Court Opinion

ID: 3204406
Source: CourtListenerOpinion
Date Created: 2016-05-18 13:06:57.990967+00
Date Added: 2024-06-11T14:29:09.437220
License: Public Domain

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In
re Application of Ohio Edison Co., Slip Opinion No. 2016-Ohio-3021.]

                                         NOTICE
     This slip opinion is subject to formal revision before it is published in an
     advance sheet of the Ohio Official Reports. Readers are requested to
     promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
     South Front Street, Columbus, Ohio 43215, of any typographical or other
     formal errors in the opinion, in order that corrections may be made before
     the opinion is published.

                          SLIP OPINION NO. 2016-OHIO-3021
    IN RE APPLICATION OF OHIO EDISON COMPANY, CLEVELAND ELECTRIC
ILLUMINATING COMPANY, AND TOLEDO EDISON COMPANY FOR AUTHORITY TO
  PROVIDE A STANDARD SERVICE OFFER PURSUANT TO R.C. 4928.143 IN THE
 FORM OF AN ELECTRIC SECURITY PLAN; NORTHEAST OHIO PUBLIC ENERGY
     COUNCIL ET AL., APPELLANTS; PUBLIC UTILITIES COMMISSION ET AL.,
                                       APPELLEES.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
       may be cited as In re Application of Ohio Edison Co., Slip Opinion
                                  No. 2016-Ohio-3021.]
Public utilities—Electric-security plan—Public Utilities Commission may consider
        pricing and other terms and conditions in evaluating whether an electric-
        security plan is more favorable in the aggregate than the expected results
        of a market-rate offer—Party seeking reversal of an order of the
        commission must show that it has been or will be harmed by the order—
        Order affirmed.
     (No. 2013-0513—Submitted January 6, 2016—Decided May 18, 2016.)
                             SUPREME COURT OF OHIO

       APPEAL from the Public Utilities Commission, No. 12-1230-EL-SSO.
                                ________________
       O’CONNOR, C.J.
       {¶ 1} Appellants, Northeast Ohio Public Energy Council (“NOPEC”) and
the Environmental Law and Policy Center (“ELPC”), appeal the decision of the
Public Utilities Commission of Ohio approving an electric-security plan proposed
by intervening appellees, the FirstEnergy Companies (Ohio Edison Company,
Cleveland Electric Illuminating Company, and Toledo Edison Company
(collectively, “FirstEnergy”)). For the reasons explained below, we affirm the
commission’s order.
                                    Background
       {¶ 2} An electric-distribution utility is required to provide a “standard
service offer” to all consumers in its certified territory. R.C. 4928.141(A). The
utility may, at its discretion, base the standard service offer on either a market-rate
offer (“MRO”) or an electric-security plan (“ESP”). Id.
       {¶ 3} An MRO must be determined through a competitive-bidding process,
open to all generation suppliers. R.C. 4928.142(A)(1). A utility has considerably
more flexibility to fashion a rate plan as an ESP. In re Application of Columbus S.
Power Co., 134 Ohio St. 3d 392, 2012-Ohio-5690, 983 N.E.2d 276, ¶ 4 (Ohio law
“does not provide a detailed mechanism for establishing rates under an ESP”). The
only substantive requirement is that the plan must be “more favorable in the
aggregate as compared to the expected results” of an MRO. R.C. 4928.143(C)(1).
FirstEnergy’s first two applications
       {¶ 4} On October 20, 2009, FirstEnergy filed an application for a standard
service offer based on an MRO (“the MRO case”). After reviewing the MRO
application, the commission staff recommended that FirstEnergy instead pursue an
ESP.

