In re Application of Ohio Power Co. (Slip Opinion)

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In

re Application of Ohio Power Co., Slip Opinion No. 2014-Ohio-4271.]

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. 2014-OHIO-4271

IN RE APPLICATION OF OHIO POWER COMPANY TO UPDATE ITS TRANSMISSION

COST RECOVERY RIDER RATES; INDUSTRIAL ENERGY USERS-OHIO,

APPELLANT; OHIO POWER COMPANY ET AL., APPELLEES.

[Until this opinion appears in the Ohio Official Reports advance sheets,

it may be cited as In re Application of Ohio Power Co.,

Slip Opinion No. 2014-Ohio-4271.]

Public utilities—Transmission cost recovery rider—R.C. 4928.144(A)(2)—

Transmission costs recovery rider—Public Utilities Commission order

permitting utility to recoup underrecovered transmission costs from all

customers over three years on nonbypassable basis not unlawful or

unreasonable—Order did not constitute impermissible retroactive

ratemaking—Collection on nonbypassable basis not unauthorized—

Orders affirmed.

(No. 2013-0154—Submitted July 9, 2014—Decided October 7, 2014.)

APPEAL from the Public Utilities Commission, No. 12-1046-EL-RDR.

____________________

SUPREME COURT OF OHIO

KENNEDY, J.

SUMMARY

{¶ 1} In the case below, the commission authorized the Ohio Power

Company to recover costs associated with providing transmission service to its

standard-service-offer customers (those who take generation service from the

incumbent distribution utility instead of buying it on the market). The cost of

transmission service is set by the Federal Energy Regulatory Commission

(“FERC”). Under Ohio law, electric-distribution utilities are allowed to recover

from their retail customers all transmission-related costs imposed on the utility by

FERC or by an organization approved by FERC. R.C. 4928.05(A)(2). Ohio

Power recovers these costs through a reconciling rate mechanism called the

Transmission Cost Recovery Rider (“TCRR”). Ohio Adm.Code 4901:1-36-

03(A). The commission annually reviews and adjusts the TCRR to ensure that the

utility is recovering only its actual costs of providing the service. Ohio

Adm.Code 4901:1-36-03(B). By commission rule, shopping customers—those

who shop for electric service from a competitive supplier—bypass the TCRR and

thus avoid having to pay the rider. Ohio Adm.Code 4901:1-36-04(B).

{¶ 2} During the period under review in this case, Ohio Power reported

that it had underrecovered $36 million in transmission costs. The commission’s

order determined that Ohio Power could collect the underrecovered costs from

both shopping and nonshopping customers. The commission found that a large

percentage of shopping customers who were receiving transmission service from

Ohio Power at the time the underrecovery was created had since decided to take

service from an alternative generation provider. Although these shopping

customers would normally be able to avoid paying the TCRR, the commission

reasoned that it would be unfair to require nonshopping customers to shoulder the

entire burden of paying for the underrecovery, since the underrecovery was

caused in part by these shopping customers.

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{¶ 3} Industrial Energy Users-Ohio (“IEU”) challenges the commission’s

decision to allow the company to recover the underrecovered transmission costs

from shopping customers. For the reasons discussed in detail below, we affirm

the commission.

FACTS AND PROCEDURAL BACKGROUND

{¶ 4} Since competition began in the provision of electric-generation

service, the law has required incumbent electric-distribution utilities to transfer

control of their transmission assets to “one or more qualifying transmission

entities.” R.C. 4928.12(A). On October 1, 2004, Ohio Power transferred control

of its transmission assets to PJM Interconnection, L.L.C., one of six regional

power grids regulated by FERC.1 PJM, a qualifying entity under R.C.

4928.12(B)(1), now coordinates and directs the operation of Ohio Power’s

transmission network.

{¶ 5} Ohio Power, as a member of PJM, is charged for securing

transmission service through the organization. Currently, PJM bills Ohio Power

based on rates set by FERC for transmission service associated with serving the

company’s customer load. In turn, Ohio law permits Ohio Power (and all other

electric-distribution utilities) to recover from the utility’s retail customers the

FERC-approved transmission charges billed by PJM. R.C. 4928.05(A)(2)

(allowing electric distribution utilities to recover “all transmission and

transmission-related costs * * * imposed on or charged to the utility by * * * a

regional transmission organization * * * approved by” FERC). This provision

authorizes the commission to provide for recovery through a “reconcilable rider”

added to the electric utility’s distribution rates. Id.

