# Petition — City of Cleveland v. Public Utilities Commission of Ohio

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1975
- **Citation:** 423 U.S. 986

## Text

‘Supreme Court, U. &
FILED

al 20 1975

MICHAEL RODAK, JR., C! ERK |
In the Supreme Court of the United States

xo, SO 447 |

THE CITY OF CLEVELAND, OHIO,
Petitioner,

vs.
PUBLIC UTILITIES COMMISSION OF OHIO,
and
CLEVELAND ELECTRIC ILLUMINATING COMPANY,
Respondents.

PETITION FOR WRIT OF CERTIORARI
To the Supreme Court of the State of Ohio

———————

JAMES B. Davis
Director of Law
Rosert D, Hart
First Assistant Director of Law

WILLIAM B. SCHATZ
Assistant Director of Law

JAMES L. HARKINS, JR.
Special Counsel

Room 213—City Hall
Cleveland, Ohio 44114

Attorneys for City of Cleveland

THE GATES LEGAL PUBLISHING CO... CLEVELAND, OHIO. TEL. (218) 491-5047

_

TABLE OF CONTENTS

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I oicraeacrnisccennttasnicetmeenebineseneiamenineeesine
QUESTION PRESENTED ................cccccosososssesessssessesessesseeees
CONSTITUTIONAL PROVISION INVOLVED ............
STATEMENT OF THE CASE

The Interstate Commerce Issue ................c.c.cesseseseseeeeee
The Interstate Commerce Issue Was Timely Raised

REASONS FOR GRANTING THE WRIT

I. The Commission has acted contrary to the hold-
ings of this Court in The Minnesota Rate Cases,
230 U.S. 352 (1912), and Smith v. Illinois Bell
Telephone Company, 282 U.S. 133 (1930) ........

II. The question of whether or not trades of “inter-
change power” are interstate commerce and
should therefore be the subject of separations
as are sales is a matter of extreme national im-
portance which has never been decided by this
ITT Sntdbibcassatastsaenccdincnaceseitssarneneesennepenandahtensetetnanetiencsets

(COBNCLAISION ssessencsesesesessen 2 OO U,. EO
APPENDICES:

A. Opinion and Order of November 28, 1973, by the
Public Utilities Commission of Ohio ....................
B. Entry of January 18, 1974, by the Public Util-
ities Commission Of OhI0 .o............ccccescseseseeeseeeeeeees
C. Opinion of the Supreme Court of Ohio, Cleveland
Electric Illuminating Co. v. Public Utilities Com-
mission, (1975), 42 Ohio St. 2d 403 00000...

11

ul

D. Unrelated Decision by the Public Utilities Com-
ee eee : 102

E. Judgment of the Supreme Court of Ohio in
Cleveland Electric Illuminating Co. v. Public

ae 112
F. Entry of the Supreme Court of Ohio Denying
I Gar TE cectenttceericnmestininiepiintionnten 113

G. Evidence of Cleveland Electric Illuminating
Company’s Interstate Commerce Introduced by

NEES ES .* : . 114
H. Example of How Cleveland Properly Raised the
Interstate Cormmerce Issue ...........cccccccceeeecceeeeeeceeees 136

TABLE OF AUTHORITIES

Cases

The Minnesota Rate Cases, 230 U.S, 352 (1912) ............ 4, 8,9

Public Utilities Commission of Rhode Island, et al.
v. Attleboro Steam & Electric Company, 273 U.S.

a aa aan ene 3,6
Smith v. Illinois Bell Telephone Company, 282 U.S.
Be CIID cieinnceneansesbibindiadtiliddiabidetailiadttghistenecinennel 4,5, 7, 8,9
Constitution and Statute
United States Constitution, Article I, Section 8, Clause
Ne IW ON Te AIRES EL Fee ee Oe OR 3,4
Er TD 3

- ~~

In the Supreme Court of the United States

October Term, 1975
UP Ciliteedeabecmeaticaes

THE CITY OF CLEVELAND, OHIO,
Petitioner,

vs.
PUBLIC UTILITIES COMMISSION OF OHIO,
and

CLEVELAND ELECTRIC ILLUMINATING COMPANY,
Respondents.

PETITION FOR WRIT OF CERTIORARI
To the Supreme Court of the State of Ohio

The petitioner prays that this Court issue a writ of
certiorari to review the judgment of the Supreme Court
of the State of Ohio rendered on the eleventh day of
June, 1975, in the case of The City of Cleveland, Appellant
v. Public Utilities Commission of Ohio, Appellee, and
Cleveland Electric Illuminating Company, Intervening Ap-
pellee, which was an appeal from the Public Utilities Com-
mission of Ohio (hereinafter referred to as “Commission”’).

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OPINIONS BELOW

The Commission through its “Opinion and Order” of
November 28, 1973, in Case No. 71-634-Y, set the profit
which the Cleveland Electric Illuminating Company could
earn on both its intrastate and interstate electric energy
business. The Opinion and Order is attached hereto as
Appendix A. The Commission in its “Entry” of January
18, 1974, approved intrastate rate increases which yielded
the total profit allowed by the Opinion and Order. The
Entry is attached hereto as Appendix B.

The opinion of the Supreme Court of the State of
Ohio affirming the decision of the Commission relative
to the interstate Commerce issue raised by this petition
is attached hereto as Appendix C. The Court’s Opinion
was reported and cited as Cleveland Electric Illuminating
Co. v. Public Utilities Commission (1975), 42 Ohio St.
2d 403, 330 N.E. 2d 1.

The Supreme Court of Ohio did reverse the Commis-
sion on a number of matters unrelated to the one presented
herein. The decision of the Commission disposing of said
unrelated matters is attached hereto as Appendix D.

JURISDICTION

Petitioner seeks a review by this Court of the judgment
of the Supreme Court of Ohio of June 11, 1975, which
is attached hereto as Appendix E. The time of the entry
thereof was June 11, 1975. The City of Cleveland’s request
for a rehearing was denied by the Supreme Court of Ohio
on June 24, 1975; the denial is attached hereto as Ap-
pendix F.

3

The jurisdiction of this Court is invoked under 28
U.S.C. Sec. 1257(3). The Supreme Court of the United
States has rendered many decisions adjudicating the
powers of the various states relative to interstate com-
merce; this petition likewise invokes this Court’s jurisdic-
tion to determine the lawfulness of Ohio’s powers over
interstate commerce as stated below. The closest case
on the facts and issue raised herein is Public Utilities
Commission of Rhode Island, et al. v. Attleboro Steam
& Electric Company, 273 U.S. 83 (1927).

QUESTION PRESENTED

The fundamental question of extreme national im-
portance raised by this petition is:

Does a state regulatory body have the power to set

the profit which a public utility may earn on its sales

and trades of electric energy that are in interstate

commerce?

CONSTITUTIONAL PROVISION INVOLVED

No statutes are involved. The only Constitutional pro-
vision involved is Clause 3 of Section 8 of Article I of
the United States Constitution which gives Congress the
power

“To regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes;”

STATEMENT OF THE CASE

The Interstate Commerce Issue

This case had its origin in an application by the Cleve-
land Electric Illuminating Company (hereinafter referred
to as “CEI”) before the Commission for an increase in
its intrastate electric rates. The Commission followed stan-
dard rate setting practices in allowing rate increases de-
signed to yield an approved overall rate of return upon
the Commission’s determination of the value of the rate
base.

The Commission erred in the application of said prac-
tices by failing to subtract from the rate base any of
the plant servicing CEI’s sales of electricity under Federal
Power Commission rate schedules to other electric utilities
operating both inside and outside of Ohio. The Commission
further erred by failing to separate out of the case the
revenues and expenses of this interstate commerce.

The necessity for such allocations has been explained
by this Court in numerous decisions interpreting the Com-
merce Clause (Clause 3 of Section 8 of Article I of the
United States Constitution). In many of those cases it
was held that such separations were required to prevent
a state from either imposing a burden upon interstate
commerce or causing intrastate business to subsidize inter-
state business. The leading cases in point are The Min-
nesota Rate Cases, 230 U.S. 352 (1912), and Smith v. II-
linois Bell Telephone Company, 282 U.S. 133 (1930). In
The Minnesota Rate Cases, supra, the United States Su-
preme Court at page 435 said:

“Where the business of the carrier is both interstate
and intrastate, the question whether a scheme of max-

ee a ee ee

it ithe se. ee

5

imum rates fixed by the State for intrastate trans-
portation affords a fair return, must be determined
by considering separately the value of the property
employed in the intrastate business and the compensa-
tion allowed in that business under the rates pre-
scribed. This was also ruled in the Smyth Case (id.,
p. 541). The reason, as there stated, is that the State
cannot justify umreasonably low rates for domestic
transportation, considered alone, upon the ground that
the carrier is earning large profits on its interstate
business, and, on the other hand, the carrier cannot
justify unreasonably high rates on domestic business
because only in that way is it able to meet losses
on its interstate business. (Emphasis added)

In the present cases, the necessity of this segregation
of the domestic business in determining values and
results of operation, was recognized by both parties. . .”

The Court at page 461 also held that:

“When rates are in controversy, it would seem neces-
sary to find a basis for division of the total value
of the property, independently of revenue, and this
must be found in the use that is made of the property.
That is, there should be assigned to each business,
that proportion of the total value of the property
which will correspond to the exten: of its employment
in that business. . .”

In Smith v. Illinois Bell Telephone Company, supra,
at page 148 the United States Supreme Court said that
an allocation between intrastate and interstate business
“« | is essential to the appropriate recognition of the
comparable government authority in each field of regula-
tion...”

Both the Commission and the Ohio Supreme Court
seem to have dismissed the necessity for allocations by
assuming that the relative size of CEI’s interstate com-

merce was insignificant. During the test year (1971) em-
ployed by the Commission about six percent of CEI’s total
deliveries of electricity were sales to other electric utilities
made pursuant to Federal Power Commission rate sched-
ules as listed below:

Percent of
Customer Total Deliveries

Cleveland Department of
Public Utilities 0.7
Privately-Owned Ohio
Electric Utilities 3.3
Pennsylvania, New Jersey, and
Maryland Electric Utilities 2.0
Total as % of total CEI deliveries 6.0%

——_————

It should be noted at this point that the Supreme
Court of the United States required allocations in Public
Utilities Commission of Rhode Island, et al. v. Attleboro
Steam & Electric Company, 273 U.S. 83 (1927), when

less than three percent of the company’s deliveries were
to another electric utility.

The Attleboro case, supra, also determined that sales
of electricity made by an electric utility in one state to
an electric utility in another state are in interstate com-
merce. That CEI’s sales to other Ohio electric utilities
are also in interstate commerce is established by their
being made under Federal Power Commission rate sched-
ules; in any event, these sales are regulated by federal
authority, which by this Court’s holding at page 148 of

Dette Mbds ween Je -trtenss

oe aa eee eae

7

Smith v. Illinois Bell, supra, precludes the exercise of
state authority over the earnings that may be made there-
on. The interstate nature of these sales has not been
disputed before or by either the Commission or the Su-
preme Court of the State of Ohio.

Another fourteen percent of CEI’s 1971 deliveries of
electricity were trades of power with other electric utilities
called “Interchange Power”. Under these barter arrange-
ments the recipient agrees to return back at some unfixed
time the same volume of electricity as he receives from
the sender. These trades of power occur both within
and over Ohio’s borders.

Cleveland contends that the Commerce Clause of the
United States Constitution extends to these trades of power
as it obviously does to sales of electricity made under
Federal Power Commission rate schedules. These barter
arrangements present a novel problem of great national
importance since most and possibly all of this nation’s
major electric utilities are interconnected and trade huge
volumes of electricity throughout the continental United
States on a daily basis.

The above mentioned sales and trades of power
amounted during 1971 to twenty percent of CEI’s total
deliveries of electricity. The data in support of this is
attached hereto as Appendix G.

The Interstate Commerce Issue Was Timely Raised

Cleveland introduced Appendix G into evidence during
the hearings before the Commission to demonstrate the
size of the Company’s interstate business and therefore
the necessity for allocations. Cleveland also extensively
argued the need for allocations before the Commission.
Appendix H is an example hereof.

y F
74-156
Pus.ic UTILITIES COMMISSION OF OHIO ET AL.,
; Appellees. :

Corrican, J. The appeal of The Cleveland Electric I-
luminating Company will be considered first, followed by
the appeals of the city of Cleveland and the Sierra Club.
The Cleveland Electric Lluminating Company will be re-
ferred to as the Company, the city of Cleveland as the
City, the Sierra Club, Inc., as Sierra, and the Public Utili-
ties Commission as the Commission.