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       {¶ 5} On March 23, 2010, in response to the staff’s suggestion, FirstEnergy
submitted an application for an ESP (“ESP 2”). The proposed plan would govern
the purchase and supply of power for the period between June 1, 2011, and May
31, 2014.
       {¶ 6} In its application, FirstEnergy proposed to establish a competitive bid
process for electric power. The key feature of the bid process was that suppliers
would not have to purchase all the power needed for the life of the plan in a single
auction. Instead, at the outset, bidders could purchase energy to be supplied over
variable time increments. And the plan called for a total of four auctions, two in
2010, a third in July 2011, and a final auction in July 2012. By offering multiple
auctions and multiple options for the length of the contracts, the companies claimed
they could mitigate market fluctuations and stabilize prices over the life of the plan.
       {¶ 7} The application proposed a number of riders by which the suppliers
could recover various costs from consumers.          One was the Delivery Capital
Recovery Rider, which would permit recovery of certain costs, including the
investment costs for improving delivery systems. The plan also proposed a rider
allowing suppliers to meet their renewable-energy-resource requirements and
recover the associated costs incurred that year.
       {¶ 8} In addition, FirstEnergy agreed not to seek recovery of a number of
charges. Of particular significance, the companies agreed to forego recovery of
regional-transmission-expansion-planning costs, at an estimated cost of $360
million.
       {¶ 9} On April 25, 2010, the commission approved FirstEnergy’s ESP 2
application, and FirstEnergy began implementing the terms of the ESP 2.
FirstEnergy’s third application
       {¶ 10} On April 13, 2012, with two years left on the ESP 2 plan, FirstEnergy
filed an application to extend the plan through May 31, 2016 (“ESP 3”). The ESP
3 application consisted of supporting materials including a five-page summary, a

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partial stipulation signed by some but not all parties in the case agreeing on certain
matters related to the application, and the prefiled testimony of William R.
Ridmann, a company witness.
       {¶ 11} Ridmann’s testimony summarized the provisions of the proposed
ESP 3 and identified the changes it would make to the existing plan. However,
Ridmann’s testimony did not explain or support numerous aspects of the proposed
ESP 3. Responding to some parties’ concerns, and in anticipation of a hearing,
FirstEnergy made supplemental submissions of evidence, including prefiling the
testimony of commission staff witness Robert B. Fortney.
       {¶ 12} The matter eventually went to hearing on June 4, 2012. The original
ESP 3 application had “request[ed] that the Commission take administrative notice
of the evidentiary record established in” the ESP 2. On the first day of the hearing,
FirstEnergy verbally renewed its request for administrative notice of the record
from the ESP 2. The attorney examiner declined to admit the entire record
wholesale but invited FirstEnergy to make a document-by-document request.
       {¶ 13} Two days later, on June 6, 2012, FirstEnergy submitted a more
specific request. FirstEnergy requested that the commission take administrative
notice of ten exhibits from the ESP 2 case, including the stipulation filed in that
case and transcripts of testimony by several witnesses. FirstEnergy also asked the
attorney examiner to take administrative notice of seven exhibits and two transcript
pages from the MRO case. The examiner granted the requests over objections.
Approval of the ESP 3
       {¶ 14} On July 18, 2012, the commission issued an opinion and order
approving FirstEnergy’s ESP 3 application. The commission expressly found that
the ESP 3 was “more favorable in the aggregate” than an MRO.
       {¶ 15} On August 17, 2012, ELPC filed a petition for rehearing. NOPEC
filed a separate application for rehearing on the same date. ELPC argued that
FirstEnergy’s ESP 3 application was incomplete when submitted and that the

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commission erred by permitting the examiner to take administrative notice of
materials from the MRO and ESP 2 cases. NOPEC’s rehearing application listed
11 alleged errors and included a challenge to the commission’s determination that
the ESP 3 was more favorable in the aggregate than an MRO.
       {¶ 16} On September 12, 2012, the commission granted the applications
“for further consideration of the matters specified.” Ultimately, however, the
commission issued a second entry on rehearing in which it denied the rehearing
applications and affirmed its approval of FirstEnergy’s ESP 3. The commission
found that FirstEnergy’s application met the minimum filing requirements of the
Ohio Administrative Code. And with respect to the question of administrative
notice, the commission concluded that it had fully addressed this issue in its earlier
opinion and order and that the rehearing applications had raised no new issues.
       {¶ 17} ELPC and NOPEC filed notices of appeal to this court.
                                      Analysis
Standard of review
       {¶ 18} An order of the commission shall be reversed, vacated, or modified
only when, upon consideration of the record, this court finds the order to be
unlawful or unreasonable. R.C. 4903.13. Under this standard, we will not reverse
or modify a decision as to questions of fact when the record contains sufficient
probative evidence to show that the commission’s determination is not manifestly
against the weight of the evidence and 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.
       {¶ 19} 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. AK Steel Corp. v. Pub. Util. Comm., 95 Ohio St. 3d 81,
86, 765 N.E.2d 862 (2002). Although this court has complete and independent