1

PJM is a multiutility transmission organization designated by FERC to coordinate the movement

of wholesale electricity in all or part of 13 states—including Ohio—and the District of Columbia.

See generally Ohio Consumers’ Counsel v. Pub. Util. Comm., 111 Ohio St.3d 384, 2006-Ohio-

5853, 856 N.E.2d 940, ¶ 5-6.

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{¶ 6} Consistent with this statutory provision, Ohio Power asked the

commission to approve the TCRR to recover such costs as part of the company’s

first Electric Security Plan (“ESP”). The commission approved the TCRR as

proposed by the company. See In re Application of Columbus S. Power Co. for

Approval of Elec. Sec. Plan, Pub. Util. Comm. Nos. 08-917-EL-SSO and 08-918-

EL-SSO, 49-50 (Mar. 18, 2009). The TCRR was then carried over as part of

Ohio Power’s second and current ESP, covering 2012 through 2014. See Pub.

Util. Comm. Nos. 11-346-EL-SSO, 5, 63-64 (Aug. 8, 2012).

{¶ 7} The TCRR is structured as a pass-through mechanism, meaning that

it is designed so that Ohio Power can recover the same amount in transmission

costs from its customers as the amount billed by PJM. Once a year Ohio Power

projects the amount of transmission costs it expects to be billed by PJM, and those

costs are used as a revenue requirement to calculate the TCRR rate over the next

12-month period. Because the costs included in the TCRR are based on

projections that will vary from actual costs, the TCRR contains a true-up

mechanism to reconcile any over- or underrecovered charges from the preceding

12-month period.

{¶ 8} Pursuant to Ohio Adm.Code 4901:1-36-03(B), Ohio Power files an

application each year with the commission to update the rates charged under the

TCRR and to reconcile any over- or underrecoveries stemming from the prior

period. R.C. 4928.05(A)(2) and Ohio Adm.Code 4901:1-36-03(B). This case

began when Ohio Power filed an application with the commission to update the

TCRR rates for the period from September 2012 through August 2013. The

application reflected that Ohio Power’s TCRR had failed to recover enough

revenue to recoup the costs that Ohio Power incurred to provide transmission

service during the period of July 2011 through June 2012.

{¶ 9} The amount of underrecovered transmission costs was

approximately $36 million. According to Ohio Power, these underrecovered costs

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January Term, 2014

were caused primarily by (1) the difference between the costs projected in the

company’s most recent TCRR update case and the actual costs incurred to provide

transmission service over that period (i.e., transmission charges billed to Ohio

Power by PJM from July 2011 through June 2012) and (2) a substantial increase

(from less than 10 percent to nearly 40 percent) in the number of customers in

Ohio Power’s service territory shopping for generation service.

{¶ 10} Ohio Power would normally recoup any underrecovered amounts

through the TCRR over the next 12-month period. But to mitigate the impact of

the rate increase on customers, Ohio Power proposed to collect the underrecovery

balance with carrying charges over a three-year period. By commission rule, the

TCRR is imposed on Ohio Power’s standard-service-offer customers since these

customers are the ones who were provided the transmission service. Ohio

Adm.Code 4901:1-36-04(B). Therefore, customers can avoid paying the TCRR

by choosing to shop for generation service from a competitive supplier.2 Ohio

Power proposed that the rate impact could be further mitigated by collecting the

underrecovered costs from all customers (shopping and nonshopping) pursuant to

R.C. 4928.144.

{¶ 11} As an initial matter, the commission determined that it was not

necessary to hold an evidentiary hearing in the case. In re Application of Ohio

Power Co. to Update the Co.’s Transmission Cost Recovery Rider, Pub. Util.

Comm. No. 12-1046-EL-RDR, 6 (Oct. 24, 2012) (the “TCRR Order”). The

commission has discretion under Ohio Adm.Code 4901:1-36-05 to decide

2

Customers who shop do not have to pay the TCRR to Ohio Power, Ohio Adm.Code 4901:1-36-

04(B), but they do not entirely avoid paying transmission costs. Shopping customers pay for

transmission service through their new contracts with competitive suppliers.