70

IA.

REQUIRED RETURN FOR EQUITY PORTION:
OF RATE BASE.

In its first argument, the Company contends that the
Commission, in determining the rate of return, failed to
follow the holding in Ohio Edison Co. v. Pub. Util.
Comm. (1962), 173 Ohio St. 478, expressed in paragraph
five of the syllabus therein, which reads:

“What will represent a reasonable annual compensa-
tion for the use of the property included in the rate base
of a public utility will be the amount per year of income
therefrom that would be required to induce investors to
provide an amount equal to the rate base for the securities
(such as bonds and shares of stock) of a corporation own-
ing the property included in the rate base and engaged
in the business of providing the public utility services
being rendered by that property.”

The Company asserts that the “* * * Commission
did not state or even suggest in its Opinion and Order
herein that the 7.05% return allowed * * * is the
amount required to induce investors to provide an amount
equal to the rate base for the securities (such as bonds
and shares of stock) of a corporation owning the property
included in the rate base of * * * [the Company].”
Specifically, the Company contends that the Commission
erred: (1) In its determination of the required return
for the equity portion of the rate base; (2) in including
in the rate of return calculation a “zero component” repre-
senting deferred credits; and (3) in finding that the cost
of the bond portion of the rate of return should be 6.5
percent.

As pertinent to the foregoing issues, the Commission’s
opinion and order reads:

71

“The two witnesses testifying as to a proper rate of
return, in recommending rates of return higher than 5.08%,
implied that said rate was insufficient to provide CEI
with reasonable compensation for the electric service ren-
dered and this Commission so finds.

“The applicant’s witness, Mr. Brooks, recommended
allowance of a current cost of debt, as of the date certain,
of 7.35%, a current cost of preferred equity, at the same
date, of 7.90%, and an allowance of 11.75% as return
on common equity. Applying these allowances to CEI’s
capital structure results in a recommended rate of return
of 9.05%.

“Mr. Brooks arrived at substantially the same conclu-
sion by employing three separate approaches, all of which
involved an ‘estimate’ of the cost of common capital which
in turn included a factor for ‘investor expectation of growth
in earnings’ * * *.

“In utilizing a rather complex formula, Mr. Brooks
made a basic ‘judgment’ of percentage of earnings growth
rate arrived at by an ‘evaluation’ of the historic electric
earnings growth rate and an ‘evaluation’ of earnings growth
rates to produce bond coverage ratios ‘barely sufficient
to preclude deterioration in bond ratings... * * *
Mr. Brooks iecommended that a factor of 320 (reflecting
investor expectation for growth in earnings) be added
to the earnings price ratio adjusted for underpricing and
commission cost, 8.55 to arrive at a current cost of capital
of 11.75% * * °.

“Mr. Rothey, on the other hand, combined the aver-
age rate of growth in earnings of comparable electric utili-
ties with the dividend yield to obtain an estimate of 11%
as a proper investor discount rate for common stock. How-
ever, Mr. Rothey adjusted the 11% to eliminate the infla-

72

tion factor, a calculation which he believed necessary in
Ohio because the RCNLD rate base eliminates ‘the eroding
effect of inflation upon the value of an investment’
* * *. The net result was an estimated cost of com-
mon capital of 8.5[%]. Mr. Rothey used the embedded
cost of debt as of the end of the test year which was
6.5% * * *. The cost for the preferred stock of 7.4%
represents the actual amount on the $50,000,000 issue which
occurred within the test year * * *.

“In addition, Mr. Rothey computed as a part of capital
structure those amounts of funds representing the contribu-
tions in aid of construction account and the deferred cred-
its account comprised of deferred investment credit and
accumulated deferred income taxes. He predicated his
theory upon the facts that 1) such funds are truly as
much a part of a company’s financing as funds generated
from sale of stocks and bonds and 2) these funds are
used to make permanent additions to the fixed plant and
3) these funds represent in effect interest free loans, which
to be fair to the suppliers of the capital (the federal
government and in reality tax paying consumers) should
be included in the capital structure to prevent a positive
return from being earned on assets which the funds repre-
sent es 4

“The approaches of both witnesses are defensible; the
cost of common capital can only be estimated; that estima-
tion is supported only by ‘evaluations’ and ‘judgments.’
The results can never be tested scientifically. The selec-
tion of our expert’s estimate does not imply that the other
is ‘wrong.’ In the instant case, therefore, we find that
the staff approach appropriate for the purposes of this
proceeding. Using Mr. Rothey’s computation, a rate of
return of 7.05 results:

73
“Percent of

Total Cost Weighted Cost
“Common 38.7 8.5 032895
“Preferred 6.5 7.4 004810
“Debt 50.5 6.5 032825
“Deferred

Credits 43 0 .000000
100.0 .070530”

In respect to the rate of return on the equity portion
of the rate base, the Commission adopted the recommenda-
tion of 8.5 percent made by its chief economist, Mr. Rothey,
even though Rothey, himself, estimated 11 percent before
making the adjustment he felt was required “because the
RCNLD rate base eliminates ‘the eroding effect of inflation
upon the value of an investment.’” Relative to Rothey’s

testimony concerning the adjustment, the record contains
the following:

“Q. Pardon me, Mr. Rothey, I thought having defined
our terms I could ask the questions without repeating
them in every question, but I will start again. The subject
of this interrogation, Mr. Rothey, is the appropriate rate
of return on the equity portion of the rate base of a public
utility, and my understanding is your testimony is that
from market evidences you reach the opinion a fair rate of
return on the equity portion of the rate base of a public
utility, electric utility, comparable to The Cleveland Elec-
tric Illuminating Company, except that they are in other
States, is 11 percent, and that because of special considera-
tions relating to the Ohio method of regulation you reached
a conclusion that in Ohio and for the Illuminating Com-
pany this figure becomes more appropriately nine percent.

74

Have I correctly stated your opinions as expressed in your
testimony?

“A. Yes, sir.

“Q. All right, now this 11 percent and this 9 percent
corresponding figure relates as a basis for their determina-
tion by you to the market price of the shares of stock
in the first instance, do they not?

“A. Yes.

“Q. Then you expressed the opinion that in order
to determine what is a fair rate of return for the utility
to earn upon its rate base that this is the fair rate of
return which should be earned upon the rate base, do
you not?

“A. 11 percent.

“Q. 11 percent in one case and then with respect
to the Illuminating Company 9 percent, right?

“A. Correct.

“Q. Now, as I understand it the purpose of your
Exhibit 14 is to support the opinion that so far as investors
generally in the market are concerned their demand of
11 percent on a market value of their shares is in respect
of utilities that are earning approximately 11 percent on
the book value of the utility shares, do I correctly express
the thrust of your Exhibit 14?

“A. I would like that question again.”

(Previous question read. )

“A. I don’t believe so. What I was sttempting to
do with this Exhibit 14, if I understood your question
correctly, I would say no—what I was attempting to do
with this Exhibit 14 was to observe what a rate of return
on book value would do to the market to book ratio of
the shares of the Company. I observed something around
11 percent rate of return on the book value would produce
a market ratio sufficiently appropriate to allow the Com-
pany to issue new stock without diluting the ownership
of the present owners.

75

“Q. And does that express your opinion as to the
fair rate of return on the equity portion 'of the rate base?

“A. Yes, it does.

“Q. And you endeavored in this case to express an
opinion as to a fair rate of return on the equity portion
of the rate base which will produce such a market to
book ratio?

“A. Yes sir.

“Q. All right, and it is your opinion then that the
9 percent return on rate base for The Cleveland Electric
Illuminating Company will produce in the neighborhood
of slightly above an 11 percent return on its book equity?

“A. Yes, sir.”

The 8.5 percent rate of return for the equity portion
of the rate base adopted by the Commission is thus based
upon the opinion of its staff which, in turn, was based
upon “* * * what a rate of return on book value would
do to the market to book ratio of the shares of the Com-

pany.”

In Cleveland v. Pub. Util. Comm. (1956), 164 Ohio
St. 442, the court said, at page 444:

“Many of appellants’ arguments represent attempts
to circumvent the statutes of this state and the uniform
decisions of this court with respect to the statutory rate
base. For example, it is argued that the dollar amount
of return should be based upon the public utility’s actual
‘earnings requirements’; and that, after this is done, the
rate of return should be found by determining the per-
centage of the statutory rate base which such dollar amount
of return represents. Further, it is argued that the 5.94
per cent return on the statutory rate base approved by
the commission would, if 45 per cent of its capital were
replaced by debt, represent 9.26 per cent earnings on ‘total

76

capitalization’ and a 9 per cent return on the ‘ret invest-
ment’ in this public utility. However, under the Ohio
statutes and the decisions of this court, the percentage
return is to be related not to the ‘total capitalization’
or to the ‘net investment’ but to the statutory rate base
(reconstruction cost new less depreciation) so that neither
the actual capital or net investment in this public utility
nor its actual earnings requirements are really material
in a proceeding of this kind. Any such method of de-
termining or testing the dollar amount of return as that
which is advanced by appellants would eliminate any need
at all for determining the statutory rate base. The reasons
advanced in support of such arguments have previously
been considered and rejected as unsound by this court.
See East Ohio Gas Co. v. Public Utilities Commission,
supra (133 Ohio St., 212), 218, 219.”

Basing the rate of return for equity upon “what a
rate of return on book value would do to the market to
book ratio of the shares of the Company” goes beyond
the “* * * statutes and the decisions of this court”
which require the rate of return to be related to the
statutory rate base. Therefore, the Commission erred in
finding “the staff approach appropriate” in determining
the 8.5 percent rate of return for the equity portion of
the rate base.

I B.

RATE OF RETURN CALCULATION WHICH INCLUDes
“ZERO COMPONENT” REPRESENTING
DEFERRED CREDITS.

The Company next claims that the Coromission erred
in including in the rate of return calculation a “zero com-
ponent” representing deferred credits.

77

In its brief, the Company states that: “* * * As
of the date certain, the Company had on its books approxi-
mately $32 million of deferred credits representing income
taxes deferred under the Internal Revenue laws relating
to investment credits and amortization of pollution abate-
ment facilities.”

As noted in the opinion and order of the Commis-
sion, “* * * Mr. Rothey computed as a part of capital
structure those amounts of funds representing the contribu-
tions in aid of construction account and the deferred credits
account comprised of deferred investment credit and ac-
cumulated deferred income taxes.” The Commission
adopted Rothey’s recommendation by including as part
of the capital structure 4.3 percent for deferred credits
upon which no return was allowed. As the Company
suggests in its reply brief, the inclusion of this “zero com-
ponent” in the capital structure is similar to the “hypo-
thetical company” concept which was rejected in General
Telephone Co. v. Pub. Util. Comm. (1963), 174 Ohio St.
575.

As did the creation of the “hypothetical company,”
the “zero component” for deferred credits apparently
“* * * has as its ultimate purpose the reduction of
the statutory rate base, which is a circumvention of the
law of Ohio.” Ib., 174 Ohio St., at 579. Therefore, the
Commission erred in including in the rate of return calcula-
tion a “zero component” representing deferred credits.

Interestingly, the Commission, itself, since issuing
its opinion and order in this case, has changed its position
on this question. The Commission, in case No. 72-415-Y,
in In re Application of the Cincinnati Gas & Electric Co.
(September 16, 1974), stated in its opinion and order:

“Mr. Rothey’s analysis of applicant’s capital structure
also differed from Mr. Melnyk’s approach in that Mr.

78

Rothey included as a part of the capital structure the
contributions in aid of construction account and the de-
ferred credits account which is comprised of deferred in-
vestment tax credits and accumulated deferred income
taxes. Mr. Rothey assigned these elements a zero cost
of capital. Upon further consideration of the propriety
of the inclusion of deferred credits in the capital structure,
the Commission finds that this treatment is inconsistent
with the legislative intent to extend the advantages of
the deferred investment tax credits at [sic] accumulated
deferred taxes to the industry.”