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power to review all questions of law, it may rely on the state agency’s expertise in
interpreting the law when highly specialized issues are involved and agency
expertise would be helpful in discerning the intent of the General Assembly. In re
Application to Modify, in Accordance with R.C. 4929.08, the Exemption Granted
to E. Ohio Gas Co., 144 Ohio St. 3d 265, 2015-Ohio-3627, 42 N.E.3d 707, ¶ 11.
Appeal of the Northeast Ohio Public Energy Council
       {¶ 20} In its appeal, NOPEC presents six propositions of law. The first
three propositions of law concern whether and how the commission may consider
nonquantitative (qualitative) benefits in conducting the ESP/MRO comparison.
       {¶ 21} In its first proposition, NOPEC argues that R.C. 4928.143(C)(1),
which sets forth the requirements for an ESP, permits the commission to examine
only the quantitative benefits in a proposed ESP and does not permit consideration
of nonquantitative (qualitative) benefits to determine whether an ESP is “more
favorable” than a market-rate offer. In its second proposition, NOPEC argues that
the commission erred by considering qualitative benefits in its ESP/MRO
comparison. And in its third proposition, NOPEC suggests that even if it were
statutorily permissible to consider some qualitative benefits, the commission may
not consider the specific benefits cited in its decision.
       {¶ 22} In In re Application of Columbus S. Power Co., 128 Ohio St. 3d 402,
2011-Ohio-958, 945 N.E.2d 501, we held that R.C. 4928.143(C)(1) “does not bind
the commission to a strict price comparison. On the contrary, * * * the statute
instructs the commission to consider ‘pricing and all other terms and conditions’ ”
in evaluating whether the ESP is more favorable in the aggregate than an expected
MRO. (Emphasis sic.) Id. at ¶ 27, quoting R.C. 4928.143(C)(1). The rule
announced in Columbus S. Power Co. is dispositive of NOPEC’s first three
propositions of law.
       {¶ 23} NOPEC’s fourth proposition asserts that when the ESP is viewed
purely in terms of quantitative benefits, the commission erred because the MRO

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                                January Term, 2016

was more favorable than the ESP. According to NOPEC, the inclusion of the
Delivery Capital Recovery Rider, which authorizes suppliers to recover certain
investment costs, makes the ESP more costly for consumers than an MRO, which
has no comparable investment-cost-recovery mechanism.
       {¶ 24} In reaching its decision, the commission assumed that if an MRO
were put in place, then suppliers would still be able to recover investment costs, in
that case by way of a distribution-rate case. Over a sufficient time period, the
commission concluded, the cost to consumers under the rider or a distribution-rate
case would be a wash.
       {¶ 25} On appeal, NOPEC argues that the MRO statute, R.C. 4928.142,
does not permit the inclusion of hypothetical distribution-rate-case revenues as part
of the MRO/ESP comparison. But NOPEC’s argument fails to recognize that
unlike an MRO, an ESP will include all sorts of cost-recovery mechanisms at the
outset, see R.C. 4928.143(B)(2)(a).           Therefore, under NOPEC’s statutory
interpretation, the MRO will always appear to be quantitatively more favorable but
will never reflect the true cost of the MRO over time.
       {¶ 26} Alternatively, NOPEC objects to the commission’s decision to
calculate the value of the Delivery Capital Recovery Rider for the first two years
only, without considering the possibility that the rider, and its corresponding costs
to customers, could be renewed perpetually. We conclude that the decision whether
to project the value of the rider further into the future is precisely the sort of
calculation that falls within the expertise of the commission, and we will not reverse
the commission’s decision absent an abuse of discretion, which NOPEC has not
demonstrated.
       {¶ 27} We therefore reject NOPEC’s fourth proposition of law.
       {¶ 28} In its fifth proposition, NOPEC challenges the decision of the
commission to take administrative notice of the evidence generated in the MRO
and ESP 2 cases. Specifically, NOPEC claims that it was an abuse of discretion for

