nonbypassable surcharge
       {¶ 40} IEU concedes that Ohio Power is entitled to recover the $36
million in underrecovered transmission costs. IEU, however, maintains that the
commission engaged in unlawful retroactive ratemaking when it allowed Ohio
Power to collect these underrecovered costs from shopping customers. IEU states
that before the TCRR Order, shopping customers were not responsible to Ohio
Power for any transmission costs, and only nonshopping customers were required
to pay the TCRR. According to IEU, the rule against retroactive ratemaking
prohibits the commission from authorizing Ohio Power to collect the
underrecovered transmission costs through a nonbypassable charge, because use
of this mechanism imposes revenue responsibility on shopping customers for
unrecovered costs incurred to serve nonshopping customers.
       {¶ 41} It is true that before the TCRR Order, shopping customers were not
required to pay the TCRR. But the commission’s decision to allow Ohio Power
to collect the underrecovered transmission costs from shopping customers was not
unlawful retroactive ratemaking. R.C. 4928.144 authorizes the commission to
phase in rates or prices established in an electric-security plan, and it plainly gives
the commission discretion over the design of the phase-in. Specifically, R.C.
4928.144 allows the commission to “authorize any just and reasonable phase-in of
any electric distribution utility rate * * * as the commission considers necessary
to ensure rate or price stability for consumers.” (Emphasis added.) Ohio Power
would normally recoup any underrecovered amounts through the TCRR over the
next 12-month period (here, from September 2012 through August 2013). In
order to mitigate the impact of the rate increase on customers, the commission
authorized Ohio Power to collect the shortfall over three years instead of one year.
Once the commission determined that it was necessary to phase in the recovery of

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the shortfall over three years, R.C. 4928.144 required that the commission order
the collection of deferred rates “through a nonbypassable surcharge on any such
rate.” In short, even if the commission’s TCRR Order did amount to retroactive
ratemaking, it was not unlawful because the commission had statutory authority to
phase in the collection of rates through a nonbypassable surcharge.
         {¶ 42} For its part, IEU has not shown an abuse of discretion. IEU’s only
arguments against the commission’s use of its phase-in authority under R.C.
4928.144 are found in the second proposition of law, which we have already
rejected, and there is no need to discuss those issues again. The commission is a
creature of statute and can exercise only the authority conferred upon it by the
General Assembly. Tongren v. Pub. Util. Comm., 85 Ohio St. 3d 87, 88, 706
N.E.2d 1255 (1999). In the end, IEU has not shown that the commission’s
exercise of its statutory phase-in authority was unlawful or unreasonable.
           B. IEU’s remaining arguments under its first proposition
                          of law do not compel reversal
         {¶ 43} IEU raises two other arguments under proposition of law No. 1.
One has been forfeited; the other lacks merit.
        1. IEU’s claim regarding the 2011 TCRR Order was not presented
                         to the commission on rehearing
         {¶ 44} IEU argues that the commission violated the prohibition against
retroactive ratemaking because the commission’s order in Ohio Power’s 2011
TCRR case failed to include any mechanism to shift revenue responsibility to
shopping customers. See In re Application of Ohio Power Co. to Update the
Co.’s Transmission Cost Recovery Rider, Pub. Util. Comm. No. 11-2473-EL-
RDR (June 22, 2011) (the “2011 TCRR Order”).              The 2011 TCRR Order
implemented the rates that led to the $36 million underrecovery at issue in this
case.     According to IEU, the commission was required to approve the

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nonbypassable charge in the 2011 TCRR Order in order to avoid the proscription
against retroactive ratemaking.
       {¶ 45} IEU has forfeited this argument by failing to present it to the
commission in an application for rehearing. That jurisdictionally bars us from
considering the claim. R.C. 4903.10; Office of Consumers’ Counsel v. Pub. Util.
Comm., 70 Ohio St. 3d 244, 247, 638 N.E.2d 550 (1994) (“setting forth specific
grounds for rehearing is a jurisdictional prerequisite for our review”).
             2. Lost revenue due to regulatory delay is not at issue
       {¶ 46} IEU also argues that the commission was wrong in finding that the
under-recovery balance did not result from revenue lost due to regulatory delay.
IEU asserts that the underrecovered transmission costs were the function of the
delay inherent in the TCRR review process. According to IEU, the underrecovery
balance resulted from revenue that Ohio Power was unable to collect from
nonshopping customers during the prior annual review period. Therefore, IEU
asserts that the commission violated the rule against retroactive ratemaking when
it adjusted rates in the TCRR Order to allow Ohio Power to retroactively recover a
portion of those costs from shopping customers.
       {¶ 47} Contrary to IEU’s contention, the TCRR Order does not
compensate Ohio Power for revenues lost during the pendency of the
commission’s proceedings. See In re Application of Columbus S. Power Co., 128
Ohio St. 3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 11 (making up for revenues
lost due to regulatory delay is precisely the sort of rate increase that the court
ruled out in Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co., 166
Ohio St. 254, 141 N.E.2d 465 (1957)). To begin with, R.C. 4928.05 uses a
retrospective approach to cost recovery and thus differs from a traditional
ratemaking statute that sets rates prospectively. Specifically, R.C. 4928.05(A)(2)
guarantees that the utility will recover transmission costs imposed by FERC or by
a FERC-approved organization, and it does so through the use of a reconcilable

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rider (the commission may “provide for the recovery, through a reconcilable rider
on * * * distribution rates, of all transmission and transmission-related costs”
imposed by FERC and others). The TCRR Order had no impact on Ohio Power’s
ability to recoup the entire $36 million underrecovery. Rather, the commission’s
only concern was whether Ohio Power would recover those costs from
nonshopping customers only or from both shoppers and nonshoppers. In short,
this is not a case where the commission altered present rates to make up for
dollars lost “ ‘during the pendency of commission proceedings.’ ”          In re
Application of Columbus S. Power Co., at ¶ 11, quoting Lucas Cty. Commrs. v.
Pub. Util. Comm., 80 Ohio St. 3d 344, 348, 686 N.E.2d 501 (1997). Revenue lost
due to regulatory delay is simply not at issue here.
                                   CONCLUSION
       {¶ 48} IEU has the burden of demonstrating that the commission’s orders
were unjust, unreasonable, or unlawful. R.C. 4903.13; AT & T Communications
of Ohio, Inc. v. Pub. Util. Comm., 51 Ohio St. 3d 150, 154, 555 N.E.2d 288
(1990). IEU has not carried that burden in this appeal. Therefore, we affirm the
commission’s orders.
                                                                Orders affirmed.
       O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, FRENCH, and
O’NEILL, JJ., concur.
                             ____________________
       McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr,
and Matthew R. Pritchard, for appellant.
       Steven T. Nourse, Matthew J. Satterwhite, and Yazen Alami, for appellee
Ohio Power Company.

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                        SUPREME COURT OF OHIO

      Michael DeWine, Attorney General, and William L. Wright and Thomas
W. McNamee, Assistant Attorneys General, for appellee Public Utilities
Commission of Ohio.
                      _________________________

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