# Appendix — Cleveland Electric Illuminating Co. v. Public Utilities Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1047%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 459 U.S. 1094 ## Text pout Se ~¢04 OCT 25 1982 Case No, ALEXANDER L. STEVAS. — a In the Supreme Court of the United States October Term, 1982 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, Appellant, vs. THE PUBLIC UTILITIES COMMISSION OF OHIO, and OFFICE OF CONSUMERS’ COUNSEL, Appellees. On APPEAL FROM THE SUPREME CourRT OF OHIO APPENDIX ALAN P. BUCHMANN Of Counsel: Counsel of Record RicHarp W. McLaren, Jr. ALan D. Waricut Squire, Sanders & Dempsey Vice President-Public —_ 1800 Union Commerce Affairs and Legal Building Craic I. SmitH Cleveland, Ohio 44115 The Cleveland Electric (216) 687-8500 Illuminating Company 55 Public Square Attorneys for Appellant, Cleveland, Ohio 44113 The Cleveland Electric Illuminating Company TABLE OF CONTENTS OF APPENDIX Appellant's Notice of Appeal To The Supreme Court of the United States (filed October 15, 1982) —..._-__ Journal Entry of Ohio Supreme Court Denying Rehear- ing in Case No. 82-165 (filed July 29, 1982) Journal Entry and Mandate of Ohio Supreme Court — Appeal in Case No. 82-165 (filed July 7, 1982) - OR LER Entry on Rehearing of the Public Utilities Commission of Ohio in Case No. 81-1096-EL-COI (filed December i IIE wniicteneeneidionslbicenntemataieaiiiadiiaaania Opinion and Order of the Public Utilities Commission of Ohio in Case No. 81-1096-EL-COI (filed October 21, giaalteearimesesperse: Journal Entry of Ohio Supreme Court Denying Motion for Stay in Case No. 80-1480 (filed September 11, 1981) Journal Entries of Ohio Supreme Court Denying Re- hearing in Case Nos. 80-1547, 80-1528, and 80-1480 (filed September 1, 1981) Consumers’ Counsel v. Pub. Util. Comm. (CEI), 67 Ohio St.2d 153, 423 N.E. 2d 820 (1981) Rehearing Entry of the Public Utilities Commission in Case No. 79-537-EL-AIR (filed September 3, 1980) ___. Opinion and Order in Case No. 79-537-EL-AIR of the Public Utilities Commission of Ohio (filed July 10, 1980) Ohio Statutes: Ohio Revised Code §§ 4905.13, 4905.18, 4905.20, 4905.22, 4909.15; Ohio Administrative Code § 4901:1-9-05 ___ C-1 D-1 J-1 K-1 IN THE SUPREME COURT OF OHIO CASE NO. 82-165 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, Appellant, v. THE PUBLIC UTILITIES COMMISSION OF OHIO, and OFFICE OF CONSUMERS’ COUNSEL, Appellees. Appeal From the Public Utilities Commission of Ohio Case No. 81-1096-EL-COI In the Matter of the Investigation of the Rates of The Cleveland Electric Illuminating Company. A-2 Wiu1aM J. Brown, ALAN P. BuCHMANN Ohio Attorney General Ricuarp W. McLaren, Jr. Marvin I. Resnik Soume, SANvEeRs & Dempsey Marsa Rockey ScHeERMER 1800 Union Commerce Assistant Attorneys Building General Cleveland, Ohio 44115 Public Utilities Commission (216) 687-8500 ar ALAN D. Waricut Columbus, Ohio 4321s -—~-‘Wice President ~ Public ‘ Affairs and Legal Attorneys for Appellee, Craic I. Smrrn, The Public Utilities Senior Counsel Commission of Ohio The Cleveland Electric Illuminating Company Wit A. SPRATLEY, 55 Public Square Ohio Consumers’ Counsel Cleveland, Ohio 44113 Martin J. Marz (216) 622-9800 me Attorneys for Appellant ans The Cleveland Electric Gut Illuminating Company 137 East State Street Columbus, Ohio 43215 Attorneys for Intervening Appellee, Office of Consumers’ Counsel A-3 IN THE SUPREME COURT OF OHIO CASE NO. 82-165 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, Appellant, Vv. THE PUBLIC UTILITIES COMMISSION OF OHIO, and OFFICE OF CONSUMERS’ COUNSEL, Appellees. Appeal From the Public Utilities Commission of Ohio Case No. 81-1096-EL-COI In the Matter of the Investigation of the Rates of The Cleveland Electric Wuminating Company. NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES Notice is hereby given that The Cleveland Electric Illuminating Company, Appellant before the Ohio Su- preme Court, hereby appeals to the Supreme Court of the United States from the final judgment of the Supreme Court of the State of Ohio entered into these proceedings on July 7, 1982, rehearing having been denied on July 29, 1982, which granted the motion to dismiss Appellant's appeal filed by the Office of Consumers’ Counsel, thereby affirming the October 21, 1981 Opinion and Order of the Public Utilities Commission of Ohio in Case No. 81-1096- EL-COI. AA This appeal is taken pursuant to 28 U.S.C. § 