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the commission to use this noticed information as substantive evidence to support
the commission’s ultimate decision.
       {¶ 29} There is neither an absolute right for nor an absolute prohibition
against the commission taking administrative notice of facts outside the record of a
case. Canton Storage & Transfer Co. v. Pub. Util. Comm., 72 Ohio St. 3d 1, 8, 647
N.E.2d 136 (1995). Rather, each case must be resolved on its facts, and “the factors
[this court] deem[s] significant include whether the complaining party had prior
knowledge of, and had an adequate opportunity to explain and rebut, the facts
administratively noticed.” Allen v. Pub. Util. Comm., 40 Ohio St. 3d 184, 186, 532
N.E.2d 1307 (1988).      In all cases, the complaining party must demonstrate
prejudice. Id.
       {¶ 30} NOPEC contends that because the administrative-notice motion was
granted so late in the proceedings, it did not have prior knowledge of the facts to be
noticed or an adequate opportunity to rebut them. We will concede, for argument’s
sake, that FirstEnergy’s (rejected) request for administrative notice of the entire
ESP 2 record was not sufficient notice of the specific facts and evidence that it
would ultimately use. And we will also grant that prehearing discovery was an
inadequate remedy, not only because NOPEC did not know the issues or witnesses
on which to take discovery, but also because Ohio Adm.Code 4901-1-16, governing
prehearing discovery, does not permit taking discovery from the commission staff.
Ohio Adm.Code 4901-1-16(I). Even so, NOPEC’s fifth proposition of law must
fail because it has not demonstrated prejudice.
       {¶ 31} NOPEC’s prejudice argument is based on the following facts: in its
ESP 3 approval order, the commission identified a number of “significant
additional benefits for customers” in the plan, including a 6 percent discount for
certain low-income customers, a provision for shareholder funding of economic
development for low-income customers, and terms spreading renewable-energy-
cost recovery over a longer period in order to reduce customer prices. NOPEC

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                                January Term, 2016

alleges that those benefits were not mentioned in commission staff member
Fortney’s prefiled testimony, nor did Fortney raise these issues when he testified in
person at the ESP 3 hearing.
       {¶ 32} The next day, after Fortney’s testimony and cross-examination were
complete, FirstEnergy made its motion for the commission to take administrative
notice of specific exhibits from the ESP 2 and MRO cases. Among the exhibits
accepted into the record was the prefiled ESP 2 testimony of commission staff
witness Tamara S. Turkenton. Turkenton identified 11 beneficial features of the
plan, including the benefits mentioned above. But because Turkenton did not
testify in person at the ESP 3 hearing, she could not be cross-examined. NOPEC
therefore concludes that the commission relied on testimony to which NOPEC had
no opportunity to respond.
       {¶ 33} The flaw in this argument is that the claims in Turkenton’s prefiled
testimony were also made by William R. Ridmann in his prefiled testimony, which
was attached to the ESP 3 application. And unlike Turkenton, Ridmann did testify
at the hearing and was subject to cross-examination. Thus, NOPEC had advance
notice of these alleged benefits and an opportunity to challenge them with evidence
of its own. Therefore, NOPEC cannot demonstrate that it was prejudiced by the
decision to take administrative notice.
       {¶ 34} NOPEC cites Canton Storage & Transfer Co., 72 Ohio St. 3d 1, 647
N.E.2d 136 (1995), for the proposition that the commission cannot reduce an
applicant’s burden of proof by taking administrative notice of nonwitness
testimony. But that case is easily distinguishable.
       {¶ 35} Canton Storage involved applications from 22 companies for
certificates of public convenience and necessity to carry household goods. A
transportation company seeking such a certificate must submit testimony from at
least two shipper witnesses regarding the public need for the service. Id. at 6. But
in Canton Storage, only four of the applicants met this requirement. Id. The