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whether a hearing on the application is necessary.3 No party challenged the

commission’s decision not to conduct a hearing.4

{¶ 12} As to the merits, the commission’s opinion and order approved

Ohio Power’s proposed TCRR rates for the next annual period. The commission

also agreed with Ohio Power that it was necessary to minimize the rate impact

that would otherwise occur if Ohio Power were to collect $36 million in

transmission costs in just one year. The commission therefore ordered Ohio

Power to collect the underrecovered transmission costs over a three-year period,

with carrying costs. The commission also found that it was unfair to require

nonshopping customers to shoulder the entire burden of paying for the

underrecovery since the underrecovery was caused in part by customers who were

now shopping but who had received transmission service from Ohio Power at the

time the underrecovery was created. To that end, the commission ordered that

Ohio Power should collect the underrecovered balance from all customers

(shopping and nonshopping) and authorized Ohio Power to establish a separate,

nonbypassable charge until those costs were fully collected. TCRR Order at 7.

{¶ 13} IEU timely applied for rehearing, which was denied. In re

Application of Ohio Power Co. to Update its Transmission Cost Recovery Rider

Rates, Pub. Util. Comm. No. 12-1046-EL-RDR (Dec. 12, 2012) (“TCRR

3

The rule provides that “[u]nless otherwise ordered, * * * the commission shall approve the

application or set the matter for hearing within seventy-five days after the filing of a complete

application” to recover transmission costs. The commission did not rule on the application within

75 days because the attorney examiner suspended the deadline in order to give the commission’s

staff additional time to review Ohio Power’s application. TCRR Order at 2.

4

IEU states in its reply brief that there is no evidence in the record as to what caused the

underrecovery balance because the commission did not conduct an evidentiary hearing in this

matter. IEU has forfeited any arguments that the commission’s order lacked record support. We

have jurisdiction only over arguments raised on rehearing before the commission, and IEU never

challenged the commission’s refusal to conduct an evidentiary hearing in an application for

rehearing. See R.C. 4903.10; Office of Consumers’ Counsel v. Pub. Util. Comm., 70 Ohio St.3d

244, 247, 638 N.E.2d 550 (1994).

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Rehearing Entry”). IEU then filed the instant appeal challenging the

commission’s orders.

STANDARD OF REVIEW

{¶ 14} “R.C. 4903.13 provides that a PUCO 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 PUCO decision as to questions

of fact where the record contains sufficient probative evidence to show that the

commission’s decision was not manifestly against the weight of the evidence and

was 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.

{¶ 15} Although we have “complete and independent power of review as

to all questions of law” in appeals from the PUCO, 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).

DISCUSSION

{¶ 16} IEU challenges the order on three grounds: (1) the commission

engaged in unlawful retroactive ratemaking, (2) the commission erred in relying

on R.C. 4928.144 to authorize the recovery of costs on a nonbypassable basis, and

(3) the commission failed to follow precedent. After review, we find that none of

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these grounds has merit. We address IEU’s propositions of law out of order for

ease of discussion.

I. IEU’s Proposition of Law No. 2: The commission cannot rely on its phase-

in authority under R.C. 4928.144 to authorize Ohio Power to collect the

underrecovery balance on a nonbypassable basis

{¶ 17} In its second proposition of law, IEU argues that the commission

erred when it relied on its statutory phase-in authority to allow the collection of

Ohio Power’s underrecovered transmission costs on a nonbypassable basis. The

statute at issue here is R.C. 4928.144, which provides:

The public utilities commission by order may authorize any just

and reasonable phase-in of any electric distribution utility rate or

price established under sections 4928.141 to 4928.143 of the

Revised Code * * * as the commission considers necessary to

ensure rate or price stability for consumers. If the commission’s

order includes such a phase-in, the order also shall provide for the

creation of regulatory assets pursuant to generally accepted

accounting principles, by authorizing the deferral of incurred costs

equal to the amount not collected, plus carrying charges on that

amount. Further, the order shall authorize the collection of those

deferrals through a nonbypassable surcharge on any such rate or

price so established for the electric distribution utility by the

commission.