IC.
COST OF BOND PORTION OF RATE OF RETURN.

The next contention of the Company to be considered
is the claim that the Commission erred in finding the
cost of the bond portion of the rate of return to be 6.5
percent. That finding resulted from the Commission’s
adoption of Mr. Rothey’s 6.5 percent calculation. On cross-
examination, Mr. Rothey admitted that long term capital
could not have been raised at 6.5 percent during the test
year. In response to a question whether “it would have
cost the Illuminating Company substantially more than
64%4 percent * * * to have raised a substantial amount
of debt capital, at or about the date certain,” Mr. Rothey
replied, “It would have cost them somewhere around 8
percent.”

In view of the facts that the Company’s witness testi-
fied that 7.35 percent was the current cost for bond money
and the Commission’s expert indicated that it was more
than 6.5 percent, the Commission’s finding of 6.5 percent
is “manifestly against the weight of the evidence” (Akron
v. Pub. Util. Comm. [1966], 5 Ohio St. 2d 237, 242) and,
therefore, is unreasonable and unlawful.

79

ID (1).
VALUE OF RIGHT-OF-WAY USED AND USEFUL.

The Company raises two issues concerning land rights:
(1) “Right-of-way used and useful in the rendition of
electric service must be included in the rate base of a
utility at its value as of the date certain,” and (2) “land
rights owned beneficially are.a lawful part of a utility’s
rate base in a rate proceeding.”

Regarding the value of land rights, rights-of-way, in-
cluding easements and licenses, the Commission’s opinion
and order reads, in part:

“In dealing with valuation of land rights, the Com-
mission’s staff simply evaluated the varying easements
and licenses held by applicant at their original cost, claim-
ing that no acceptable method is available to adjust the
value of the land rights either up or down. * * *

“Witness Chisling [for the Company] employed the
* * * method of applying trend factors to original cost
because ‘a parcel by parcel appraisal would be extremely
costly and time consuming.’ ”

Chisling described the “cost trend method” as a method
of “appraising the value of property by application of
trend factors to the original cost, thus restating that orig-
inal cost in terms of values at the date certain.”

The Commission, stating that “in the absence of a
verifiable method of assuring that there is a market value
for applicant’s rights-of-way” and “that the trending
method does not comply with Section 4909.05, Revised
Code,” found the original cost of land rights to be the
proper method of valuation.

80

As to the foregoing finding, the Company argues:

“In addition to the rejection of trending as unlawful,
an apparent ground for refusing to find value for appel-
lant’s right-of-way * * * was that there is no ‘verifiable
method of assuring that there is a market value’ for right-
of-way easements. Since the trending method was used
for less than 5 percent in value of the right-of-way and
the values for the balance of the right-of-way was found
by a witness and by methods specifically approved by
the Commission, we must conclude that the Commission
held that absent a showing that right-of-way easements
- are the subject of an established market they have no
value for rate case purposes. This is a very disturbing
holding because the statute, and the cases, permit the
Company to earn only on the ‘value’ of the property used
and useful in the public service. Original cost is in many
instances used as value either because it is the best evi-
dence thereof or because it is plainly less and by common
consent is used as establishing a figure not less than value
where the parties for some reason do not desire to expend
the time or money required for an appraisal. However,
here we had an appraisal for 95 percent of the right-
of-way by methods specifically approved by the Commis-
sion. We do not believe that the Commission was saying
that there is no method by which to value an easement.
As the evidence shows—and it is common knowledg:: —
such valuations are daily made for a variety of reasons.
If the Commission is right, that it cannot accept value
in the absence of a showing that there is a market in
easements, then this is a holding that in such case an
easement has no value at all and there is no basis under
the statute for including it in the rate base at all. We
believe that we have reason to be fearful that unless
this court reverses the Commission on this point, the com-

81

plete elimimation of right-of-way from the rate base will
be the next step.”

Contrary to the Company’s argument that the Com-
mission held that right-of-way easements “have no value
for rate case purposes,” the Commission did value such
land rights. Thus, the only issue before this court on
the question is the propriety of the Commission’s refusal
to accept the land right values recommended by the wit-
ness, Chisling. This is fundamentally a question of evi-
dence. As to evidentiary matters, in appeals from the
Commission, this court “* * * will not substitute its
judgment for that of the commission as to conclusions
drawn * * * unless the findings and order of the com-
mission are manifestly against the weight of the evidence
or there is no evidence.” Akron v. Pub. Util. Comm.,
supra (5 Ohio St. 2d 237), at 242; Kenton v. Pub. Util.
Comm. (1965), 3 Ohio St. 2d 71, 73. Further
a “* * * finding and order by the commission will
not be disturbed unless it appears from the record that
such finding and order are manifestly against the weight
of the evidence and are so clearly unsupported by the
record as to show misapprehension or mistake or willful
disregard of duty.” Cleveland v. Pub. Util. Comm. (1965),
3 Ohio St. 2d 82, 84. In our opinion, the record supports
the conclusions of the Commission regarding valuation of
the Company’s rights-of-way.

I D(2).

“LAND RIGHTS OWNED BENEFICIALLY”
AS PART OF RATE BASE

The “land rights owned beneficially” which the Com-
pany claims should be included in its rate base is filled
land upon which a part of the Company’s Lakeshore Power
Plant is situated. Title to that land is in the state of

82

Ohio but the Company has used the property since 1911.
The Commission, in its opinion and order, concluded that
this land, not being owned by the Company, could not
be included as part of Company property for rate base

purposes.

The Company points out that this identical question
was at issue in proceedings before the Commission in 1918
and in 1947. In both instances the Commission included
the value of the filled land in the Company’s rate base.
The Commission’s order of 1918 was appealed to this court,
and the issue, as the Company observes, was “fully briefed
and argued before this court.” In that appeal, this court
modified the order of the Commission but did not disturb
the Commission’s conclusion to include the filled land in
the Company’s rate base. Cleveland v. Pub. Util. Comm.
(1918), 98 Ohio St. 462.

We are not inclined to now reexamine or overrule
the foregoing holding. The Commission’s conclusion not
to include the filled land in the Company’s rate base is
not in conformity with that decision and therefore is un-
reasonable and unlawful.

IE.

EXCLUSION FROM RATE BASE OF CERTAIN
MATERIALS AND SUPPLIES.

The next proposition advanced by the Company reads:

“Materials and supplies kept on hand and reasonably
mecessary for the operation of the Company’s business
should be included in the rate base whether or not, when
used, they are expensed or capitalized.”

In respect to this contention, the opinion and order
of the Commission reads:

83

“* * * The staff opined that materials and supplies
held for capital accounts are not an appropriate part of
the rate base and therefore should be excluded and there-
fore reduced the applicant’s $8,846,000 figure for materials
and supplies to $1,858,000 * * *.

“see

“Therefore the Commissjon’s staff * * * excluded
approximately $7,000,000 from the working capital accounts
in materials held for capital accounts. The staff found
that 79% of applicant’s materials and supplies were prop-
erly classified as being within capital accounts. * * *
The applicant contends that an exclusion of capital accounts
is improper. The Commission does not agree. Exclusion
of materials and supplies to be capitalized is not only
relevant and proper but necessary in any computation
of working capital.”

As to materials and supplies, the staff report states:

“The engineers have reviewed the applicant’s pro-
posal for inclusion of $8,845,651 in the total company rate
base as a working capital allowance for a material and
supplies inventory. The engineers are of the opinion that
materials and supplies inventory held for capital accounts
are not an appropriate part of the rate base and have
therefore excluded that portion of those inventories. This
amount was determined by the company, by analyzing
issues, to be 79% of the total.

“Average Material & Supplies

Inventory $8,846,000
“Less Amount to Capital Construction

(79%) $6,988,000
“Materials & Supplies $1,858,000”

ai | la

84

In Cincinnati v. Pub. Util. Comm. (1954), 161 Ohio
St. 395, 406, 407, the following discussion .is found concern-
ing materials and supplies:

“It is proper to include in the rate-base structure
a reasonable sum to cover the company’s investment in
materials and supplies for the normal operations of the
company and for maintenance and repair purposes. But
we know of no valid reason why an allowance should
be made in the rate-base structure for imvestments in
materials and supplies for new construction, extensions
and additions, as distinguished from normal operations
and plant maintenance and repair. The cost of materials
and supplies held for new construction, extensions and
additions may be capitalized in the rate-base structure,
when such materials and supplies are in actual use. Prior
to such actual use such property can not be considered
as being ‘used and useful for the service and convenience
of the public,’ as required by Section 499-9, General Code.”

A Company witness, Mr. Loshing, was asked: “To
what extent * * * does the material for this construction
program come from materials and supplies account which
you have assigned for working capital?”

The witness replied: “Very little goes through this
materials and supplies account. * * * A good portion
of the materials that are needed for what are prosaic
construction, power plants, transmission subs, and high
lines, is purchased directly on job orders for specific proj-
ects and delivered directly to the site.” +

Since the evidence indicated that “very little” of the
construction funds of the Company passed through the
“materials and supplies account,” it was error for the Com-
mission to reduce the amount allowed for materials and
supplies by 79 percent for the reason that “79% of appli-

~ —

cant’s materials and supplies were * * * classified as

being within capital accounts” under the Company’s ac-
counting system.

The Company includes in its brief an excerpt from
the opinion and order of the Commission in subsequent
proceedings before the Commission, In re Application of
East Ohio Gas Co., No. 72-378-Y, wherein the Commission
retreated from the position taken on the allowance for
materials and supplies herein and rejected “* * * staff's
apg that accounting treatment should be control-
; ***¢)

IF,
MATTERS NOT IN ISSUE UNDER APPLICATION.

The final issue presented by the Company is stated
by it as follows:

“In a proceeding upon an application for an increase
in rates filed by a public utility under Revised Code Sec-
tion 4909.18, the Public Utilities Commission may not re-
quire the utility to assume the burden of supporting tariffs
and regulations not placed in issue by the application
before the commission.”

To support this issue, that the Commission erroneously
considered “changes in tariffs not put in issue by the
application,” the Company argues:

“* * * Over objection, the Commission required
changes in regulations respecting time of access to customer
premises, and itemization of charges for special construc-
tion ‘and the establishment of a new regulation respecting
voltage variations. * * *

“Of more consequence are the changes required
* * * to eliminate from the fuel adjustment clause the

86

reflection of fuel costs respecting the generation of the
6 percent of the energy which is lost in the process
of distribution and the elimination of existing tariff dis-
counts reflecting lower costs for certain heating usages.
We are not here attempting to argue the intrinsic merit
of any of these matters. We contend that the Commis-
sion may not require changes in these matters without
affirmative proof, and a finding on the basis thereof that
they are required.”

The Company contends further that “* * * under
the statutes, the Commission is empowered to require
changes in existing rates and practices only after a com-
plaint in writing about them (Section 4905.26), and an
affirmative finding upon proof after hearing that existing
practices are unreasonable (Section 4905.37) .”

In its opinion and order, the Commission stated that
its “* * * staff is mandated by Section 4909.19, Revised
Code, to conduct an investigation encompassing not only
the application and the exhibits attached thereto, but also,
‘of all matters connected therewith.’ Therefore, the Com-
mission must conclude the scope of a general rate increase
certainly imcludes nearly all, if not all of the applicant’s
rules and regulations which in any manner could be applied
in charging the new rates.”

It is elemental that the “* * * commission is a
creature of statute and has only those powers given to
it by statute.” Ohio Bell Telephone Co. v. Pub. Util.
Comm. (1969), 17 Ohio St. 2d 45, 47. R. C. 4909.19 pro-
vides, in part:

“Upon the filing of any application for increase pro-
vided for by Section 4909.18 of the Revised Code * * * the
commission shall at once cause an investigation to be made

87

of the facts set forth in the application and the exhibits
attached thereto, and of the matters connected therewith.”

We agree with the Commission’s conclusion that R. C.
4909.19 permits it to review any of an applicant’s “rules
and regulations which in any manner could be applied
in charging the new rates,” but the Commission’s authority
ends there. The scope of the Commission’s inquiry does
not extend to matters not put in issue by the applicant
and not related to the rates which are the subject of
the application. |

Therefore, the Commission erred in extending its or-
der to those matters not put in issue by the application
for rate increase or not related to the rates.

Inasmuch as the Company does not “argue the in-
trinsic merit of any of these matters” in this appeal, we
will not attempt to delineate which of the issues fall within
the realm of the Company’s application or have an effect
upon the rates.

II A.

PROPERTY USED AND USEFUL AS PART OF
RATE BASE.