1257(2). Of Counsel: ALAN D. Waricar, Vice President — Public Affairs and Legal Craic I. Smrra, Senior Counsel The Cleveland Electric Illuminating Company 55 Public Square Cleveland, Ohio 44113 (216) 622-9800 ALAN P. BuCHMANN, Counsel of Record Ricuarp W. McLaren, Jr. Soume, SANDERS & DEMPSEY 1800 Union Commerce Building Cleveland, Ohio 44115 (216) 687-8500 Attorneys for The Cleveland Electric Illuminating Company CERTIFICATE OF SERVICE I hereby certify that true copies of the foregoing Notice of Appeal were served on all parties of record by United States Mail, first-class, postage prepaid, to their last known addresses, this 15th day of October, 1982, as follows: WiLuuaM J. Brown, Ohio Attorney General Marvin I. Resnik Wut A. SPRATLEY, Ohio Consumers’ Counsel Martin J. Marz STEVEN M. SHERMAN GretTCHEN J. HUMMEL Associate Consumers’ Counsel 137 East State Street Columbus, Ohio 43215 Attorneys for Intervening Appellee, Office of Consumers’ Counsel ALAN P. BuCHMANN, Counsel of Record for Appellant, The Cleveland Illuminating Company B-1 THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1982 Term Crry or Co.umsvs. To wit: July 29, 1982 CLEVELAND ELECTRIC _ | ILLUMINATING CO., Appellant, No. 82-165 vs. + REHEARING PUBLIC UTILITIES COMMISSION OF OHIO, Appellee. It is ordered by the court that rehearing in this case is denied. I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of the State of Ohio, do hereby certify that the fore- going entry was correctly copied from the records of said Court, to wit, from Journal No. _... Page —..... IN WITNESS WHEREOF, I have hereunto sub- scribed my name and affixed the seal of the Supreme Court this 29th day of July, 1982. Tuomas L. STARTZMAN, Clerk. By Deputy. C-1 APPENDIX C THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1982 Term Crry or Cotumsvs. To wit: July 7, 1982 CLEVELAND ELECTRIC No. 82-165 ILLUMINATING CO., out oe Appellant, THE | PUBLIC UTILITIES ae COMMISSION PUBLIC UTILITIES OF OHIO COMMISSION OF OHIO, ON MOTION Appellee. J TO DISMISS This cause, here on appeal from the PUBLIC UTIL- ITIES COMMISSION, was heard in the manner prescribed by law. On consideration thereof, the motion to dismiss is sustained and cause dismissed. It is ordered that a mandate issue to the PUBLIC UTILITIES COMMISSION OF OHIO to carry this judg- ment into execution. I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of Ohio, certify that the foregoing entry was cor- rectly copied from the Journal of this Court. Witness my hand and the seal of the Court this day of % WE Clerk Deputy C-2 THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1982 Term Gave a Came. To wit: July 7, 1982 CLEVELAND ELECTRIC | ILLUMINATING CO., Appellant, No. 82-165 = - ~——s MANDATE PUBLIC UTILITIES COMMISSION OF OHIO, Appellee. J To the Honorable PUBLIC UTILITIES COMMIS- SION OF OHIO, Within and for the County of Franklin, Ohio, Greeting: The Supreme Court of Ohio commands you to proceed without delay to carry the following judgment in this cause into execution: Motion to dismiss sustained and appeal dismissed. THoMas STARTZMAN, Clerk , 19... RECORD OF COSTS Docket Fee .._ $20.00 Paid by Squire, Sanders & Dempsey D-1 APPENDIX D BEFORE THE PUBLIC UTILITIES COMMISSION OF OHIO IN THE MATTER OF THE ’ INVESTIGATION OF THE RATES OF THE CLEVELAND ELECTRIC ILLUMINATING COMPANY. | Case No. r 81-1096-EL-COI ENTRY ON REHEARING The Commission, coming now to consider the above- entitled matter, and specifically its Opinion and Order in this case issued October 21, 1981, the application for re- hearing filed by the Cleveland Electric Illuminating Com- pany (CEI) on November 18, 1981, and the memorandum contra filed by the Office of Consumers’ Counsel (OCC) on November 30, 1981, hereby issues the following entry on rehearing. Commission Review and Discussion In the two most recent rate proceedings involving CEI, Case No. 79-537-EL-AIR, Opinion and Order July 10, 1980 and Case No. 80-376-EL-AIR, Opinion and Order May 4, 1981, we have included in CEI’s allowable test year expenses the amortization of CEI’s share of the costs associated with the cancellation of four nuclear plants. On appeal of the decision in Case No. 79-537-EL-AIR, the Ohio Supreme Court found that the inclusion of those costs was unreas nable and unlawful. Consumers’ Counsel v. Public Utilities Commission, 67 Ohio St. 2d 153 (1981). In order to implement the directives of the Supreme