{¶ 18} IEU raises three arguments under the second proposition: (1) the

commission could not utilize R.C. 4928.144 in the underlying TCRR proceedings

because any phase-in under the statute must be authorized in a standard-service-

offer proceeding, (2) even if R.C. 4928.144 could be utilized in the TCRR

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January Term, 2014

proceedings, the commission did not rely on the statute to authorize the recovery

of the TCRR, and (3) the commission could not authorize recovery of the TCRR

on a nonbypassable basis because the TCRR was not a rate or price established

under R.C. 4928.143. We address each argument in turn.

A. The plain language of R.C. 4928.144 does not support IEU’s argument

that the statute applies only to standard-service-offer proceedings

{¶ 19} IEU first argues that the commission’s phase-in authority under

R.C. 4928.144 could not be invoked in the underlying TCRR proceedings. In

IEU’s view, the commission can invoke its phase-in authority only in the same

proceeding that establishes the utility’s standard service offer, the rate charged to

customers who take generation service from the utility instead of a competitive

supplier. See R.C. 4928.141(A) (requiring electric distribution utilities to provide

a standard service offer). Because Ohio Power has chosen to provide its standard

service offer in the form of an electric-security plan, IEU asserts that the

commission could phase in rates only in the orders approving the company’s

electric-security plans. See R.C. 4928.143(A) (“For the purpose of complying

with section 4928.141 of the Revised Code, the electric distribution utility may

file an application for public utilities commission approval of an electric security

plan * * *”).

{¶ 20} We begin our analysis of this issue with the language of the statute.

See e.g., State v. Hanning, 89 Ohio St.3d 86, 91, 728 N.E.2d 1059 (2000).

{¶ 21} R.C. 4928.144 provides that “[t]he public utilities commission by

order may authorize any just and reasonable phase-in of any electric distribution

utility rate or price established under sections 4928.141 to 4928.143 of the

Revised Code * * *.” (Emphasis added.) IEU interprets the italicized language as

limiting the exercise of the commission’s authority to the proceedings that

established the rate or price. IEU contends that because the commission did not

invoke its phase-in authority during Ohio Power’s ESP proceedings, when rates

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and prices were established under R.C. 4928.143, it could not phase in those rates

or prices in any subsequent proceeding.

{¶ 22} R.C. 4928.144 does limit the commission’s authority. The

commission may phase in only those rates and prices that are established under

R.C. 4928.141 to 4928.143. It also requires that the phase-in be “just and

reasonable.” The statute, however, says nothing about when the commission may

invoke its phase-in authority. The error in IEU’s argument is that it interprets the

statute as though it included the italicized words:

{¶ 23} The public utilities commission by order under sections 4928.141

to 4928.143 of the Revised Code may authorize any just and reasonable phase-in

of any electric distribution utility rate or price.

{¶ 24} But R.C. 4928.144 simply does not read that way. In construing a

statute, a court may not add or delete words. State ex rel. Cincinnati Bell Tel. Co.

v. Pub. Util. Comm., 105 Ohio St.3d 177, 2005-Ohio-1150, 824 N.E.2d 68, ¶ 32.

{¶ 25} The statute imposes few other restrictions on the commission’s

authority over the design of the phase-in. R.C. 4928.144 allows the commission

to “authorize any just and reasonable phase-in” of electric-security-plan rates “as

the commission considers necessary to ensure rate or price stability for

consumers.” While the end result must be “just and reasonable,” the emphasized

language grants the commission considerable discretion to determine if and when

to phase in rates. See In re Application of Columbus S. Power Co., 129 Ohio

St.3d 568, 2011-Ohio-4129, 954 N.E.2d 1183, ¶ 10. See also Payphone Assn. of

Ohio v. Pub. Util. Comm., 109 Ohio St.3d 453, 2006-Ohio-2988, 849 N.E.2d 4,

¶ 25 (“When a statute does not prescribe a particular formula, the PUCO is vested

with broad discretion”).