In case No. 74-272, in which the city of Cleveland
is the appellant, the first proposition of law reads: “Plant
located outside of Ohio is beyond the scope of the Commis-
sion’s jurisdiction as defined by Section 4905.05 of the
Ohio Revised Code and therefore cannot be included within
the statutory rate base.”

R. C. 4905.05 provides:

“The jurisdiction, supervision, powers, and duties of
the Public Utilities Commission extend to every public
utility and railroad, the plant or property of which lies

wholly within this state and when the property of a public
utility or railroad lies partly within and partly without
this state to that part of such plant or property which
lies within this state, and to the persons or companies
owning, leasing, or operating such public utilities and rail-
roads, and to the records and accounts of the business
thereof done within this state.”

It is the City’s position that R. C. 4905.05 limits the
authority of the Commission to applicant’s properly located
“wholly within this state” and that the Commission “erred
by including within the rate base the applicant’s interest
in the Seneca production plant which is situated in
Pennsylvania.”

The Commission, in its opinion and order, observed
that “* * * Section 4909.18, Revised Code, permits appli-
cant to submit a valuation ‘of its property used and use-
ful in rendering the service referred to in such applica-
tion’ ” and found that “the Seneca Plant should be included
because indisputably it is used and useful in rendering
the service referred to in the application.”

The City contends that R. C. 4909.18 is not concerned
with the jurisdiction of the Commission but with “what
should be contained in a rate application by a utility.”
Thus, the City would confine the jurisdiction of the Com-
mission in determining a rate base to only the property
of the utility within Ohio, even though the property lo-
cated outside the state is used and useful in rendering
the utility’s service.

R. C. Chapter 4905 is concerned with the general pow-
ers of the commission, whereas R. C. Chapter 4909 regulates
the fixation of rates. R. C. 4909.04, 4909.05 and 4909.18
all mention property “used and useful” by utilities in
rendering service and do not limit such property to the

boundaries of the state. The test then under the statutes
regulating fixation of rates is whether the property is
“used and useful” in rendering the utility’s service and
not the location of the property. :

Considering the foregoing statutes together, we per-
ceive no intention on the part of the General Assembly
to deprive a utility of the right of inclusion in its rate
base of property used and useful in rendering service
where such property is located outside the state.

To so hold would deprive the utility “* * * of the
right to earn a reasonable return upon the * * * value
of its property used and useful in the operation of its intra-
state business in this state in violation of the fundamental
legal principle that a utility is entitled to earn a reasonable
return upon * * * its property devoted to public service.”
United Fuel Gas Co. v. Public Service Comm. (1957), 143
W. Va. 33, 51, 99 S. E. 2d 1. See, also, Lone Star Gas Co.
v. Texas (1938), 304 U. S. 224; Petition of Fryeburg Water
Co. (1955), 99 N. H. 487, 491, 115 A. 2d 420.

II B.
ALLOCATION FOR STREET LIGHTING.

The City’s next contention is that the “plant, reve-
nues, and costs related to * * * ordinance contract
sales must be removed from the rate base, revenue, and
cost totals utilized by the Commission to set new rates
for other classes of customer.”

In support of this contention, the City refers to the
fact that the Company “during the test year had over
$5,000,000 in revenues from street lighting and signal sys-
tems sales made pursuant to ordinance contracts entered
into between the company and the affected municipalities.”

Essentially, the City’s position is that the Commission
should have made an allocation of property, costs and
revenues connected with street lighting services provided
to municipalities under municipal contracts.

On this subject, the Commission stated, in its opinion
and order: “* * * [BJoth staff and applicant have
adjusted for the plant devoted to street lighting by includ-
ing the revenues therefrom * * *. The staff found
that a sample allocation indicated no measurable effect
upon the rate of return and therefore an extended allo-
cation was not justified for street lighting sales and sales
to other public utilities * * *.”

The record shows that, although the Commission made
no allocation for street lighting and signal system sales,
it included the revenues from those sources. The record
contains the following discussion in the staff report
concerning this allocation:

“This proceeding involves al! types of sales except
those for street lighting and to other utilities. An alloca-
tion, less detailed but with sufficient accuracy to form
a judgment, indicated mo measurable effect on the rate
of return by going to an extended allocation. For this
reason, and because street lighting is less than 1% of
the total sales and because it is for the benefit of all
customers, no formal alloeation was made for this case.”

Thus, it does not appear from the record that the
finding of the Commission as to allocation for street light-
ing and signal system sales is “manifestly against the
weight of the evidence and so clearly unsupported by
the record as to show misapprehension or mistake or will-
ful disregard of duty.” Cleveland v. Pub. Util. Comm.,
supra (3 Ohio St. 2d 82), at 84, and Delphos v. Pub.
Util. Comm. (1940), 137 Ohio St. 422, at 424.

a eee se

91

II C,
ALLOCATION FOR INTERSTATE EXCHANGES.

The City’s next contention is that the Commission
should have separated “plant, revenues and costs” of the
Company’s “interstate sales and deliveries of electric
energy from those allocable to its intrastate operations.”
This contention is directed to the Company’s exchanges
of electricity with utility companies in other states.

The Commission reached the same conclusion on this
claimed need for allocation as it did on the asserted need
for allocation of street lighting and signal system sales.

For the test year, 1971, the interchanges of electricity
between the Company and others in interstate exchanges
nearly balanced. The Commission’s staff engineer testi-
fied as to the interstate exchanges:

“* * * As you know, I am concerned with the
rate base and when I first got on the stand I explained
our position as far as interchange of power and sales
to other utilities was concerned. As long as these sales
did not result in an amount of production facility or other
facilities that were not required to service the utility’s ulti-
mate customer, then it was perfectly proper, and in our
opinion—not only that, but somewhat profitable to the
ultimate customers, in that if you could make sales with
the somewhat underpowered production plant, and the
facilities that you have that are needed for the ultimate
customer, if you can make sales out of that equipment
and the profits of such sales, whatever they are, or losses
go to the ultimate customer, then the amount of production
facilities is reasonable. But, if the amount of production
facilities, for instance, is not reasonable, then you judge
that sale to other utilities was a major business of the
Company. But, in this case it seemed like it—while it hap-

92

pened that they were forced to rely on other means or
other older equipment, they were still able to do it.

“So, as long as the production facilities are a reason-
able amount for the ultimate customer, I don’t see how
we can make any correction in the rate base. And we
didn’t, for that reason.”

As in the case of allocation of street lighting and
signal system sales, the finding of The Commission
is neither manifestly against the weight of the evidence
nor unsupported by the record. Therefore, the City’s claim
that allocation was required for interstate exchanges is
not persuasive.

II D.
FEDERAL INCOME TAX ACCRUALS.
The City’s fourth proposition of law reads:

“All customer contributions in the form of accruals
for the payment of federal, state, and local taxes to be
paid by the applicant at future dates, which will be con-
stant with reasonable certainty in the foreseeable future
and which are available for working capital and for invest-
ment in materials and supplies, should be used to offset
the allowances for working capital.”

The foregoing proposition of law closely parallels para-
graph five of the syllabus in Cincinnati v. Pub. Util. Comm.,
supra (161 Ohio St. 395). The City argues that the
“* * * Commission has manifestly incorrectly applied
the law to the facts of the instant case by failing to
apply any of the federal income tax accruals as an offset
to the Company’s working capital allowances.”

The record shows that in computing working capital
the Commission’s staff did not take into account the federal

93

income tax accruals of the Company. The Commission
points out that “* * * staff of the Commission has
developed a formula which attempts to arrive at a reason-
able estimate of a company’s working capital requirements”
and that the “* * * formula does not attempt to take
into account all tax accruals * * *.” The Commission,
in its brief, quotes from an opinion and order of the Com-
mission in another rate case (In re Application of East
Ohio Gas Co., supra) its rationale for the exclusion of fed-
eral income tax accruals:

“* * * The tax accrual offset recommended by
the staff is the result of the staff’s formula which has
been refined over the years and which results in a reason-
ably accurate estimate of the benefit accruing to the appel-
lant. The formula has the advantages of being relatively
easy to understand and use, and its consistent application
assures equal treatment among rate applicants. The staff’s
formula properly excludes federal income tax accruals be-
cause federal income taxes are now generally paid on
a relatively current basis. The Commission has repeatedly
and consistently accepted the staff formula as representing
a reasonable estimate for the tax accrual offset.”

Paragraph five of the syllabus in Cincinnati v. Pub.
Util. Comm., supra (161 Ohio St. 395), reads in part:
“* * * customers’ contributions in the form of accruals
for the payment of taxes * * * which will be constant
with reasonable certainty * * * and which are available
for investments in materials and supplies, or for use as
working capital, should be used as an offset on the allow-
ance for working capital * * *.”

The record shows that there were some accruals for
federal income tax payments and that the evidence as
to the amount was conflicting. There is nothing in the

i ee iiaeatea eine

94

record to support a conclusion that these accruals were
not available due to their payment “on a relatively current
basis.” Since there were some federal income tax accruals
and the Commission made no allowance for them in the
formula used for determining working capital require-
ments, it follows that the Commission failed to properly
apply the holding in Cincinnati v. Pub. Util. Comm., supra,
in computing the allowance for working capital.

IT E.

ALLOCATIONS BETWEEN RATE CLASSES OF
CUSTOMERS.

The final contention of the City is that the Commission
“* * * has a duty to fix and determine just and reason-
able rates which cannot be discharged in the total absence
of cost of service evidence by major rate class” and that
the Commission “cannot blindly set rates when the only
cost of service evidence for any of the major rate classes
discloses the existence of unreasonable discrimination.” It
is the City’s position that the evidence “showed that both
the large industrial rates that were then in effect and
the proposed large industrial rates produced a much lower
rate of return than the overall rate or return enjoyed
by the applicant upon all of its electric operation” and
that therefore “the large industrial customer has been
and is now being subsidized by the other ratepayers.”

As the Company observes in its brief, the City here
“seeks to have an allocation made of all of the Company’s
property and income account between all of its various
classes of customers.”

- We will address ourselves to this issue under Part
III B below.

III A,
VALIDITY OF SIERRA APPEAL.

Similar issues are raised in case No. 74-156, wherein
the appellant, Sierra Club, Inc., a California nonprofit cor-
poration interested in conservation of natural resources
with members in the service area of the Company, proffers
two propositions of law, which read:

“1. Rate schedules that on their face discriminate
between and among customer classes must be justified
on the basis of cost of service. A failure by the utility
applicant to justify such rates by reliable and probative
evidence before the Public Utilities Commission requires
that the proposed rates be held to be unjustly preferential
and unjustly discriminatory and therefore in violation of
Section 4909.15 of the Revised Code and the equal protec-
tion clause of the Fourteenth Amendment to the Constitu-
tion of the United States.

“2. When the only expert testimony presented before
the Public Utilities Commission supports the proposition
that proposed utility rate structures are not cost of service
related, but are in fact based upon a subsidization of one
customer class by another and that subsidization is not
based upon valid considerations of economic and public
interest justification, the Public Utilities Commission is
prohibited from approving the submitted rates.”

The Commission argues that this court should refuse
to consider Sierra’s appeal, for the reasons that the notice
of appeal “fails to specify the errors in the Commission’s
order” and that Sierra has no standing. The Company,
as intervening appellee, advances the procedural argument
that Sierra, in its notice of appeal, “designates the order
appealed from as the Commission’s entry of January 28,
1974” when, in fact, the appeal relates to the order of

the Commission made on November 28, 1973. The Com-
pany notes also that no application for rehearing was filed
by Sierra to the order dated January 28, 1974.

Although the foregoing factors all present serious ques-
tions as to the validity of the Sierra appeal, the issues
raised by Sierra are similar in character to those raised
by the City in its final contention in case No. 74-272,
and this court will, therefore, consider them.

III B.

RATE DIFFERENCES BETWEEN CUSTOMER
CLASSES.

R. C. 4909.04 provides:

“The Public Utilities Commission, for the purpose of
ascertaining the reasonableness and justice of rates and
charges for the service rendered by public utilities or
railroads, or for any other purpose authorized by law,
may investigate and ascertain the value of the property
of any public utility or railroad in this state used or use‘ul
for the service and convenience of the public. At the
request of the legislative authority of any municipal corpo-
ration, the commission after hearing and determining that
such a valuation is necessary may also investigate and
ascertain the value of the property of any public utility
used and useful for the service and convenience of the
public utility where the whole or major portion of such
public utility is situated in such municipal corporation.”

