In re Determination of Existence of Significantly Excessive Earnings for 2017 Under the Elec. Sec. Plan of Ohio Edison Co.

162 Ohio St.3d 651

166 N.E.3d 1191

IN RE DETERMINATION OF EXISTENCE OF SIGNIFICANTLY EXCESSIVE EARNINGS FOR 2017 UNDER THE ELECTRIC SECURITY PLAN OF OHIO EDISON COMPANY ;

Office of Ohio Consumers' Counsel, Appellant;

Public Utilities Commission, Appellee;

Ohio Edison Company, Intervening Appellee.

No. 2019-0961

Supreme Court of Ohio.

Submitted May 12, 2020

Decided December 1, 2020.

Bruce Weston, Ohio Consumers' Counsel, and William Michael, Angela D. O'Brien, and Maureen R. Willis, Assistant Consumers' Counsel, for appellant.

Dave Yost, Attorney General, and John Jones and Thomas W. McNamee, Assistant Attorneys General, for appellee.

Calfee, Halter & Griswold, L.L.P., James F. Lang, Cleveland, and Kari D. Hehmeyer, Columbus; and FirstEnergy Service Company and Robert M. Endris, Akron, for intervening appellee.

Stewart, J. {¶ 1} R.C. 4928.141(A) requires electric-distribution utilities to make a "standard service offer" of generation service to consumers in one of two ways: through a "market rate offer" (under R.C. 4928.142 ) or an "electric security plan" (under R.C. 4928.143 ). Electric-distribution utilities that opt to provide service under an electric security plan must undergo an annual earnings review by appellee, the Public Utilities Commission. R.C. 4928.143(F). If the commission finds that the plan resulted in "significantly excessive earnings" compared to similar companies, the utility must return the excess to its customers. Id.

{¶ 2} In this case, the commission found that intervening appellee Ohio Edison Company's 2017 earnings were not significantly excessive.

{¶ 3} Appellant, the Office of the Ohio Consumers' Counsel ("OCC"), appeals from the orders making that finding, challenging the commission's decision to exclude revenue resulting from Ohio Edison's Distribution Modernization Rider ("DMR") from the earnings test. We conclude that the commission's decision to exclude revenue resulting from the DMR, which was approved as part of the company's electric security plan, was not reasonable. Accordingly, we reverse the commission's orders and remand the cause for further proceedings.

I. FACTS AND PROCEDURAL BACKGROUND

{¶ 4} On March 31, 2016, the commission approved the fourth electric security plan ("ESP") of the FirstEnergy companies, which includes Ohio Edison. The plan runs for eight years, ending on May 31, 2024.

In re Application of Ohio Edison Co. , Pub. Util. Comm. No. 14-1297-EL-SSO, 2016 WL 1388110 (Mar. 31, 2016) ("ESP Case"). As part of the ESP, the commission authorized the DMR, which was intended to serve as an incentive for the companies to modernize their distribution systems. Pub. Util. Comm. No. 14-1297-EL-SSO, 2016 Ohio PUC LEXIS 920, Fifth Entry on Rehearing, ¶ 185-213 (Oct. 12, 2016) ("ESP Fifth Entry on Rehearing").

{¶ 5} R.C. 4928.143(F)¹ requires the commission to consider annually whether the electric security plan resulted in "significantly excessive earnings" compared to companies facing "comparable" risk:

With regard to the provisions that are included in an electric security plan under this section, the commission shall consider, following the end of each annual period of the plan, if any such adjustments resulted in excessive earnings as measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate. Consideration also shall be given to the capital requirements of future committed investments in this state.

The utility bears the "burden of proof for demonstrating that significantly excessive earnings did not occur," and if the commission finds that "such adjustments"—referring to provisions of the electric security plan—"in the aggregate, did result in significantly excessive earnings, it shall require the electric distribution utility to return to consumers the amount of the excess by prospective adjustments." Id.

{¶ 6} On May 15, 2018, FirstEnergy filed an application with the commission to conduct the significantly-excessive-earnings test ("SEET") for each of its companies for 2017 (the "SEET case"). FirstEnergy and the commission's staff argued that DMR revenue should be excluded from the SEET calculation for 2017, consistent with the commission's determination of this issue in the ESP case. OCC challenged the exclusion of Ohio Edison's DMR revenue, arguing that R.C. 4928.143(F) does not permit the commission to exclude revenue collected directly from charges approved under the plan.