{¶ 26} IEU, then, is challenging a judgment call, but it has not come close

to showing an abuse of discretion. Notably, IEU focuses solely on the phrase

“rate or price established under sections 4928.141 to 4928.143 of the Revised

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Code,” yet never discusses it in context. Context matters, and at no point does

IEU identify any language in the statute that imposes timing limitations.

{¶ 27} In the end, IEU’s interpretation fails on the plain language of the

statute. The statutory language not only supports the commission’s reading, but

no other part of the statute expressly contradicts it. The commission’s

interpretation of R.C. 4928.144—that it allows the commission to invoke its

phase-in authority outside of standard-service-offer proceedings—is reasonable.

And given that this statute implicates a matter of rate design, we defer to the

commission’s reasonable interpretation. See Consumers’ Counsel v. Pub. Util.

Comm., 10 Ohio St.3d 49, 50, 461 N.E.2d 303 (1984) (the setting of a “phase-in

period” in which to recover certain expenses “is clearly within the discretionary

purview of the commission”); Consumers’ Counsel v. Pub. Util. Comm., 125

Ohio St.3d 57, 2010-Ohio-134, 926 N.E.2d 261, ¶ 20 (commission possesses

“broad discretion” to design rates); Citywide Coalition for Util. Reform v. Pub.

Util. Comm., 67 Ohio St.3d 531, 534, 620 N.E.2d 832 (1993) (“We have afforded

the commission considerable discretion in matters of rate design * * *”).

B. The commission properly invoked R.C. 4928.144

{¶ 28} IEU next argues that the commission failed to state that it relied on

R.C. 4928.144 to authorize Ohio Power to recoup the underrecovered TCRR

balance on a nonbypassable basis. And, according to IEU, the commission

repeated this error on rehearing when instead of stating that it had invoked its

phase-in authority under R.C. 4928.144, it merely “stated that the TCRR Order

was ‘consistent with the Commission’s authority under Section 4928.144,

Revised Code.’ ” This argument lacks merit for two reasons.

{¶ 29} First, the commission by clear implication did rely on R.C.

4928.144. In the initial order, the commission approved Ohio Power’s application

to update its TCRR, which included the proposal to phase in rates on a

nonbypassable basis pursuant to R.C. 4928.144. In doing so, the commission

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rejected IEU’s argument that R.C. 4928.144 was inapplicable and therefore could

not serve as a basis for making the TCRR nonbypassable. TCRR Order at 7. The

commission also specifically noted that the TCRR had been approved in each of

Ohio Power’s ESP proceedings, in reference to the requirement under R.C.

4928.144 that the phased-in “rate or price [be] established under sections

4928.141 to 4928.143 of the Revised Code.” TCRR Order at 7.

{¶ 30} Moreover, even leaving aside the commission’s initial order, the

commission expressly stated on rehearing that a phase-in of the recovery of the

underrecovered TCRR balance is appropriate under R.C. 4928.144, that it was

proper to apply R.C. 4928.144 under the circumstances of this case, and that the

conditions in R.C. 4928.144 for phasing in rates had been met. See TCRR

Rehearing Entry at 4, 8-9.

{¶ 31} Second, IEU overlooks a basic point of procedure that is necessary

to reverse a commission order: this court “will not reverse an order of the

commission absent a showing of prejudice by the party seeking reversal.” Myers

v. Pub. Util. Comm., 64 Ohio St.3d 299, 302, 595 N.E.2d 873 (1992). See also

Parma v. Pub. Util. Comm., 86 Ohio St.3d 144, 149, 712 N.E.2d 724 (1999); and

Ohio Commt. of Cent. Station Elec. Protection Assn. v. Pub. Util. Comm., 50 Ohio

St.2d 169, 174, 364 N.E.2d 3 (1977). Moreover, IEU does not even attempt to

show how it or its constituents suffered harm from the commission’s failure to

expressly rely on R.C. 4928.144 in the orders below.

{¶ 32} In sum, IEU failed to show reversible error. We therefore reject

this argument.