This section was interpreted in Toledo Edison Co. v.
Pub. Util. Comm. (1954), 161 Ohio St. 221, wherein the
court said, at page 229:

“This section [actually R. C. 4909.04 but incorrectly
reported as R. C. 4904.04], as formerly enacted [General

97

Code 499-8], contained the word, ‘shall,’ where it now
contains the word, ‘may,’ and it would seem that the valua-
tion of the property of a public utility or railroad, in
reference to rate fixing, is now, within proper bounds,
discretionary with the Public Utilities Commission.”

The court in that case, also stated, at page 234:

“* * * the Public Utilities Commission has discre-
tion, in the fixing of a single freight rate, to base that
rate upon matters other than the valuation of the property
of the railroad and the actual cost of operation, although
it has full authority to require such evidence of valuation
if in its opinion such findings are necessary to a proper
determination of rates. * * *”

Thus, the Commission was not required to make the
cost of service allocation for classes of customers as con-
tended by the City.

Rate differences for various classes of customers are
permissible. As stated in Buckeye Lake Chamber of Com-
merce v. Pub. Util. Comm. (1954), 161 Ohio St. 306, 311,
the “general rule is that * * * ‘a utility may, without
being guilty of unlawful discrimination, classify its cus-
tomers on any reasonable basis and make separate rates
for each class.’ * * *”

R. C. 4905.31 authorizes utilities to make classifications
of services with varied charges. It reads, in part:

“Chapters 4901, 4903, 4905, 4907, 4909, 4921, 4923, and
4925 of the Revised Code do not prohibit a public utility
from filing a schedule or entering into any reasonable
arrangement with another public utility or with its cus-
tomers, consumers, or employees providing for:

“(D) A classification of service based upon the quari-
tity used, the time when used, the purpose for which
used, the duration of use, and any other reasonable consid-
eration;

“(E) Any other financial device that may be prac-
ticable or advantageous to the parties interested. No such
arrangement, sliding scale, minimum charge, classification,
variable rate, or device is lawful unless it is filed with
and approved by the Public Utilities Commission.

“Every such arrangement, sliding scale, minimum
charge, classification, variable rate, or device shall be un-
der the supervision and regulation of the commission, and
is subject to change, alteration, or modification by the
commission.”

Applying G. C. 614-17, the predecessor to R. C. 4905.31,
the court held, in paragraph two of the syllabus, in Cleve-
land & Eastern Traction Co. v. Pub. Util. Comm. (1922),
106 Ohio St. 210:

“The schedules of rates and charges required to be
filed by a public utility company with the Public Utilities
Commission may contain a classification of its service,
which classification should be based upon the quantity

used, the time when used, the purpose for which used,
the duration of use, and other reasonable considerations

which essentially distinguish the service required to meet
the various demands.”

The Commission, in its opinion and order, made the
following finding as to rate structure:

“For many years this Commission has considered it
proper and desirable that electric rates be so structured
as to provide declining unit prices as the customers’ usage

increased.

“The principle may have been justifiable in periods
where promotion of electric energy usage reduced the ex-
cess capacity of the electric industry which might other-
wise have remained idle. Such is not the situation today
where all forms of energy are in short supply and conser-
vation of resources has become a national policy.

“The Sierra Club presented testimony of Dr. Tybout
* * * which explored various types >f price structuring
and which concluded that a more or less flat rate structure
was the most desirable. While this Commission cannot
base its determination of proper rate structure upon his
testimony entirely as several of his assumptions were dis-
proved by applicant’s testimony the record does support
a conclusion that some modification of applicant’s proposed
schedule is in order.

“Applicant is therefore directed to reduce its pro-
posals for minimum bills and initial energy blocks in the
order of 20 percent and to make compensating increases
in the higher usage energy blocks.”

Thus, the Commission partially granted the relief
sought by Sierra even though its staff made the following
recommendation as to rate structure:

“1) Under 5a the petitioner urges the Commission
to cause applicant to eliminate ‘declining block rates’. The
rate engineers recommend that the Commission reject this
recommendation by petitioner on the grounds that rates
of this type recognize the long established and acknowl-
edged facts (i) that the cost of rendering service to the
customer declines as the volume of such service increases:
(ii) that this type of rate has been accepted as just ond
reasonable over many years and (iii) that rates of this
type, having been tried and used over many years are

100

now offered by a vast majority of electric utilities operating
in all parts of the United States.

“In closing it may be said that while the rate engineers
understand that it may be entirely legal and no doubt
praise worthy for the Commission to attempt to alleviate
the hardships of the low income segment of our population
by manipulating utility service rates they nevertheless
by their recommendation to the Commission that the tradi-
tional rate pattern of price[s] receding as usage increases
be retained in this proceeding.”

It appearing that the order of the Commission respect-
ing rate structure is neither “manifestly against the weight
of the evidence” nor “so clearly unsupported by the record
as to show misapprehension or mistake or willful disregard
of duty,” the contentions of the City and Sierra in regard
thereto are rejected.

IV.
EFFECT OF ADMINISTRATIVE DETERMINATION.

In respect to two issues raised herein, the Commission,
in its opinions and orders in subsequent proceedings, has
reversed the position taken in these pr seedings. In addi-
tion, the Commission has departed from its prior determi-
nations in respect to the Lake Shore property used by
the Company. Although the Commission should be willing
to change its position when the need therefor is clear
and it is shown that prior decisions are in error, it should
also respect its own precedents in its decisions to assure
the predictability which is essential in all areas of the
law, including administrative law.

101

. Appropriate to the foregoing comments are the follow-
ing statements found in State, ex rel. Automobile Machine
Co., v. Brown (1929), 121 Ohio St. 73, 75:

. “It has been held in this state that ‘administrative
interpretation of a given law, while not conclusive, is,
if long continued, to be reckoned with most seriously and
is not to be disregarded and set aside unless judicial con-
struction makes it imperative to do so.’ Industrial Com-
mission v. Brown, 92 Ohio St. 309, 311, 110 NE. 744,
745 (L.R.A., 1916B, 1277). See, also, 36 Cyc., 1140, and
25 Ruling Case Law, 1043, and cases cited.

“This is a well-recognized principle of statutory con-
struction and we deem it applicable in the present in-
stance. * * *”

V.
CONCLUSION.

In case No. 74-276 and in case No. 74-272, the order
of the Commission, being unreasonable and unlawful, is
reversed, in part, and the causes are remanded to the
Commission for further proceedings in accordance with

this opinion. In case No. 74-156, the order of the Commis-
sion is affirmed.

In case Nos. 74-276 and 74-272, order affirmed in part
and reversed in part.

In case No. 74-156, order affirmed.

O’Nem., C. J., STERN, CELEBREZZE, W. Brown and P.
Brown, JJ., concur.

Hersert, J., concurs except for the eighth paragraph
of the syllabus.

102

APPENDIX D

Unrelated Decision of the Public Utilities
Commission of Ohio

Case No. 71-634-Y

Before
THE PUBLIC UTILITIES COMMISSION OF OHIO

IN THE MATTER OF THE APPLICATION OF THE CLEVELAND ELEC-
TRICc ILLUMINATING COMPANY FoR AUTHORITY TO AMEND
AND TO INCREASE ITs FILED SCHEDULES FOR FIXING RATES
AND CHARGES FOR ELECTRIC SERVICE.

OPINION AND ORDER

The Commission, coming now to consider the above-
entitled matter, its Opinion and Order herein of November
28, 1973, the decision of the Supreme Court of Ohio in
Cleveland Electric Illuminating Company v. Public Utili-
ties Commission, 42 Ohio St. 2d 403 (1975) which affirmed
in part and reversed in part that order, and being otherwise
fully advised in the premises and in compliance with Sec-
tion 4903.09 Revised Code, hereby renders its Opinion and
Order on remand.

HISTORY OF THE PROCEEDINGS:

This case originally came before the Commission upon
the application of The Cleveland Electric Illuminating
Company for authority to increase its rates and charges
for electric service. On November 28, 1973, this Commis-
sion issued its Opinion and Order granting, in part, the

103

prayer of the application and authorizing applicant to in-
crease said rates and charges, but not to the full extent
requested by applicant. By Order dated January 22, 1974,
the Commission accepted the new rates for filing. Appli-
cant and the City of Cleveland and the Sierra Club, both
of which had duly intervened herein, appealed to the Su-
preme Court of Ohio from the Commission’s Opinion and
Order of November 28, 1973. On June 11, 1975 the Su-
preme Court issued its decision in Cleveland Electric II-
luminating Company v. Public Utilities Commission, 42
Ohio St. 2d 403 (1975), affirming in part and reversing in
part this Commission’s Opinion and Order of November 28,
1973. This natter has now come on for consideration by
the Commission pursuant to the mandate of the Supreme
Court as set forth in that decision.

APPEARANCES:

Messrs. Alan D. Wright and Harry G. Fitzgerald, Jr.,
1010 Euclid Avenue, Cleveland, Ohio, and Squire, Sanders
& Dempsey, by Messrs. John Lansdale, Jr., Alan P. Buch-
mann, and James H. Woodring, 1806 Union Commerce
Building, Cleveland, Ohio 44115, on behalf of the Applicant.

Messrs. Robert D. Hart, John F. Harkins, and Wil-
liam Schatz, 213 City Hall, Cleveland, Ohio, on behalf of
the City of Cleveland, Intervenor.

Mr. Lawrence V. Cox, Director of Law, 6161 Engle
Road, Brook Park, Ohio, on behalf of the City of Brook
Park, Intervenor.

Messrs. Weston, Hurd, Fallon, Sullivan & Paisley, by
Mr. Jerome S. Kalur, 2500 Terminal Tower, Cleveland,
Ohio, on behalf of the Sierra Club, Intervenor.

Messrs. Thompson, Hine & Flory, by Messrs. William
H. Wallace and Alan R. Lepene, Special Counsel, 1100 Na-

104

tional City Bank Building, Cleveland, Ohio, on behalf of
the City of Rocky River, Intervenor.

Ms. Daisy G. Collins, 1404 East Ninth Street, Cleve-
land, Ohio, on behalf of The Greater Cleveland Welfare
Rights Organization, Inc., Intervenor.

Mr. Patrick A. Gareau, Director of Law, 21330 Center
Ridge Drive, Rocky River, Ohio, and Mr. Gerald P. Wad-
kowski, Special Counsel, 85 East Gay Street, Columbus,
Ohio, on behalf of the Cities of Westlake and Strongsville,
Intervenors.

Honorable George E. Mastics, Ohio House of Repre-
sentatives, 1001 Terminal Tower, Cleveland, Ohio, on his
own behalf and on behalf of his electoral district, Inter-
venors.

Mr. William J. Brown, Attorney General of the State
of Ohio, by Mr. Charles S. Rawlings and Ms. Cheryl Hach-
man, Assistant Attorneys General, 111 North High Street,
Columbus, Ohio, on behalf of the staff of The Public Util-
ities Commission of Ohio.

COMMISSION REVIEW AND DISCUSSION:

In its opinion in Cleveland Electric Illuminating Com-
pany v. Public Utilities Commission, supra, the Supreme
Court of Ohio affirmed this Commission’s Opinion and
Order of November 28, 1973 in certain respects and reversed
it in others. For the purposes of this Opinion and Order
on remand, as will become apparent hereinafter, there
appears to be no need for this Commission to discuss or
act upon a number of the points set forth in the Supreme
Court’s opinion, since it is clear that, on any interpretation
of the Supreme Court’s decision, applicant is entitled to the
full rate increase requested in the application.

105

Although the Supreme Court dealt with several rate
base items, deciding some rate base issues in applicant’s
favor and some adversely to it, with respect to only one
rate base question did it reach a conclusion substantively
adverse to applicant in the sense that it would result in a
reduction of the rate base found appropriate by this Com-
mission in its Opinion and Order of November 28, 1973.
This relates to the question of properly crediting the al-
lowance for working capita! with an offset for customers’
contributions in the form of tax accruals. In this respect,
the ninth paragraph of the syllabus of the Supreme Court’s
opinion reads as follows:

“9. Customers’ contributions in the form of accruals
for the payment of taxes which will be constant
with reasonable certainty and which are available
for investments in materials and supplies or for
use as working capital should be used as an off-
set on the allowance for working capital. (Cin-
cinnati v. Pub. Util. Comm., 161 Ohio St. 395, an-
proved and followed).”

