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In re Review of Alternative Energy Rider Contained in Tariffs of Ohio Edison Co.

Supreme Court of Ohio

January 16, 2018

In re Review of the Alternative Energy Rider Contained in the Tariffs of Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company; Ohio Edison Company et al., Appellants and Cross-Appellees; Office of Ohio Consumers' Counsel, Appellee and Cross-Appellant; Environmental Law and Policy Center, Cross-Appellant; Public Utilities Commission, Appellee and Cross-Appellee.

          Submitted June 21, 2017

         APPEAL and CROSS-APPEALS from the Public Utilities Commission, No. 11-5201-EL-RDR.

          James W. Burk and Carrie M. Dunn; and Jones Day and David A. Kutik, for appellants and cross-appellees, Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company.

          Bruce J. Weston, Consumers' Counsel, and Christopher Healey and Maureen R. Willis, Assistant Consumers' Counsel; and Isaac, Wiles, Burkholder & Teetor and Mark R. Weaver, for appellee and cross-appellant, Office of the Ohio Consumers' Counsel.

          Madeline Fleisher, for cross-appellant, Environmental Law and Policy Center.

          Michael DeWine, Attorney General, and Thomas G. Lindgren and William L. Wright, Assistant Attorneys General, for appellee and cross-appellee, Public Utilities Commission of Ohio.

          Steven T. Nourse; and Porter, Wright, Morris & Arthur, L.L.P., and Kathleen M. Trafford, for amicus curiae, Ohio Power Company.

          O'Neill, J.

         I. SUMMARY

         {¶ 1} In the case below, the Public Utilities Commission ordered an audit to review renewable-energy-credit ("REC") purchases made by the FirstEnergy companies (Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company (collectively, "FirstEnergy")) under FirstEnergy's first electric-security plan ("ESP"). After the audit hearing, the commission found that certain purchases were not prudent, and it ordered FirstEnergy to refund more than $43 million to ratepayers.

         {¶ 2} The commission also granted several motions for protective orders, granting trade-secret protection to certain information related to FirstEnergy's purchase of RECs.

         {¶ 3} FirstEnergy filed an appeal in this court challenging the commission's adoption of the part of the audit findings regarding the more than $43 million disallowance. The Environmental Law and Policy Center ("ELPC") filed a cross-appeal challenging the protective orders. The Office of the Ohio Consumers' Counsel ("OCC") also cross-appealed, challenging the protective orders and the part of the commission's decision approving the remainder of FirstEnergy's renewable-energy costs.

         {¶ 4} After review, we find that the parties have demonstrated two commission errors, one on appeal and one on cross-appeal. Therefore, we affirm the commission's order in part, reverse it in part, and remand the cause for further consideration.

         II. FACTS AND PROCEDURAL BACKGROUND

         {¶ 5} R.C. 4928.64 requires electric-distribution utilities to generate a portion of the electricity supplied to retail customers from renewable-energy resources, such as solar and wind power. Under an earlier version of the statute, electric utilities were required to purchase at least half of their renewable energy from in-state suppliers.[1] See former R.C. 4928.64(B)(3), 2012 Am.Sub.S.B. No. 315. The law imposes annual goals or benchmarks that increase over time. R.C. 4928.64(B)(2). If an electric utility does not meet its benchmarks, the commission must impose a compliance payment on the utility. R.C. 4928.64(C)(2).

         {¶ 6} Electric utilities may purchase such resources from suppliers through the procurement of RECs. See R.C. 4928.645. A REC is created for each megawatt hour of electricity generated by a renewable-energy resource. Ohio Adm.Code 4901:1-10-01(Z). Once electricity generated from a renewable-energy resource is delivered to the power grid, it becomes indistinguishable from electricity generated from traditional resources, such as coal or natural gas. A REC (an acronym also used for "renewable energy certificate") is a nontangible, tradable commodity that serves as a mechanism for utilities and regulators to track renewable-energy purchases. See United States Environmental Protection Agency, Green Power Partnership, Renewable Energy Certificates, https://www.epa.gov/greenpower/renewable-energy-certificates-recs (accessed Jan. 11, 2018).

         {¶ 7} In 2009, the commission approved the first ESP for FirstEnergy. As part of that ESP, the commission approved FirstEnergy's plan to procure the necessary RECs from in-state and out-of-state suppliers for the period January 1, 2009, through May 31, 2011. The commission also approved a mechanism-an "Alternative Energy Resource Rider" ("Rider AER")-for FirstEnergy to recover the costs associated with the REC-procurement plan. See In re Application of Ohio Edison Co., Pub. Util. Comm. Nos. 08-935-EL-SSO, 09-21-EL-ATA, 09-22-EL-AEM, and 09-23-EL-AAM, 2009 Ohio PUC LEXIS 279, *17-18 (Mar. 25, 2009). FirstEnergy then proceeded to request proposals, entertain and accept bids, and contract with various suppliers for the purchase of RECs in order to comply with R.C. 4928.64.

