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
and CROSS-APPEALS from the Public Utilities Commission, No.
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
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
Madeline Fleisher, for cross-appellant, Environmental Law and
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.
T. Nourse; and Porter, Wright, Morris & Arthur, L.L.P.,
and Kathleen M. Trafford, for amicus curiae, Ohio Power
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
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
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
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. 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.
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,
(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.
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.
FirstEnergy's Proposition of Law No. 1: Whether the
commission engaged in unlawful retroactive
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
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.
FirstEnergy's Proposition of Law No. 2: Whether the
commission's order is against the manifest weight of the
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).
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.
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
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.
Background on the ...