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commission took administrative notice of the testimony offered in support of the
four sufficient applications and used it to bolster the other 18 applications, which
were incomplete. By doing so, we held, the commission improperly reduced the
burden of proof for the 18 applicants who benefited from testimony that they did
not produce. Id. at 9.
        {¶ 36} In this case, the commission did not reduce FirstEnergy’s burden of
proof by taking administrative notice of the ESP 2 and MRO materials—it relied
on the testimony of Ridmann in the ESP 3 case. NOPEC has failed to identify any
facts or opinions of which the commission took notice that were not already in the
ESP 3 record from some other source. Nor has NOPEC shown that absent the
administratively noticed evidence, the application would have been inadequate.
Therefore, we conclude that NOPEC’s fifth proposition lacks merit.
        {¶ 37} Finally, in its sixth proposition of law, NOPEC challenges the
PUCO’s approval of the partial stipulation submitted with the ESP 3 application.
When considering whether to approve a partial stipulation, the commission
employs the following three-part test, which we have previously endorsed:

               (1)       Is the settlement a product of “serious bargaining”
        among capable, knowledgeable parties?
               (2)       Does the settlement, as a package, benefit ratepayers
        and the public interest?
               (3)       Does the settlement package violate any important
        regulatory principle or practice?

Office of Consumers’ Counsel v. Pub. Util. Comm., 64 Ohio St. 3d 123, 126, 592
N.E.2d 1370 (1992). NOPEC disputes whether the stipulation was the product of
serious bargaining, because the parties did not represent sufficiently diverse
interests.

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                                January Term, 2016

       {¶ 38} In support of its allegation that the stipulation was not subject to
serious bargaining, NOPEC points to one instance in which, it alleges, the parties
to the stipulation collaborated as proof that they were not truly opposed. To wit, in
the ESP 2 application, the companies agreed not to seek recovery, through retail
rates, of regional-transmission-expansion-planning costs either until May 31, 2016,
or until the total costs exceeded $360 million, whichever occurred first. The
stipulation attached to the ESP 3 application proposed to retain this provision.
       {¶ 39} Ridmann discussed the retention of this feature in his prefiled
testimony submitted with the application. He called the regional-transmission-
expansion-planning forbearance provision “[a] significant continuing benefit of
ESP 3, as in the existing ESP.” (Emphasis added.) And in his attached spreadsheet
comparing the present-value benefits of the ESP 3 to an MRO, he attributed $293.7
million in benefits to the regional-transmission-expansion-planning provision.
However, in subsequent testimony, staff witness Fortney expressed the staff’s
opinion that “the benefit of this credit was a result of [ESP 2] and is not a direct
benefit of ESP 3, thus should not be reflected in the ESP 3 vs. MRO analysis.” In
other words, the parties to the stipulation and the commission staff double-counted
the nearly $300 million benefit of the regional-transmission-expansion-planning
forbearance—once as a benefit of ESP 2 and again as a benefit of ESP 3—even
though the actual funds would only be realized once.
       {¶ 40} The only conceivable explanation for this error, according to
NOPEC, is that “in their haste to meet the Company’s self-imposed deadline, the
signatory parties did not seriously bargain.” NOPEC concedes that the parties to
the stipulation (and their counsel) are capable and knowledgeable. It cites that very
competence and experience to bolster its argument that the parties to the stipulation
did not engage in “serious bargaining.”
       {¶ 41} This argument fails for two reasons. First, the difference between
the Ridmann and Fortney calculations does not necessarily represent correction of