Thus, if we were to consider this issue alone, it is ap-
parent that the rate base as previously found by this Com-
mission must be reduced. As the Supreme Court noted in
its opinion, however, the evidence as to the amount of any
such reduction is conflicting. It is apparent that the most
conservative possible approach to this issue, i.e. the ap-
proach most adverse to the interests of the applicant, would
be the elimination of all working capital from the statutory
rate base. On the other hand, the Supreme Court expressly
held that the value of the filled land at the applicant’s
Lake Shore Power Plant is included in the rate base. There
was no dispute as to the value of that property, but only
as to its includability. Thus, under the Supreme Court’s

106

decision, it is plain that that value, $418,000, should be
added to the value of the Company’s land and land rights.
This would result in a statutory rate base for the purposes
of this proceeding of $1,155,717,000 as indicated by the
table below:

Land and land rights $ 37,507 (000’s)
RCNLD of property 1,118,210
Working capital -0-

Rate Base $1,155,717

It will be noted that this computation does not take
into consideration the decision of the Supreme Court as to
the computation of the materials and supplies component
of working capital which would tend to increase the rate
base above that indicated. As discussed hereinafter, there
is no need for the Commission to pursue its analysis of this
question further at this time.

In so far as rate of return is concerned, the decision of
the Supreme Court would, ordinarily, require a reevalua-
tion of all of the components of the cost of capital which
this Commission normally considers in determining a fair
rate of return. Again, as will become clear hereinafter,
there is no need for the Commission to make such a de-
termination at this point. It is sufficient to note that the
Supreme Court concluded that the inclusion of deferred
credits at zero cost in determining a rate of return of 7.05%
was unlawful. If we exclude the deferred credits com-
ponent of the capital structure from the computation, hold-
ing all other elements constant, the effect upon the deter-
mination of the cost of capital is as follows:

107

Percent of
Total Cost Weighted Cost
Common 40.4 8.5 .034340
Preferred 6.8 7.4 .005032
Dbt 52.8 6.5 .034320
100.0 .073692

It will be observed that this computation does no more
than eliminate the deferred credits at zero cost, restating
the remaining components of capital structure as per-
centages of the total and, of course, developing the resulting
weighted cost. No changes have been made in the assigned
cost of the various components from those utilized in the
staff approach originally adopted by this Commission in its
Opinion and Order of November 28, 1973. Obviously, in
view of the Supreme Court’s decision on the various rate of
return issues, this is the computation which is most adverse
to the position of the applicant. It results, as indicated, in
a rate of return of 7.37%.

Application of a rate of return of 7.37% to the mini-
mum rate base discussed above will result in an allowable
dollar return in the amount of $85,176,343 which, when
added to the allowable annual expenses of applicant for the
purposes of this proceeding as previously determined by the
Commission, would produce allowable gross annual reve-
nue, with due regard to the income tax effect of the in-
crease, of $319,721,729.

In its application, however, applicant requested an in-
crease in rates which would produce allowable annual reve-
nue of $319,473,248 (S.R. p. 8), which is less than the
amount determined above. The Commission is of the
opinion that the amount requested constitutes implicit ac-
knowledgment by applicant that such revenues are suf-

108

ficient to meet its normal expenses and carry on its opera-
tions [See Dayton Power and Light Company, Case No.
73-166-Y (February 63, 1975)] and that the rate of return
which such revenues would produce should be considered
the fair rate of return for purposes of this proceeding. Ac-
cordingly, the Commission is of the opinion that there is no
need for further analysis either of rate base or rate of re-
turn which otherwise might be required by the Supreme
Court’s decision.

The only remaining question relates to certain tariff
issues heretofore determined by this Commission in its
Opinion and Order of November 28, 1973. Specifically,
the regulations in issue here deal with the time of access
to customer premises, itemization of charges for special
construction, and voltage variations, together with the fuel
adjustment clause and certain promotional tariffs. In its
opinion the Supreme Court concluded that, when consider-
ing an application for a rate increase, this Commission
“may not extend its inquiry to matters not put in issue
by the applicant and not related to the rates which are
the subject of the application.” The Supreme Court, how-
ever, expressly refrained from attempting to categorize
which of the five indicated matters, if any, fall within
the realm of the Company’s application or have an effect
upon the rates. The Commission is of the opinion, and
so finds, that the fuel adjustment clause and the promo-
tional tariffs clearly “have an effect upon the rates” and
the record supports the disposition made by this Commis-
sion on those questions in its Opinion and Order of Novem-
ber 28, 1973 which, to that extent, is incorporated herein.

The other matters referred to in the opinion of the
Supreme Court in this connection present a much closer
question and, if this proceeding were at a different stage
it is possible that different result might be required. The
record, however, reflects that the precise language in ques-

109

tion with respect to each of these regulations was the
result of discussions between the applicant and the Com-
mission’s staff and that there is evidence in the record
to support the changes required by the Commission. In
view of the fact that this matter has been pending before
the Commission since October 7, 1971, and that there is
no indication in the record that the Commission’s deter-
mination on these points has been or will be prejudicial
to applicant, the Commission. will adopt the pertinent por-
tions of its Opinion and Order of November 23, 1973 on
these issues.

FINDINGS OF FACT:

From evidence of record in this proceeding, the Com-
mission finds that:

1. The value of applicant’s electric property used and
useful for the service and convenience of the public
within the service area encompassed by this appli-
cation, as of the date certain June 30, 1971, is
not less than $1,155,717,000 and that, for the pur-
poses of this proceeding on remand, no allowance
for working capital will be made, resulting in a
rate base for this proceeding of $1,155,717,000.

2. For the twelve month period ending December 31,
1971, the test period in this proceeding, the rev-
enues, expenses and income available for fixed
charges from the rates for electric service then
being charged and collected in the area involved
in this proceeding, are $268,930,886, $209,153,155,
and $59,777,731, respectively.

3. This net annual compensation of $59,777,731 repre-
sents a 5.17 percent rate of return on a rate base
of $1,155,717,000, which is insufficient to provide
applicant with reasonable compensation for the

110

electric service rendered to customers in the area
in question.

4. The application herein constitutes a recognition by
applicant that a rate of return of somewhat less
than 7.37%, i.e. a rate of return which would pro-
duce the requested increase, is fair and reasonable
and is sufficient to provide applicant just compensa-
tion and return on the value of the property used
and useful im furnishing the service described in
the application.

5. Applicant has recognized that a dollar return in
the amount of $85,050,160 will provide it with rea-
sonable compensation for the electric service ren-
dered to customers in the territory affected by
this application.

6. The annual expenses of applicant for the purposes
of this proceeding are $234,423,088.

7. The gross annual revenue to which applicant is
entitled for the purpose of this proceeding is the
sum of the amounts set forth in Findings 5 and
6, or $319,473,248.

8. The applicant should submit tariff schedules con-
sistent with this Opinion and Order and cancel
and withdraw its presently effective tariffs.

CONCLUSIONS OF LAW:

1. Pursuant to the mandate of the Supreme Court
of Ohio in Cleveland Electric Illuminating Company
v. Public Utilities Commission, 42 Ohio St. 2d 403
(1975), the applicant should be authorized to cancel
and withdraw its presently effective tariff provi-
sions on file with this Commission and to file tariff
provisions consistent with the Commission’s Discus-
sion and Findings set forth above.

111

2. The effective date of the new tariffs shall be the
first billing period after the Commission’s approval
of the tariffs filed pursuant to this Order.

ORDER:
It is, therefore,

ORDERED, That the applicant be, and hereby is, au-
thorized to file tariffs consistent with the Discussion and
Findings set forth above and to cancel and withdraw its
present tariffs. It is, further,

ORDERED, That the tariff sheets authorized herein,
should be submitted for approval by the Commission. Up-
on receipt of two (2) complete copies of said tariffs con-
forming to this opinion and order, the Commission will
review and approve same by entry. It is, further,

ORDERED, That the effective date of the new tariff
should be the first billing following Commission approval
of the tariffs filed pursuant to this order. Applicant should
notify each of its customer of the increase in rates and
changes authorized herein by insert or attachment to this
first billing. The proposed notice shall be submitted to
the Commission when applicant files its tariffs for ap-
proval. It is further,

ORDERED, That a copy of this Opinion and Order
be served upon all parties of record.

The Public Utilities Commission of
Ohio
C, Luther Heckman
Chairman
_ Sally W. Bloomfield
David Sweet
Commissioners

112
APPENDIX E

Judgment of the Supreme Court of Ohio
(Dated June 11, 1975)

No. 74-272

THE SUPREME COURT OF THE STATE OF OHIO
Tue STATE OF OHIO
City or COLUMBUS.

CITY OF CLEVELAND,
Appellant,
vs.

PUBLIC UTILITIES COMMISSION OF OHIO, ET AL..,
Appellees.

APPEAL FROM THE Pus.ic UTILITIES COMMISSION OF OHIO

This cause, here on appeal from the Public Utilities
Commission, was heard in the manner prescribed by law.
On consideration thereof, the order of the Public Utilities
Commission is affirmed in part and reversed in part for
the reasons stated in the opinion herein, and cause re-
manded to the Commission for further proceedings in ac-
cordance with such opinion.

It is ordered that a mandate issue to the Public Utilities
Commission of Ohio to carry this judgment into execution.

113

APPENDIX F

Entry of the Supreme Court of Ohio Denying
Motion for Rehearing

(Dated June 24, 1975)

Nos. 74-276, 74-272 and 74-156

THE SUPREME COURT OF THE STATE OF OHIO
THE STATE oF OHIO,
City or COLUMBUS

THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY, ET AL.,
Appellants,

vs.

PUBLIC UTILITIES COMMISSION OF OHIO, ET AL..,
Appellees.

It is ordered that the motion for clarification filed
by Cleveland Electric Illuminating Company, appellant in
case No. 74-276, be and hereby is overruled.

It is further ordered that the motion for rehearing
filed by the Public Utilities Commission of Ohio, appel-
lee in case No. 74-276, be and hereby is overruled.

It is further ordered that the motion for rehearing
filed by the City of Cleveland, appellant in case No. 74-
272, be and hereby is overruled.

It is further ordered that the stay of the order of
the Public Utilities Commission of Ohio dated June 16,
1975, in case No. 75-437-EL-ATA, granted by order of
this Court dated June 20, 1975, is hereby continued and
remains in full force and effect pending a decision by
the Public Utilities Commission pursuant to the opinion
and order of this Court dated June 11, 1975.

~

(114

APPENDIX G

Evidence of Cleveland Electric Illuminating
Company’s Interstate Commerce

Before The
PUBLIC UTILITIES COMMISSION OF OHIO

Case No. 71-634 Y

Re: THe CLEVELAND ELectric ILLUMINATING COMPANY
DIRECT TESTIMONY OF HARBANS S. CHHABRA
Part I. Qualifications

Q. Please state your name and address. A. My name
is Harbans S. Chhabra. I reside at 14809 Dixon Court,
Woodbridge, Virginia 22191.

Q. What is your occupation? A. I am employed by
Van Scoyoc & Wiskup; Inc., Public Utility Consultants,
with offices at 1015 18th Street, N. W., Washington, D. C.
20036.

Q. Please 4utline your educational background. A.
I was graduated from Howard University, Washington,
D. C., in 1967 with the degree of Bachelor of Science in
Mechanical Engineering. Subsequently, I took several
graduate courses in the field of management from the
American University and received a graduate certificate
in 1971.

Q. What professional certifications do you hold?
A. Tam a Registered Professional Engineer of the State
of Virginia.

Q. Are you a member of any professional organiza-
tions? A. Yes, I am a member of the District of Colum-

bia Society and the National Society of Professional En-
gineers.

115

Q. How long have you worked in the public utility
field? A. I have been engaged in utility work for five
years. My work experience in this field started in June
1967 when I became an employee of a local gas utility
company.

Q. Will you state by whom you were employed and in
general your responsibilities and duties? A. I was with
Washington Gas Light Company as « Staff Engineer for
five years involving two different areas of gas distribu-
tion system. In the Department of Gas Supply, I specified
gas measurement and handling equipment as well as con-
trols for the gas system. In this activity, my assignments
also included gas measurement, winter peaking service,
ascertainment of gas quality, odorization, and maintenance
of the utility plant. In the Research and Utilization De-
partment I was responsible for an important research proj-
ect entitled, “Causes and Prevention of Heating Equipment
Failure”. Other duties included design and specification of
heating, venting, and air conditioning systems; total energy
system; study of fuel cells; and test and evaluation of gas
appliances. I was self employed from June 1972 until
joining the staff of Van Scoyoc & Wiskup, Inc. in April
1973 as a Regulatory Engineer.