{¶ 7} The commission held that revenue that Ohio Edison had collected under the DMR in 2017 should be excluded from the SEET review because that was the methodology approved in the ESP case. Pub. Util. Comm. No. 18-0857-EL-UNC, 2019 Ohio PUC LEXIS 330, at ¶ 26 (Mar. 20, 2019) ("SEET Order"), citing ESP Fifth Entry on Rehearing, 2016 Ohio PUC LEXIS 920, at ¶ 212 and Pub. Util. Comm. No. 14-1297-EL-SSO, 2017 OHIO PUC LEXIS 719, Eighth Entry on Rehearing, ¶ 81 (Aug. 16, 2017) ("ESP Eighth Entry on Rehearing"). In the ESP proceedings, the commission found that "DMR revenues should be excluded from SEET calculations," at least during the initial three-year period of the DMR, because including that revenue "would introduce an unnecessary element of risk to [Ohio Edison] and undermine the purpose of providing credit support for the Compan[y]." ESP Fifth Entry on Rehearing at ¶ 212. The commission affirmed this ruling in the ESP Eighth Entry on Rehearing and also found that the arguments against excluding the DMR revenue from the 2017 SEET were premature. Id. at ¶ 81.

{¶ 8} OCC filed an application for rehearing in the SEET case, arguing that the commission violated R.C. 4928.143(F) when it excluded DMR revenue from the 2017 SEET. The commission denied rehearing on May 15, 2019.

{¶ 9} One month later, on June 19, 2019, we held that the DMR was unlawful and ordered it removed from the ESP. In re Application of Ohio Edison Co. , 157 Ohio St.3d 73, 2019-Ohio-2401, 131 N.E.3d 906. We declined to rule on whether the commission erred in excluding DMR revenue from the SEET, finding that the issue could be raised in the annual SEET review. Id. at ¶ 33-34.

{¶ 10} On July 15, 2019, OCC filed this appeal, challenging the commission's decision to exclude the DMR revenue from the SEET.

II. STANDARD OF REVIEW

{¶ 11} " R.C. 4903.13 provides that a [Public Utilities Commission] 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 commission decision as to questions of fact when the record contains sufficient probative evidence to show that the commission's 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-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.

{¶ 12} Although this court has "complete and independent power of review as to all questions of law" in appeals from the Public Utilities Commission, 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).

III. ANALYSIS

{¶ 13} OCC argues that the commission acted unreasonably and unlawfully when it excluded the DMR revenue from the annual SEET review. According to OCC, R.C. 4928.143(F) does not support the commission's decision to remove that revenue from the calculation of Ohio Edison's earned return on common equity. OCC also asserts that the commission's decision is contrary to this court's prior interpretation of that provision.

A. This court will defer to the commission's interpretation of R.C. 4928.143(F), but only if it is reasonable

{¶ 14} While we generally review questions of law de novo, we will defer to the commission's interpretation of a statute when "there exists disparate competence between the respective tribunals in dealing with highly specialized issues." Consumers' Counsel at 110, 388 N.E.2d 1370. "One area in which this court has consistently deferred to the expertise of the commission is in determining rate-of-return matters." In re Comm. Rev. of Capacity Charges of Ohio Power Co. , 147 Ohio St.3d 59, 2016-Ohio-1607, 60 N.E.3d 1221, ¶ 41, citing Ohio Edison Co. v. Pub. Util. Comm. , 63 Ohio St.3d 555, 561, 589 N.E.2d 1292 (1992), fn. 3. "Limited judicial review of a rate of return determination is sound" because " ‘cost of capital analyses * * * are fraught with judgments and assumptions.’ " (Ellipsis sic.) Consumers' Counsel v. Pub. Util. Comm. , 64 Ohio St.2d 71, 79, 413 N.E.2d 799 (1980), quoting Dayton Power & Light Co. , Pub. Util. Comm. No. 78-92-EL-AIR, at 26 (Mar. 9, 1979).

{¶ 15} In 2012, we held that R.C. 4928.143(F) is essentially a rate-of-return statute and therefore it is appropriate to review the commission's interpretation of R.C. 4928.143(F) deferentially. In re Application of Columbus S. Power Co. , 134 Ohio St.3d 392, 2012-Ohio-5690, 983 N.E.2d 276, ¶ 36-38. Nevertheless, we defer to the commission's interpretation of R.C. 4928.143(F) only if it is reasonable. Id. at ¶ 38.

{¶ 16} In this case, the...