         {¶ 8} Utilities are generally entitled to recover from retail customers the costs for buying renewable energy to comply with statutory benchmarks. See R.C. 4928.64(E). In the order approving FirstEnergy's first ESP, the commission approved a stipulation whereby FirstEnergy agreed that it would be able to recover "the prudently incurred costs" of its REC purchases under Rider AER. See 2009 Ohio PUC LEXIS 279 at *17.

         {¶ 9} The commission initiated the underlying case to review the prudence of FirstEnergy's REC purchases from 2009 through 2011. See Pub. Util. Comm. No. 11-5201-EL-RDR, 2013 Ohio PUC LEXIS 159, *3, *11 (Aug. 7, 2013). The commission selected Exeter Associates, Inc. ("Exeter"), to conduct the management and performance portions of the audit. Exeter filed its final audit report on Rider AER on August 15, 2012.

         {¶ 10} Following the audit hearing, the commission found that most of FirstEnergy's purchases were prudent, but the commission found that FirstEnergy failed to act prudently in purchasing certain in-state, nonsolar RECs in August 2010 to meet FirstEnergy's renewable-energy benchmarks for 2011. Id. at *61-69. As a result, the commission ordered FirstEnergy to credit customers' bills in the amount of $43, 362, 796.50. This amount was payable, with carrying costs, within 60 days of the commission's final order. Id. at *70, *86-87.

         {¶ 11} Several parties filed applications for rehearing, and the commission ultimately issued an entry declining to rehear any aspect of its order. Commissioner Lynn Slaby dissented from that entry, stating: "Upon further consideration of this case, I would dissent from the majority. I am convinced that [In re Application of] Columbus S. Power Co. * * *, 128 Ohio St.3d 512, 2011-Ohio-1788');">2011-Ohio-1788 [947 N.E.2d 655], precludes us from refunding money to customers as the majority has done here." Pub. Util. Comm. No. 11-5201-EL-RDR at 39 (Dec. 18, 2013).

         {¶ 12} FirstEnergy filed this appeal raising a number of challenges to the commission's decision to disallow the more than $43 million in REC costs. OCC and ELPC filed cross-appeals challenging the commission's decisions to grant trade-secret status to certain information related to FirstEnergy's REC purchases. OCC also challenges the commission's finding that the majority of FirstEnergy's purchases were prudent.

         {¶ 13} On February 10, 2014, we granted FirstEnergy's motion to stay the commission's refund order. 138 Ohio St.3d 1405, 2014-Ohio-429, 3 N.E.3d 207.

         III. STANDARD OF REVIEW

         {¶ 14} Under R.C. 4903.13, this court will reverse, vacate, or modify an order of the commission 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. This court has "complete and independent power of review as to all questions of law" in appeals from the commission. Ohio Edison Co. v. Pub. Util. Comm., 78 Ohio St.3d 466, 469, 678 N.E.2d 922 (1997). We will not reverse or modify a commission decision as to questions of fact when the record contains sufficient probative evidence to show that the decision is not manifestly against the weight of the evidence and is 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-6869, 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.

         IV. DISCUSSION

         A. FirstEnergy's Appeal

         1. FirstEnergy's Proposition of Law No. 1: Whether the commission engaged in unlawful retroactive ratemaking

         {¶ 15} FirstEnergy argues under its first proposition of law that the commission engaged in unlawful retroactive ratemaking when it ordered FirstEnergy to refund more than $43 million in REC costs. FirstEnergy's argument centers on the filed-rate doctrine, which provides that a utility may charge only the rates fixed by its current, commission-approved tariff, see R.C. 4905.32; Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co., 166 Ohio St. 254, 257, 141 N.E.2d 465 (1957). And though the commission has the power to invalidate a rate schedule and fix new rates, it may exercise this power prospectively only. See Ohio Util. Co. v. Pub. Util. Comm., 58 Ohio St.2d 153, 157-158, 389 N.E.2d 483 (1979). The rule against retroactive ratemaking thus bars the commission from ordering a refund or otherwise adjusting current rates to make up for overcharges under previously recovered rates. See In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788');">2011-Ohio-1788, 947 N.E.2d 655, at ¶ 15-16. Put most simply, "[t]he rule against retroactive rates * * * also prohibits refunds." Id. at ¶ 15.

         {¶ 16} The commission determined that under this court's decision in River Gas Co. v. Pub. Util. Comm., 69 Ohio St.2d 509, 433 N.E.2d 568 (1982), disallowing REC costs under Rider AER does not constitute retroactive ratemaking. 2013 Ohio PUC LEXIS 159 at *69-70. In disputing that conclusion, FirstEnergy maintains that because the commission had approved the rates charged under FirstEnergy's Rider AER tariff, this case is distinguishable from River Gas and the rule against retroactive ratemaking bars any refund or disallowance of REC costs already collected under these commission-approved rates.