Court in that decision we initiated this investigation, pursuant to Section 4905.26, Revised Code, and by Order dated Oc- D-2 tober 21, 1981, directed CEI to remove these costs from its current rates. On November 18, 1981 CEI filed an application for rehearing setting forth nine areas of alleged error. OCC filed a memorandum contra on November 30, 1981. In part, CEI contends that these proceedings were initiated, conducted and determined without authority of law. In addition, CEI claims that it was improper for this hearing to be conducted without the taking of evidence, and that such procedure has deprived CEI of its statutory and constitutional rights. The company also submits that the Commission deviated from prior Ohio law by eliminating a single item from expenses without taking into considera- tion all aspects of the company’s current condition. In sum, CEI contends: [t]he said Opinion and Order, by its failure to recog- nize and allow recovery of prudent expenditures made in the interest of providing public service and as mandated by statute, contravenes the public policy of the State of Ohio, unlawfully imperils the future ren- dition of reliable utility service, unlawfully deprives respondent of its property, and unreasonably impinges on the financial security of all Ohio utilities and hence upon the cost and reliability of utility service rendered to Ohio consumers. (Application p. 4) We are not unmindful of the position taken by CEI and the uniqueness of the situation that is before us. However, we believe that the intent of the Supreme Court was that positive steps be taken to grant CEI consumers rate relief as a result of its decision. As we stated previously in our Opinion and Order, we are of the opinion that the best method of implementing the intent of the Supreme Court's decision in Consumers’ Counsel v. Public Utilities Commission, supra, is the method we have chosen. In light of that decision, the objections raised by CEI must be overruled and rehearing denied. D-3 It is, therefore, ORDERED, That the rehearing application filed November 18, 1981 by The Cleveland Electric Illuminat- ing Company be denied. It is, further, ORDERED, That copies of this Entry on Rehearing be served on all parties of record. THE PUBLIC UTILITIES COMMISSION OF OHIO /s/ Joun Ketiy (Chairman ) /s/ Dennis Pines /s/ Micwaet DELBANE (Commissioners ) Entered in the Journal December 9, 1981 A True Copy Davin M. PoLk David M. Polk Secretary E-1 APPENDIX E BEFORE THE PUBLIC UTILITIES COMMISSION OF OHIO IN THE MATTER OF THE ’ INVESTIGATION OF THE ae RATES OF THE | Case CLEVELAND ELECTRIC 81-1096-EL-COI ILLUMINATING COMPANY. OPINION AND ORDER The Commission, coming now to consider the above- entitled matter, having reviewed the arguments intro- duced at public hearing and the briefs of the parties, and being fully advised of the facts and issues in this case, hereby issues its Opinion and Order. Appearances: Mr. Alan D. Wright, General Counsel, and Mr. Craig I. Smith, Senior Counsel, 55 Public Square, Cleveland, Ohio, and Messrs. Squire, Sanders & Dempsey, by Mr. Alan P. Buchmann, 1800 Union Commerce Building, Cleveland, Ohio, on behalf of the Applicant, The Cleve- land Electric Iuminating Company. Mr. William J. Brown, Attorney General of Ohio, by Mr. Marvin I. Resnik, Mrs. Marsha Rockey Schermer and Mr. Jonathan L. Heller, Assistant Attorneys General, 375 South High Street, Columbus, Ohio, on behalf of the Staff of the Public Utilities Commission of Ohio. Mr. William A. Spratley, Consumers’ Counsel, by Ms. Gretchen J. Hummel, Mr. Martin J. Marz and Mr. Steven M. Sherman, Associate Consumers’ Counsel, 137 East State Street, Columbus, Ohio, on behalf of the residential customers of The Cleveland Electric Illuminating Com- pany. E-2 Opinion and Order, PUCO Case No. 81-1096-EL-COI Mr. Thomas E. Wagner, Director of Law, and Mr. Craig Glazer, Assistant Director of Law, Cleveland City Hall, 601 Lakeside Avenue, Cleveland, Ohio, on behalf of the City of Cleveland, Ohio. Messrs. Bell & Clevenger, L.P.A., by Messrs. Langdon D. Bell and Samuel C. Randazzo, 21 East State Street, Columbus, Ohio, on behalf of the Industrial Electricity Consumers. History of the Proceedings: In its Opinion and Order of July 10, 1980 in Case No. 79-537-EL-AIR, and in the May 4, 1981 Opinion and Order in Case No. 80-376-EL-AIR, the last two rate pro- ceedings involving The Cleveland Electric Illuminating