Court Opinion

ID: 6764701
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:35:24.251096+00
Date Added: 2024-06-11T16:02:40.487869
License: Public Domain

Wright, J.,
dissenting. Because I believe that the commission and in some measure the majority have ignored the salient facts of this case and the ruling case law, I must respectfully dissent.
*567I
I dissent from the majority’s conclusion that the commission was justified in refusing to adjust the return on equity to compensate for the dilution of stock prices caused by issuing additional stock, sometimes referred to as market pressure. The commission examined this issue in great detail in Cincinnati Gas & Elec. Co. (Mar. 18, 1981), PUCO No. 80-260-EL-AIR, 42 PUR 4th 252, 288-289, and determined that an adjustment was necessary. The commission reiterated its position in Dayton Power & Light Co. (July 15, 1981), PUCO No. 80-687-EL-AIR, unreported, at 36. The commission is now willing to abandon its earlier position based on its staff’s comment that dilution is a disputed response. The commission has clearly not sufficiently justified its change from a sound position as enunciated in earlier cases concerning similar facts and theories. See Consumers' Counsel v. Pub. Util. Comm. (1984), 10 Ohio St.3d 49, 51, 10 OBR 312, 313, 461 N.E.2d 303, 305. A change in the long-accepted method of calculating the return on equity requires detailed fact-finding and some measure of consideration. I would reverse and remand on this limited issue.
II
Secondly, I write to clarify the proper test when a company claims that the commission’s rate is so low that it threatens the company’s financial integrity. The commission misconstrues both the nature and purpose of the “end result” test. Its opinion and order characterized Ohio Edison’s argument as an attempt to justify a higher rate to attain certain financial goals. Be that as it may, the real issue is whether the rate set is so low as to be confiscatory, and thus in violation of the company’s right to due process of law. The United States Supreme Court has clearly stated that whether a rate is just and reasonable depends not on a review of the theory used to determine the rate, but whether the total effect is just and reasonable. Fed. Power Comm. v. Hope Natural Gas Co. (1944), 320 U.S. 591, 602, 64 S.Ct. 281, 288, 88 L.Ed. 333, 345. The court stressed that “[rjates which enable the company to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks assumed certainly cannot be condemned as invalid * * *.” Id. at 605, 64 S.Ct. at 289, 88 L.Ed. at 346.
In Duquesne Light Co. v. Barasch (1989), 488 U.S. 299, 109 S.Ct. 609, 102 L.Ed.2d 646, the court approved a statutory ratemaking method that denied amortization of costs incurred for nuclear power plants that were never placed into operation, but noted that neither of the utility companies involved “alleges that the total effect of the rate order arrived at within this system is unjust or unreasonable.” Id. at 310-311, 109 S.Ct. at 617-618, 102 L.Ed.2d at *568659. After discussing the impact of denying the amortization of these investments on the companies’ rate base, rate of return, and annual revenue allowance, the court concluded that “[t]he overall impact of the rate orders, then, is not constitutionally objectionable. No argument has been made that these slightly reduced rates jeopardize the financial integrity of the companies, either by leaving them insufficient operating capital or by impeding their ability to raise future capital.” (Emphasis added.) Id. at 312, 109 S.Ct. at 618, 102 L.Ed.2d at 660.
Similarly, Dayton Power & Light Co. v. Pub. Util. Comm. (1983), 4 Ohio St.3d 91, 4 OBR 341, 447 N.E.2d 733, does not stand for the proposition that the commission need not apply the end result test to the company’s claim. In that case this court made it very clear that the power company presented no evidence for its contention that it was unable to earn a fair and reasonable rate of return. Id. at 104-106, 4 OBR at 353-354, 447 N.E.2d at 744-745.
The important difference between the cases discussed above and this case is that Ohio Edison did offer evidence that the proposed rate would impede its ability to obtain credit and attract capital. This case squarely raises the issue of the commission’s role and the court’s standard of review when the company claims that the rate threatens its financial integrity.
I am persuaded by the comprehensive and incisive reasoning employed by the District of Columbia Circuit Court of Appeals in Jersey Cent. Power & Light Co. v. Fed. Energy Regulatory Comm. (D.C.Cir.1987), 810 F.2d 1168 (en banc). That court emphasized that although its determination is given great deference, the Federal Energy Regulatory Commission has a duty to make findings of fact on the overall impact of its rate when a company claims that the rate is confiscatory. Id. at 1177-1178. These findings of fact enable a court to review the commission’s findings and determine whether or not it abused its discretion. Id. at 1181-1182.
The commission did not adequately address the effects of its actions on the financial integrity of the company, or whether the rate works a confiscation of property. Ohio Edison presented evidence that its bond ratings were at the bottom range of investment quality and that its interest coverage ratios were substandard even for that rating category. The company testified that its ability to attract capital and obtain credit would be damaged by the reduced rates. The commission had a duty to at least consider the total effect of the rate that it granted; I would reverse and remand on this limited issue.
Ill
As part of the ratemaking process, the commission separates the utility’s costs and rate base between retail customers and other customers that are not *569subject to the commission’s jurisdiction. The commission calculated the Beaver Valley 2 allocation factor as 86.2 percent, based on nonjurisdictional sales of three hundred eighty-seven megawatts of capacity to Potomac Electric Power Company (“PEPCO”) and one hundred twenty-five megawatts to American Municipal Power-Ohio, Inc. (“AMP-Ohio”). The commission took these figures from Ohio Edison’s rate application. The sales to PEPCO were annualized at three hundred eighty-seven megawatts, even though sales were not at that level throughout the test year, because that number best represented sales in the future years. Likewise, the AMP-Ohio sales were annualized at one hundred twenty-five megawatts based on future expected sales. The AMP-Ohio sale was being negotiated at the time that Ohio Edison completed its application. AMP-Ohio did not purchase the amount of capacity originally anticipated by Ohio Edison and the commission, however, and therefore Ohio Edison correctly contends that thirty megawatts is the correct level of sales. With this adjustment, the Beaver Valley 2 allocation factor would be 89.1 percent. If this allocation factor and all other affected allocation factors are revised, the company’s revenue requirements increase by $30 million.
For these reasons I simply cannot adopt the majority’s position that the commission’s failure to adjust the allocation percentage for the reduced sales to AMP-Ohio was reasonable. The PEPCO sales figure is not based on six months of actual data and six months of estimated data for the test year, but the commission is perfectly willing to allow the company to use a representative, and higher, figure. The commission then unreasonably balks at allowing the company to use a truly representative, but lower, number for the AMP-Ohio sales. I would reverse and remand on this limited issue.
For the above reasons, I respectfully dissent from the judgment of the court.
Holmes, J., concurs in the foregoing dissenting opinion.