         {¶ 17} River Gas involved the commission's audit of a utility's charges under a Uniform Purchased Gas Adjustment Clause ("UPGA"), which was adopted under R.C. 4905.302. The UPGA contained a provision requiring that supplier refunds be taken into account in determining gas rates charged to customers. After an audit, the commission ordered the utility to refund to ratepayers a supplier refund that related to rates charged before the UPGA went into effect but that the utility did not receive until after the UPGA became effective. Id. at 509-511. This court affirmed, concluding that the commission's order did not violate the rule against retroactive ratemaking. Id. at 512-514. We held that because the variable rates charged under the UPGA were authorized by a " 'statutory plan which authorizes a utility to pass variable fuel costs directly to consumers, ' " id. at 513, quoting Consumers' Counsel v. Pub. Util. Comm., 57 Ohio St.2d 78, 82-83, 386 N.E.2d 1343 (1979), the commission's approval of the refund occurred pursuant to a process that did not constitute "ratemaking in its usual and customary sense, " id. We agree with FirstEnergy that River Gas does not support the commission's determination in this case.

         {¶ 18} In this case, the tariff language of Rider AER required FirstEnergy to request quarterly approval from the commission of the charges collected through the rider. As indicated by the tariff sheets here, the requested rates were to go into effect one month after the stated filing dates "unless otherwise ordered by" the commission. The record reflects that during the time period under review, FirstEnergy made these quarterly filings on behalf of its operating companies without objection from the commission and charged consumers pursuant to the filed tariff sheets. Under R.C. 4905.32, a public utility must charge its consumers consistently with the rate set forth in the schedule "filed with the public utilities commission which is in effect at the time." (Emphasis added.) Because FirstEnergy recovered REC costs under a "filed" rate schedule, the commission was prohibited from later ordering a disallowance or refund of those costs. R.C. 4905.32; Keco Industries, 166 Ohio St. at 257, 141 N.E.2d 465. Notwithstanding that FirstEnergy was entitled to recover only "prudently incurred costs, " there can be no remedy in this case because the costs were already recovered. We have recognized that application of the no-refund rule has been perceived as unfair and has even sometimes resulted in a windfall for a utility company. See In re Application of Columbus S Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788');">2011-Ohio-1788, 947 N.E.2d 655, at ¶ 15-17; In re Application of Columbus Southern Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶ 56. But we have also recognized that it is the statutory scheme that requires this result, and therefore, it is a matter for the General Assembly to remedy, not this court. In re Application of Columbus Southern Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788');">2011-Ohio-1788, 947 N.E.2d 655, at ¶ 17.

         {¶ 19} FirstEnergy also asserts that the plain language of R.C. 4905.32 bars any refund in this case because Rider AER did not specify a refund process. We agree. R.C. 4905.32 provides that "[n]o public utility shall refund or remit directly or indirectly, any rate * * * or charge * * * except such as are specified in [its filed] schedule * * *."

         {¶ 20} For the foregoing reasons, we find that the commission engaged in unlawful retroactive ratemaking when it ordered FirstEnergy to refund more than $43 million in previously recovered REC costs to ratepayers.

         2. FirstEnergy's Proposition of Law No. 2: Whether the commission's order is against the manifest weight of the evidence

         {¶ 21} Under its second proposition of law, FirstEnergy challenges the commission's finding that FirstEnergy's management acted imprudently when it decided to purchase certain of the 2011 RECs under the August 2010 request for proposals ("RFP"), as opposed to reserving some RECs to be purchased in 2011. FirstEnergy alternatively argues that even if the commission's finding of imprudence is upheld, the amount of the disallowance-more than $43 million- is unreasonable.

         {¶ 22} Our decision sustaining FirstEnergy's retroactive-ratemaking arguments makes it unnecessary to decide these arguments. Accordingly, we dismiss FirstEnergy's second proposition of law as moot. See In re Application of Columbus S. Power Co., 138 Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, at ¶ 39 (this court does not issue advisory opinions).

         3. FirstEnergy's Proposition of Law No. 3: Whether the commission unlawfully interpreted Ohio law

         {¶ 23} FirstEnergy argues under its third proposition of law that the commission incorrectly construed the 3 percent cost-cap provision in R.C. 4928.64(C)(3) as mandatory. FirstEnergy maintains that the plain language of the statute gives electric utilities discretion whether to invoke the cap. But contrary to FirstEnergy's argument, the commission made no such holding. This proposition of law is therefore without merit.

         B. The Cross-Appeals of OCC and ELPC 1. OCC's Proposition of Law No. 1; ELPC's Proposition of Law Nos. 1 and 2: Whether the commission erred in granting the motions for protective orders

         {¶ 24} On cross-appeal, OCC and ELPC both challenge the commission's decision to grant trade-secret status to certain information related to FirstEnergy's in-state REC purchases. The information protected included REC-supplier information originally submitted during the competitive-bid auctions and the outcomes of those auctions, which was later included in Exeter's audit report. As will be discussed below, we find that the commission's trade-secret determination lacks record support.

         a. Background on the ...


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