DIRECT TESTIMONY OF HARBANS S. CHHABRA

Part II: Analysis of Gross Deliveries
of Electricity During 1971

Q. Mr. Chhabra, are you generally familiar with the
energy flows of the Cleveland Electric Iluminating Com-
pany as shown by the evidence before this Commission
in Case No. 71-634 Y? A. Yes, I am. I also examined
data available at the Federal Power Commission.

Q. Did you prepare Exhibit No. ........ (HSC) entitled
Fe x of Gross Deliveries of Electricity during 1971”?

. Yes.

116

Q. What is the purpose of the exhibit? A. The pur-
pose of this exhibit is to show the Cleveland Electric Il-
luminating Company’s activity in interstate as well as
intrastate transactions.

Q. Please describe Schedule 1 of Exhibit No. ........
(HSC)? A. Schedule 1 is designed to show deliveries of
electricity under two categories. They are:

1. Non Jurisdictional Deliveries and Deliveries other
than under State Commission’s Retail Rate Sched-
ules.

2. Retail Deliveries subject to State Commission's
Jurisdiction

In column (2) the FPC Rate Schedules are specified
where applicable.

During the test year (1971) 22.67% of the total de-
liveries of 17,442,706,707 Kwh were under the above men-
tioned category 1 and 77.33% were under the State Com-
mission’s retail rate schedules.

Q. Please describe Schedules 2, 3, and 4? A. These
schedules are copies of certain sheets in the FPC Forms 1
and 12 for 1971 showing sales and interchanges with other
electric systems. Some of the numbers on Schedule 1 of
my exhibit were taken from Schedules 2, 3, and 4.

Q. What does Schedule 5 show? A. This schedule
consists of two pages also from the Company’s FPC Form
1 for 1971. It shows total sales of electricity by rate
schedules and includes sales for resale to the City of Cleve-
land. This was another source of information for my
Schedule 1.

Q. Please explain Schedules 6 and 7? A. Sched-
ules 6 and 7 both consist of two pages each and are copies
from Company’s FPC Form 1 for 1972. These schedules
also show sales of electricity by rate schedules and include
sales for resale to Toledo Edison Company and City of
Cleveland under FPC Rate Schedules 9 and 7 respectively.

117

The purpose of these Schedules is to show the Cleveland
Electric Dluminating Company’s continued activity in de-
liveries of electricity under Category 1 of my Schedule 1,
even after the test year.

Q. What is Schedule 8 intended for? A. This sched-
ule consists of three pages copied from FPC’s “Index of
Filed Electric Rate Schedules”. It shows designated Rate
Schedule Numbers for the Cleveland Electric Illuminating
Company and other electric systems.

118
Before The

Public Utilities Comaission of Ohio

The Cleveland Electric Illuminating Company

Case No. 71-634 Y

ANALYSIS OF GROSS DELIVERIES
OF ELECTRICITY DURING 1971

Yan Scoyoc & Wiskur, Inc.
Public Utility Consultants
1015 18h Strect, N.W.
Washington, D.C. 20036

119
Case No. 73-634 Y

The Cleveland Electric Illuminating Company

Table of Contents

Title Schedule

Gross Deliveries of Electricity
for Year Ended December 31, 1971

Electric Energy Account and Other
Energy Transfers 1971

Energy Transferred to or Across a
State Line 1971

Interchange Power 1971

Sales of Electricity by Rate
Schedules 1971

Sales of Electricity by Rate
Schedules 1972

Sales for Resale 1972

Index of Filed Flectric Rate
Schedules

120

Public Utilities Commission of Ohio
we Mo. 71-634 Y

—

WOM JURISDICTIONAL DELIVERIES
AND DELIVERIES OTHER THAN UNDER
STATE COMAISSION'S

RETAIL RATE SCHEDULES

Seles for Resale

City of Cleveland
of Public Utilities Total
Toledo Edison

Total Sales for Resale

Bales and Interchange With
Electri stems

Ohio
Ohio
Ohio Edison

fotal Ohio Edison ¢. Chio Power

RG EEK EB © awa uw eum PF

Pennsylvania - Rew Jersey -
Maryland Group

17 Total PJM Group
18 =—s_s Industrial es
19 Union Carbide Corporation **

n”

33

° Designated FPC Rate Schedules (p. 412 Form 1, 1972)

#* Delivery under an interchange agreenent.

Schedule 1
Page 1 of 2
f
vered Percent
— wr
127,733,342 0.732%
—J22.733,.32 _0.732
yee 2.865
» 567 ,000 0.39%
2,356,434,000 13.509
2,924 ,850,000 16.768
350,153,000 2.007
83,454,000 _ 0.476
— 433,607,000 _2.485_
19,475,000 _0.112

Se eo aw rw wn FE

Sau FG RE

& &

121

Public Utilities Commission of Ohio

Case No. 71-634 Y

The Cleveland Electric Dilumincting Company

GROSS DELIVERIES OF ELECTRICITY

Schedule 1
Page 2 of 2

Frc Rate

Description soot

Other Sales to Public Authorities

Public Streets and
Highway Lighting _

Public Street Lighting
Traffic Control Lighting

Total Lighting
Sales to Railroads and Railways
Cleveland Transit Systes
TOTAL

RETAIL DELIVERIES SUBJECT TO
STATE COMMISSION'S JURISDICTION

Sales at Retail Rate
Schedules to Ultimate Consumers

Residential Sales

Commercial Sales

Industrial Sales
TOTAL

TOTAL GROSS DELIVERIES

227
a Percent
Delivered
Alte candeved using Go gous dietted by te oun a umman
§ 5 titted “Elerwic Oprraung Revenurs,” page 400. Mf the sales = pevinds during the year (12 if all Lillings are made menthly).
Sata , a ee RY OS tT
P ete E etic sevemss acrewes webhe scoag therecs
: 4 is a. 38 a3 bia, | Mm nd Paste od Bate Schetatey Gat tots — Stumbes of sm ow ~-
z z & $3 ° 35 ot = = Ss te) ——
3 1 s i} os ° =
'
;. i ¥ 2 : ? 2,636,699 846 73.191 .902 | $36,957 & ,875 2.8
} } 43 i 44 i 33 y 660,921,478/ 13,718,155 | 53,268 12,807/ 2.68
: ; : 3 8 ; iy ‘ 27.903 .400 862,08 | 1,071 26.058) 1.6
&

: } Fé f } § ° 8.818 360 122,906 332 25.308] 1.46
~™ §28. i Be! : ee . = ri = hy - 5.52
RAE i! 3 ; SR = =8 b 143.820,729| 2.951.067 mi 821.12 aes

3
Fe 38 i ef 097 025 os ,26 Bia} =. 30.679] 8.95
. ” ad Ps) e - - -
i; f es f a —Lienez| —mr.08 | g.sesie| = anit] 6.30
i 5 32 Cy 4 - 3,530,655 .580/ 93,130,996 | 603,48 5.050) 2.
He: ss - | o
142 3a =
mie aa |
Ofirhy :
Esfis cS . ae * . ° , 87, 6 v.72 5.82
+e ee : “trisa| “Sao | | Begs] ty
>. . . . . . , ca) . .
iii 3 i $3 ° i " , 509 .059 2.25
. oa 1,809,545 199.978 5214) & 008 9.
4 fa E . ~ 890 051.959 5.962.779 80 =| 30, 751.299 +"
¥ 2% P *f ~ 134 ,678 ,o80 1,38) ,250 a 57 .339.040 1.273
rE § ef | 8.094.972 7.467 “ 2.999) 1.59
$s re be i} - e
i | $3 i 3 s ~ 99.779 3.723 5 13.956 6.23
gs oe | i; » —ZL.08 | 1.278.500 | 6.37616) s,080/ &.95
: 4 4 b 3 if : g : s - 3.29% .699,662 70,216,167 59,715 63.255 2.D
8 z & “” he
Seeas ¢
a Ws ge GSH :
rr
ho « rT)

128

. SciaoJu)
Poss 2 of 2
AMMUAL REPORT of The Cleveland Electric Tilenfesting Company Year Ended Deceaber 31, 1°-;:
©5 Industrial:
° Corzere ia} se ,008 6s 1.37.cm 2.996 23.95 3.38
SSS ees ons os
8 a Coune ial ea-c¢ i » F *«
~ a. cae Gane 1,320.68 %.sn 5 Wb B16 2.
. Lond Pastor
— 5 py wnt 2,23. 306. neste) 6.m9 mm
$3 13 + Industria) 1,936. D2.99 23.3528 we oy y ~
9% 12 + Large Industrial 3 .406.572.508 3.56.28 tL) ae . 4
$5 13 ~ Large Low Load Factor 1,622.576 4. 2 b
- trie Larce Genera) B
. r a @ 394.979 9%. a 1,9%9.@2 1.
$8 17 + Private Drive and Ares
Light 33.128 as 1 33.128 2.98
M4 19 - eniue taste 6.5 .056 85.95 1. 2a) yo =
6i Other - Contrasts ino. 128m 2.9 :
° TOTAL INDUSTRIAL 6.813.928 ..02 92.519.153 7.388 959.572 1.3%
wa
4 — ‘ 9.958.557.7% 142.735.29 36.5 175.80 1.6
67
GO [oed) Publis Street & highway
& Jsedtinc
> 06.271 8.22
Pwwlic Street Lighting 123.139. 989 5.109.098 we
. fraffie Control Lighting 12.93.20 122 98.029 2.83
4 voTaL 133.098 .552 5.806.303 wiz 31.979 5.06
pB
76 {@95) Otrer Sales to Publis
TT «©atmerisics
— Centrests Teta) ata .gne 232 3.832.793 wa 1,38 .297 1.22
@o
© (eG) Gules te Beilroade &
mile
. Cleveland Transit System 32.828 .138 $01.78 i 52,828,138 1.5)
s
O06 (997) Sales for Resale
City ef Clevelend
& Dept. of Public Utilities —_MLELe2 Lem 1 127,733.82 5
= JOTAL SALES OF ELPCTRICTCY W0O.7R.1 0086.58.98. m6 1.0%
Riba

Source Form 1
Ancwct open et §=6THE CLOVELAHMD ELMCTRIC ILLAIT!TING CO’RAYy

129

Se.icdule 6
Passe 1 of 2

Year ended Poco mer 94, 10°72

SALES OF ELECTRIC BY RATE SCHOLES

§. Repart b-tow fer cach rate x hedule in cflect during the

year the Kwh of etrcwicity sahil, revenue. average nuinlae ol evs.
tomer, average Kwh per customer, and average revenue por
K:

2. Previcte a subheading and total far cach prescribed oper.

ating revenue account in the sequence follewcd in Schedule cn-
tded “Electric Operating Kevenues.” pape (09. Mf the sales
wader any rate schedule are clawified im more thaa one revenue
eccount list the sate u hedule and soles dais vad: each appln-

3 Where the same costumers are served wacler mune than one
tate x hedule in the same revenue account (lasihe ation (such as
& general residential schedule and an off peak «ater heating
schedule), the entries in column (a) for the special schedule
should denote the duphicanon in cumber of repurted customen

4. The avetece number of commons should! be the wumber uf
bills rendered during the year chvwied by the number of ballone,
periods during the year (12 if all ballinzs are made monthly)