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an error. Rather, the two witnesses were answering different questions. Ridmann
was comparing the quantitative benefits of the ESP 3, in totality, as compared to an
MRO, as the statute requires. Fortney, on the other hand, was using the existing
ESP 2 as a baseline and comparing only the quantitative benefits of the ESP 3
extension. In short, this appears to be a methodological disagreement, not a
mistake. And second, even if the stipulation had double-counted the regional-
transmission-expansion-planning credit, a single error in a complex filing such as
this is not necessarily evidence that the parties failed to bargain seriously. Mistakes
occur in even the most serious negotiations involving the most competent and
experienced negotiators.
       {¶ 42} Alternatively, NOPEC questions whether the stipulation represented
the interests of the broad residential class. We have expressed grave concern
regarding a stipulation when an entire customer class is intentionally excluded from
the settlement talks. Time Warner AxS v. Pub. Util. Comm., 75 Ohio St. 3d 229,
233, 661 N.E.2d 1097 (1996), fn. 2. However, the deliberate exclusion of specific
customer-class members does not raise the same concern, so long as the class in its
entirety is not excluded. Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104
Ohio St. 3d 530, 2004-Ohio-6767, 820 N.E.2d 885, ¶ 16-24.
       {¶ 43} The ESP 3 stipulation came about in the following fashion:
FirstEnergy contacted every party to the ESP 2 and gave each an opportunity to
review and comment on the draft stipulation for the ESP 3. The commission found
no evidence that FirstEnergy excluded an entire customer class from the
negotiations.
       {¶ 44} NOPEC’s contention is that FirstEnergy strategically selected the
parties with whom it would negotiate—i.e., that it spoke only to parties who
claimed to represent the general interests of residential customers but actually
represented the more narrow interests of low-income customers. Those parties,
NOPEC alleges, reached a stipulation with FirstEnergy based on the interests of

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their low-income constituents and did not negotiate to protect the interest of the
broader residential-customer class.
        {¶ 45} NOPEC’s assignment of error would require this court to review the
negotiations in their entirety and to ascertain whether any residential-class party
made a demand that would have benefited the larger class and, if so, when and why
the demand was dropped. NOPEC cites no authority for the proposition that this
court must undertake such a review nor any compelling reason why it would be
revelatory. This is not a case in which the applicant bargained with a single entity
who might be an adequate class representative or have its own, more parochial
interests that are not reflective of the class as a whole.
        {¶ 46} Finally, NOPEC registers a general objection to the process
employed, specifically the absence of a conventional meeting, with all the parties
assembled around a physical table. NOPEC identifies no legal support for the
suggestion that “serious bargaining” can only occur in such a setting.
        {¶ 47} For all these reasons, we hold that NOPEC’s sixth proposition of law
has no merit.
Appeal of the Environmental Law and Policy Center
        {¶ 48} In its sole proposition of law, ELPC contends that the commission’s
approval of the ESP 3 was unlawful and unreasonable because FirstEnergy’s
application was incomplete, in violation of Ohio Adm.Code 4901:1-35-03(C)(1).
A standard-service-offer application based on an ESP must include “[a] complete
description of the ESP and testimony explaining and supporting each aspect of the
ESP.” Id. ELPC argued at the commission level, and continues to assert here, that
the ESP 3 application was incomplete and therefore invalid, because the supporting
testimony from Ridmann left a host of topics unaddressed.
        {¶ 49} We will not reverse an order of the commission unless the party
seeking reversal shows that it has been or will be harmed by the order. Buckeye
Energy Brokers, Inc. v. Palmer Energy Co., 139 Ohio St. 3d 284, 2014-Ohio-1532,

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11 N.E.3d 1126, ¶ 19. ELPC has not shown that it was prejudiced by the allegedly
incomplete application in any way. And for that reason, we will not reverse the
decision of the commission.
                                     Conclusion
          {¶ 50} For the reasons discussed, we affirm the order of the commission.
                                                                    Order affirmed.
          PFEIFER, O’DONNELL, LANZINGER, KENNEDY, FRENCH, and O’NEILL, JJ.,
concur.
                                _________________
          Bricker & Eckler, L.L.P., Glenn S. Krassen, Dane Stinson, Matthew W.
Warnock, and J. Thomas Siwo, for appellant Northeast Ohio Public Energy
Council.
          Madeline Fleisher, Justin Vickers, and Nicholas McDaniel, for appellant
Environmental Law & Policy Center.
          Michael DeWine, Attorney General, William L. Wright, Section Chief, and
Thomas McNamee, Assistant Attorney General, for appellee.
          Jones Day and David A. Kutik; and James W. Burk, and Carrie M. Dunn,
for intervening appellees.
                                _________________

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