C. IEU’s argument regarding R.C. 4928.143 lacks a coherent legal theory

{¶ 33} Finally, IEU argues that the commission cannot authorize recovery

of the TCRR on a nonbypassable basis because the TCRR was not a “rate or price

established under sections 4928.141 to 4928.143 of the Revised Code,” as

required by R.C. 4928.144. The commission found that the TCRR was approved

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as part of Ohio Power’s first and second electric-security plans, consistent with

R.C. 4928.143. IEU challenges that determination, contending that the

commission did not rely on R.C. 4928.143 when it authorized the TCRR. Rather,

IEU claims that the commission authorized the TCRR under R.C. 4928.05. IEU

has again failed to demonstrate reversible error.

{¶ 34} R.C. 4928.143 governs electric-security plans (“ESPs”) and the

types of rate components that may be included in such plans. R.C.

4928.143(B)(2)(g) provides that an ESP may include “[p]rovisions relating to

transmission * * * service required for the standard service offer, including

provisions for the recovery of any cost of such service that the electric distribution

utility incurs * * * pursuant to the standard service offer.” In 2009, the

commission approved a TCRR mechanism as a part of the company’s ESP. See

Pub. Util. Comm. No. 08-918-EL-SSO, 49-50 (Mar. 18, 2009). In Ohio Power’s

second ESP case, covering the time period from 2012 through 2014, the

commission approved the current version of the TCRR. See Pub. Util. Comm.

No. 11-348-EL-SSO, 63-64 (Aug. 8, 2012).

{¶ 35} IEU does not dispute that R.C. 4928.143 allows Ohio Power to

include a TCRR mechanism in the company’s ESP. Nor does it claim that the

commission failed to approve the TCRR in the company’s ESP proceedings. Its

only complaint is that the commission did not expressly rely on R.C. 4928.143

when it approved the TCRR in the ESP orders. It is true that the commission did

not mention R.C. 4928.143 in approving the TCRR in either ESP case. Even so,

IEU does not explain why it was necessary to do so in light of the commission’s

clear authority under R.C. 4928.143 to approve a TCRR mechanism as part of an

ESP. IEU’s failure to offer a coherent legal theory is grounds for rejecting its

argument. See, e.g., In re Complaint of Wilkes v. Ohio Edison Co., 131 Ohio

St.3d 252, 2012-Ohio-609, 963 N.E.2d 1285, ¶ 10; Util. Serv. Partners, Inc. v.

Pub. Util. Comm., 124 Ohio St.3d 284, 2009-Ohio-6764, 921 N.E.2d 1038, ¶ 53.

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II. IEU’s Proposition of Law No. 3: Without a lawful and reasonable

justification for its change of direction, the commission departed from

commission precedent requiring that the TCRR remain fully bypassable

{¶ 36} In its third proposition of law, IEU argues that the commission

declined to follow precedent, namely, In re Application of Duke Energy Ohio, Inc.

for Approval of a Market Rate Offer, Pub. Util. Comm. No. 10-2586-EL-SSO

(Feb. 23, 2011). IEU maintains that the commission established the following

precedent in Duke: reconcilable riders (such as the TCRR) that are originally

avoidable by shopping customers must remain so and can never be collected from

shopping customers. We disagree.

{¶ 37} The rider at issue in Duke—Rider SCR—was designed to be

avoidable for customers taking generation service from a competitive supplier.

Duke had proposed to make the rider unavoidable to such customers if amounts

underrecovered through the rider reached a certain threshold. The commission

rejected Duke’s proposal with the following statement:

In considering Duke’s request to include a “circuit breaker”

provision in Rider SCR, the Commission does not believe that

such a provision would advance the policy of the state as

articulated in Section 4928.02, Revised Code. Specifically, [R.C.

4928.02(H)] provides that it is the policy of the state to avoid

anticompetitive subsidies flowing from a noncompetitive retail

electric service to a competitive retail electric service and vice

versa. If Duke were permitted to recover the costs included in

Rider SCR from shopping customers, under any circumstances, we

believe that it would create an anticompetitive subsidy. * * *

Accordingly, the Commission does not believe that Rider SCR

could be approved as a potentially unavoidable charge.

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Pub. Util. Comm. No. 10-2586-EL-SSO, at 63-64.