5. For any tate schedule having a fuct acustment cLiuse state
in a fooimute the commated additional revenue belied pursuant

ebtr revenues account subbe adenr thercio.
Averoge Ket of levemve
nan | Mme ond Title of Rate Schewiete Kw Sond tome —- — afte
tor _ te) ) te) 7
$ Cents
+
2] 1 + Genera) kesidential 2,739,088 580 77,043 ,897| 539.544 5.077 2.81
3] 2+ Large Residentia) 713,817,052 15,032.845/ 45,749 12,797 2.13
4] 3 + Residential Space Itating} 33.229, 561 ,825 1,227 27,082 1.69
3] 5 - All-Bleetric Apartaent
. Suite 10,61, 159.527 u28 2,771 1.50
, 6 - Generel Commercial a-c 71,284 ,355 2,508,108 6,478 8,392 3.53
*; 8- Large Comrercial a-¢ 157,528 68% 3,267,253 38) $11,292 2.07
lly - Special Lew Load ractor
" Comme re ia) 1,027, 85 40h ste 12,428 6.46
-- 19 - Outdoor Lighting 5 ))4 099 a £72..206] __ 3.33010) 1,302 6.30
~ TOTAL 3, 150,365 ,087 96 ,890,788| 609,225 6.13 2.65
Ne [A882 com rete) & Industrial
7) Sees
iT |
w .
pad Sormere in)
2°] 6 - General Commercial a-c 539.935.2138 18,220,356) 37,533 14 386 3.37
72] 7 - General Comercial é-¢ 1,286,976 88.926 82 15.695 3.80
7] 6 ~ Large Covmercial a-c 2,052,921 389 &4 589,005) 5.963 343,819 2.17
™ 1 9 + Larce Comercial é-¢ 87,872 ,.@8 1,052,903 90 531,907 2.20
73110 - Special Low Load Pactor ,
a Comme re ial 1,588 950 248,070 med &,490 9.4
2711) = Industrial 89 328,192 6,953 .463 86 | 10,786,178 1.41
7112 - Lorge Industrial 122,543,160 1,496,296 2 | 63,271,580 1.22
79115 - A1)-Electric Large
» Genera) Service 66,2 , 787 » 992,425 7? 907.757 1.50
118 - Berrency w Bug 7.205 7 13,550 7.49
~ 19 - Outdver Lighting —— 20, 22,28 —Lbhs 18 _ 6.901101) & ay 4.
“. TOTAL COKHYRCIAL 3.356.419.8497 7% .997,.406| 53,055 65,71 2.23
.
»
a
»
a
2
4

130
. : Bee Se?
ANRUAL REPORT of The Cleveland Electric Illuminating Company Year Ended December 31, 1/7?
fa) {b) fe) = = = s
~ Inévetria):
s* 6 General Commercial a-c &1 351,923 1,404 ,667 2,902 14mg >."
&. 7 + Generel) Comercial é-« 13.909 575 i 13,909 8.23
9 «608 = Large Consercial a-c 1,373.99 .872 29.30% 569 2,513 546,755 2,13
$0 9 + Large Comercial é-« 1,528 680 38 4&0 3 &7 615 2.70
© low Lead Pactor
os Kc "Sapa 3,093 41 31% , 700 326(¢) 9.889 8 =10.17
$3 11 - Industrial 1,625,400, 605 23 ,09% ,O7S 1s 10,489,624 1.43
S* 12 + Large Industrial 3,950,769 ,8%0 62,365 466 26 241,098,909 1.07
$5 13 - Large lew Lead Pastor 1,571,768 55.72% 2 785 , 885 2.91
= All-Eleetric Large General
: 7 cueene 96,101,235 1,387,485 49 1,962 ,250 1.44
58 19 - Outdoor Lighting 9,899,870 469,16) 1,262(¢) 8,520 a7
59 Other - Contracts 1,501,192 8 25.634 BH i
. TOTAL INDUSTRIAL 7,298, 700,302 99.926 ,056 7,288 1,023 ,083 1.357
62
TOTAL COMMERCIAL &
4 INDUSTRIAL 10, 655,119,739 17% 918 462 58,205 185 ,068 1a
oA
66 [wee) Pubric Street a Hishuny
, —_
%.70
69 Public Street lighting 121,635,680 5,722,191 19 87S .077
te Traffic Contre] Lighting —ILULeZ — 104,985 = 5.06
ha TOTAL ays , 653.552 6,050 296 263 511,97 &.49
pB
7 (e455) Otrer Sades to Public
TS} «© Autheritics
Gentracts Total 320,625,215 5,908,727 187 1,714 .573 1.22
7”
79 {946) Sales to Railroads &
co 8 =6milvers
~ Cleveland Transit Systen 31,889,578 892,905 a 31,549,478 1.57
ts]
@ {057) Seles for Resale
~ of Cleveland
ca
or ag of Public Utilities 138 ,002 ,517 1, 973.537 a 138 ,062 517 »
68 Tedelo Biisen —_ 26.753,.000 LI = 8
7 ~ TOTAL 300,855,317 3.357.850 i 1,12
. TOTAL. SALES OF FLECTHICITY 15,175,048, 3C2 267,619,028 667,878 22,718 1.90

source fruem i
pats ed THD CLAN CL id TURCLALC Th aT COMPAL

131

ocnemue {
Vom ond o Page, 2 4:2

oe a ee
ee ees ee
ee eee oe oe
8 Of feeten. 8 oe etal eeeeerene. me at ay et ed So Every:
+. 06 bere porwet myphpet: tonal & teem ve qari tt el oo. wat oe
pal ee Ny at af every

eS cete L ced ewe
foe bem power pyle me sung Coe

SALSS BUT AALE (Acew.a 457)

0. Report seb-y durin= pear to ether checwrie wsilin-s 294 te cities or
Cte) pt me Bettie Cres be db eritees 6) elnenate Cs err

emer") owen erat tren oe ethers prchars, DP te dump mower O be

tere, Phee an 8” tm cohen to) i eke teres faye t artes 2 oe

9. Meese om! Se terms aad ab eculy oebes as Oe (8) Neewenme ft Uae, bee. Geaep to othce sates costed “a” te eotenes &) hey seete (ee romate)
(40g eomees aed i) Lh otwin, peemitnne & vel oral ter to hk te net county) of delwery in

Caran iy el te et bbe toe die heme

3. Kept copar ects hem, demp. acd «chee prere veld o the some

etliny Semrehe the nature of any soles clseteed as Unter Pemcs, cofemn

te
4 a Leery ie mate ot 2 eh tatio: imicate @xnerrkap im cabemn (fh,
es. seme drt owned ot beawd, KS, Cussmmer owned ot raed, CS

SESSESSKSSESEO SVS EEE SSE ES ESESTES IE ee vouneuue

City of Cleveland,
Dept. of Public
Utilities, Division
of Light & Power

**kifhr and revenue subsequen

Interiz= Rates.

tn

tol May 30, 1972 FRC

ke & hd of Command

a= fates to tf Pont of Oe'wery =r
o 3 Commas moth’, eae
~~ ne Comers
ot te) _— bal —t. =

Wonassoc hid Utilities!
Toledo Edison Various = | 95,000 | 32,000 | 98,000
ici ties

Various -

.mergency sales to City

Pew. (19-408

132

net {
2 of 2

pamtiopad THE CLEVELAND EIMCIRIC LawsiucTiics Cutan Oe eee

SALIS FOR AZSALE (Ac: vat 447) (Continued)

6 The nernter af bile stt-herns wet showkl be the quanties sheen

:

1l kY&) O82, 8&9
69 kV ) ,

Tower Coé

city of
2l,
ibility
r annual

texber 1/
¢ArCO #2 (The Illumiyating Conpe

on comeract as 4 basis cf belle 6 0) the Ceawenes hee tee obey the bills senele ned to the pan ners
ee ewe im cokes fe) Tee mentor at Lchewaets of & avemnem 7. Raplee ony amounts cuter d im coleme fu) sah 2s heel or other
Gemend w be shows mm ev homa th) ant (0) slenbht be acter! howd on
ay ee ys ey
coodng Gmmemacens, 13, 30, or CO mans umgrniedh peeps — on
Riven
Veins
Tyee of - — One '
Revere |*'*
oe which om tnergy Chesges Nera! per beh | Mo
a datwored
—_ £) = .—} — | i... —e {o_ 4
a5 kv
60-Min. 132 kV] 162,753,000 - 689, 690/694 ,623*; 1,364,313) .851

‘rdination Group (CACO) Hemoranjum
edo Edisyn Company hps

by making fate payrents
fixed s. The|figure in

} thet Edison| Company pai
rar 1972. ”

SSeesesestsessaesseseesssse
a ~v - eevwewreew-rec#eeenmpwewreeew-«-

133

INDEX OF FILED ELECTRIC RATE sc

f: é : ae)
‘es ° od 4
e fF. + ‘
Fr Wi ca Nes
f fe 2 ° “\
Fe
@} ahes* — ,O
Dro a”
. F 9 3 ¥

t

BUREAU OF POWER
FESELAL POWER COMMISSION
JIVE 30, 1971

Schedule 8
Page 1 of 3

REDULES

Bchedule &
Page 2 of 3
RATE
- SCHEDULE DATE OF TYPE OF EFFECTIVE
FOC NOe OTHER PARTY INMSTAUMENT SERVICE OATE
CITIZENS UTILITIES COMPANY
(CONT IMVED)
; aR ZCHA PR AUTH
Cre A 1b-18-60 7
CLEVELAND ELECTRIC ILLUMINATING COMPANYs THE
1 Gui PR CO 12-16-63 csc 12-01-63
ey 01-26-69 csc Q9~1 7-70
2 culo €03 Ce 06-1 2-64 cre 09-14-64
31 04-21-67 ese 09-25-67
5 CHiO E01) Cc 04013065 csc INT SERV
e' eum En0UuP Ll-19-65 Ot) 01-22-66
aol 03-04-0467 6S 00-05-67?
6 04 Gi CO 0 1223-65 @ 01-22-60
, CLCVEL AND 01-20-70 f 02-04-70
2 03-17-70 TS) COM OF FAC
Ved 06-09-70 Otc) 06-12-70
Vod 0/=22-70 OtLeC) 06-12-70
COLUMBUS & SOUTHERN OHIO ELECTRIC COMPANY
6 @ie UY EL CCR 01-1464 crc 02-16-64
oe3 01-02-65 ese 06-20-65
602 00-28-66 csc 07 10-01-60
8008 69-22-67 ow) 08-05-47
+ ouio £03 Ce (31029097 Af ~Eon 09-13-64
(01-06-39 ©
(08-16-90 -
(11-01-63 OU?
(04-19-63 018-1)
YS GH10 €0180N CO. 03-2 3-6} 08-27-44
ae eSTERVILLE 09-19-64 g 00-24-40
Mel 02-09-69 e 04-01-69
$7 @u0 oe CC 00-34-48 cre 06-27-66
oe - ¢ 01-01-69

134

135

Schedule 8 |
Page 3 of 3

APP
F © FIRM PCWER. comanias
FS = SHORT TERM FIRM POWER.

E = ECONOMY EWERGY.
Row EMERGENCY SORVICEs
D = DUMP ENERGY.
T © TRANSMISSION OR WHEELING SERVICE.
H@ HYDRO STORAEL CHERGYe
S © STANDLY SFRVICEe
Ye UNIT SALT.
vo“ DIVERST TY EXCHANGE CF CAPACITY.
R= FACILITIES CHIPGE (OTHER THAN CHARGES FOR TRANSMISSION
O = OTHERs SPECIFIED AS FOLLOYS.
(B) KETERING AKD BILLING
(L) ADDITIONAL CONKECTICNSs LINES» INTERCHANGE POINTSe
DELIVEKY POINTSs ETCe
(C) CHARGE IN CAPACITY
Be aes In TERM
\ ORTRACT CANCELLED BUT RATE SCHEDUL T ,
IT = INVERRUPJIBLE POWER. oa
523332555 | ro i
igidits?asj 3 7
LSE ap
$3535278382 ‘ ——s
Peak j| dai 2
pulieea || 4 0G
bhi Pe 3 Boe
3°3° a z bd
itfitele: § ae sg 3
8335 3292-2 a | #2 3 $
Tc i i
3 35343235 3
BHUGHMER]| rd Gea a
ig 23522572 583 j @h2g 3
mitered oe Sid
S 23,4353525 oe 3 ‘
ify ¢ i] 22 68
aitlafset 3) °2 |
PTTL ET i : ——
033552 b]24 : 33] 33
3,2:38 237% é ° M2 ,
L 3? iz?3 < g 225% 2 5
Hy peed
aint a] of | igi 3
wine ] 2] Gd
sift! =i! Ea
ier sigue case “ae
43522 .5533
Ar eE EEE , § 3
ih i sof
ane | Tab fayede
iy2s4e8s ; : 4 : Saf $ ;
oe ijsd #33 byge bby as
$3, 22253} : stata:
syissiind {is _s28248 2
wae sé iehahtattetebel CEL EL ELEET EY Y.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1078%3A1. Public record. Not legal advice.