{¶ 38} According to IEU, the commission held in Duke that a true-up of a

bypassable rider cannot be collected on a nonbypassable basis “ ‘under any

circumstances.’ ” But IEU’s selective reading of the quoted passage from the

Duke order gives a misleading impression of what the case stands for. As can be

gleaned from reading the entire excerpt in context, the commission did not hold

that a reconcilable rider that was originally made bypassable can never be

collected from shopping customers under any circumstances. Rather, the

commission merely held that Duke could not collect Rider SCR (which was

proposed as a bypassable rider) from shopping customers under any

circumstances, because to do so would create an anticompetitive subsidy. In

short, the commission did not depart from precedent in the case below because

Duke never established the precedent that IEU alleges. We therefore reject

proposition of law No. 3.

III. Proposition of Law No. 1: The commission engaged in retroactive

ratemaking when it authorized the collection of the TCRR under-recovery

balance on a nonbypassable basis

{¶ 39} IEU argues in proposition of law No. 1 that the commission

engaged in unlawful retroactive ratemaking when it allowed Ohio Power to

collect under-recovered transmission costs from shopping customers. IEU asserts

that the commission’s TCRR Order is unlawful because it makes shopping

customers—who avoided paying the TCRR before the order—retroactively

responsible for paying transmission costs that Ohio Power had incurred to serve

nonshopping customers. For the reasons that follow, we find that the commission

did not engage in unlawful retroactive ratemaking.

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A. R.C. 4928.144 authorized the commission to defer the collection

of the TCRR, and the statute mandates that deferrals be collected

through a nonbypassable surcharge

{¶ 40} IEU concedes that Ohio Power is entitled to recover the $36

million in underrecovered transmission costs. IEU, however, maintains that the

commission engaged in unlawful retroactive ratemaking when it allowed Ohio

Power to collect these underrecovered costs from shopping customers. IEU states

that before the TCRR Order, shopping customers were not responsible to Ohio

Power for any transmission costs, and only nonshopping customers were required

to pay the TCRR. According to IEU, the rule against retroactive ratemaking

prohibits the commission from authorizing Ohio Power to collect the

underrecovered transmission costs through a nonbypassable charge, because use

of this mechanism imposes revenue responsibility on shopping customers for

unrecovered costs incurred to serve nonshopping customers.

{¶ 41} It is true that before the TCRR Order, shopping customers were not

required to pay the TCRR. But the commission’s decision to allow Ohio Power

to collect the underrecovered transmission costs from shopping customers was not

unlawful retroactive ratemaking. R.C. 4928.144 authorizes the commission to

phase in rates or prices established in an electric-security plan, and it plainly gives

the commission discretion over the design of the phase-in. Specifically, R.C.

4928.144 allows the commission to “authorize any just and reasonable phase-in of

any electric distribution utility rate * * * as the commission considers necessary

to ensure rate or price stability for consumers.” (Emphasis added.) Ohio Power

would normally recoup any underrecovered amounts through the TCRR over the

next 12-month period (here, from September 2012 through August 2013). In

order to mitigate the impact of the rate increase on customers, the commission

authorized Ohio Power to collect the shortfall over three years instead of one year.

Once the commission determined that it was necessary to phase in the recovery of

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the shortfall over three years, R.C. 4928.144 required that the commission order

the collection of deferred rates “through a nonbypassable surcharge on any such

rate.” In short, even if the commission’s TCRR Order did amount to retroactive

ratemaking, it was not unlawful because the commission had statutory authority to

phase in the collection of rates through a nonbypassable surcharge.

{¶ 42} For its part, IEU has not shown an abuse of discretion. IEU’s only

arguments against the commission’s use of its phase-in authority under R.C.

4928.144 are found in the second proposition of law, which we have already

rejected, and there is no need to discuss those issues again. The commission is a

creature of statute and can exercise only the authority conferred upon it by the

General Assembly. Tongren v. Pub. Util. Comm., 85 Ohio St.3d 87, 88, 706

N.E.2d 1255 (1999). In the end, IEU has not shown that the commission’s

exercise of its statutory phase-in authority was unlawful or unreasonable.

B. IEU’s remaining arguments under its first proposition

of law do not compel reversal

{¶ 43} IEU raises two other arguments under proposition of law No. 1.

One has been forfeited; the other lacks merit.

1. IEU’s claim regarding the 2011 TCRR Order was not presented

to the commission on rehearing

{¶ 44} IEU argues that the commission violated the prohibition against

retroactive ratemaking because the commission’s order in Ohio Power’s 2011

TCRR case failed to include any mechanism to shift revenue responsibility to

shopping customers. See In re Application of Ohio Power Co. to Update the

Co.’s Transmission Cost Recovery Rider, Pub. Util. Comm. No. 11-2473-EL-

RDR (June 22, 2011) (the “2011 TCRR Order”). The 2011 TCRR Order

implemented the rates that led to the $36 million underrecovery at issue in this

case. According to IEU, the commission was required to approve the

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nonbypassable charge in the 2011 TCRR Order in order to avoid the proscription

against retroactive ratemaking.

{¶ 45} IEU has forfeited this argument by failing to present it to the

commission in an application for rehearing. That jurisdictionally bars us from

considering the claim. R.C. 4903.10; Office of Consumers’ Counsel v. Pub. Util.

Comm., 70 Ohio St.3d 244, 247, 638 N.E.2d 550 (1994) (“setting forth specific

grounds for rehearing is a jurisdictional prerequisite for our review”).

2. Lost revenue due to regulatory delay is not at issue

{¶ 46} IEU also argues that the commission was wrong in finding that the

under-recovery balance did not result from revenue lost due to regulatory delay.

IEU asserts that the underrecovered transmission costs were the function of the

delay inherent in the TCRR review process. According to IEU, the underrecovery

balance resulted from revenue that Ohio Power was unable to collect from

nonshopping customers during the prior annual review period. Therefore, IEU

asserts that the commission violated the rule against retroactive ratemaking when

it adjusted rates in the TCRR Order to allow Ohio Power to retroactively recover a

portion of those costs from shopping customers.

{¶ 47} Contrary to IEU’s contention, the TCRR Order does not

compensate Ohio Power for revenues lost during the pendency of the

commission’s proceedings. See In re Application of Columbus S. Power Co., 128

Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 11 (making up for revenues

lost due to regulatory delay is precisely the sort of rate increase that the court

ruled out in Keco Industries, Inc. v. Cincinnati & Suburban Bell Tel. Co., 166

Ohio St. 254, 141 N.E.2d 465 (1957)). To begin with, R.C. 4928.05 uses a

retrospective approach to cost recovery and thus differs from a traditional

ratemaking statute that sets rates prospectively. Specifically, R.C. 4928.05(A)(2)

guarantees that the utility will recover transmission costs imposed by FERC or by

a FERC-approved organization, and it does so through the use of a reconcilable

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rider (the commission may “provide for the recovery, through a reconcilable rider

on * * * distribution rates, of all transmission and transmission-related costs”

imposed by FERC and others). The TCRR Order had no impact on Ohio Power’s

ability to recoup the entire $36 million underrecovery. Rather, the commission’s

only concern was whether Ohio Power would recover those costs from

nonshopping customers only or from both shoppers and nonshoppers. In short,

this is not a case where the commission altered present rates to make up for

dollars lost “ ‘during the pendency of commission proceedings.’ ” In re

Application of Columbus S. Power Co., at ¶ 11, quoting Lucas Cty. Commrs. v.

Pub. Util. Comm., 80 Ohio St.3d 344, 348, 686 N.E.2d 501 (1997). Revenue lost

due to regulatory delay is simply not at issue here.

CONCLUSION

{¶ 48} IEU has the burden of demonstrating that the commission’s orders

were unjust, unreasonable, or unlawful. R.C. 4903.13; AT & T Communications

of Ohio, Inc. v. Pub. Util. Comm., 51 Ohio St.3d 150, 154, 555 N.E.2d 288

(1990). IEU has not carried that burden in this appeal. Therefore, we affirm the

commission’s orders.

Orders affirmed.

O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, FRENCH, and

O’NEILL, JJ., concur.

____________________

McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr,

and Matthew R. Pritchard, for appellant.

Steven T. Nourse, Matthew J. Satterwhite, and Yazen Alami, for appellee

Ohio Power Company.

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Michael DeWine, Attorney General, and William L. Wright and Thomas

W. McNamee, Assistant Attorneys General, for appellee Public Utilities

Commission of Ohio.

_________________________

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