Company (CEI), the Commission authorized the inclusion in allowable expenses of the amortization of CEI’s share of the costs associated with the cancellation of four nuclear plants. On appeal of the decision in Case No. 79-537-EL- AIR, the Ohio Supreme Court found that the inclusion of those costs was unreasonable and unlawful. Consumers’ Counsel v. Public Utilities Commission, 67 Ohio St. 2d 153 (1981). In light of that decision, the Commission initiated this investigation of CEI’s rates, pursuant to Section 4905.26, Revised Code, by Entry dated September 16, 1981. The decision of the Supreme Court of Ohio in Con- sumers Counsel v. Public Utilities Commission, supra, was reported on July 19, 1981. Issuance of the Court's man- date, however, was stayed, pursuant to Supreme Court Rule IX, Section 2, by the filing of an application for rehearing by CEI. The application for rehearing was de- nied by Supreme Court Entry dated September 1, 1981, and the Court issued its mandate. Promptly, CEI tiled a motion for a stay of the mandate which was denied by the Supreme Court of Ohio on Septerrber 11, 1981. On Sep- tember 2, 1981, CEI filed with the Supreme Court of Ohio a notice of appeal to the United States Supreme Court and E-3 Opinion and Order, PUCO Case No. 81-1096-EL-COI on September 22, 1981, CEI applied to the United States Supreme Court for a stay of the execution of the mandate of the Ohio Supreme Court. The application for a stay to the United States Supreme Court was denied on October 13, 1981. Pursuant to the Commission Entry of September 16, 1981 a prehearing conference was held in this matter on September 23, 1981. At that time it was decided that briefs would be submitted by the parties and that the hearing scheduled for October 13, 1981 would be limited to oral argument on the briefs. The hearing was conducted on October 13, 1981 and the record certified to this Com- mission for appropriate action. The parties hereto are The Cleveland Electric Illumi- nating Company (CEI or Company), the Office of the Consumers’ Counsel (OCC), the City of Cleveland (City) and the Industrial Electric Consumers (IEC), the latter three having been granted leave to intervene by entry or ruling at the hearing held on October 13, 1981. A petition to intervene filed by Senior Citizens, et al. was denied by the attorney examiner by entry of October 8, 1981, and no appeal to the Commission has been taken. Commission Review and Discussion: The issue before the Commission at this time is the selection of an appropriate method for implementing the mandate issued by the Supreme Court of Ohio on Sep- tember 1, 1981. This issue is clouded, however, by com- plexities that are beyond the control of this Commission or any of the parties appearing before it. The mandate issued by the Supreme Court of Ohio was issued in Commission Case No. 79-537-EL-AIR, Opinion and Order issued July 10, 1979. The rates for electric service authorized and established in Case No. 79-537-EL-AIR were found to be unreasonable and, therefore were, supplanted by those rates established by the Commission in Case No. 80-376- EL-AIR, Opinion and Order issued May 4, 1981. In Case E-4 Opinion and Order, PUCO Case No. 81-1096-EL-COI No. 80-376-EL-AIR the Commission also allowed the annual amortization of the costs associated with the can- celled nuclear plants as part of operating expenses for rate making purposes. No appeals from that aspect of the Com- mission’s decision are pending.’ In addition, the Company has another rate case pending in Case No. 81-146-EL-AIR, based upon a more current test year, which should com- mence hearings in late 1981 or early 1982. Thus, although the mandate issued by the Court is clear in its intent, the intent of the Court as to how it is to be implemented may not be. As noted, the Commission could implement the Court's decision in one of several ways. First of all it could conduct an investigation of the rates established in Case No. 79-537-EL-AIR, although clearly this would be a meaningless exercise. The Commission could simply re- duce the rates currently in effect by virtue of Case No. 80-376-EL-AIR by an amount equal to the amortization adjustment; this would ignore, however, all other changes in circumstance that have occurred since the implementa- tion of those rates. Or the Commission could apply the mandate of the Supreme Court on a prospective basis in Case No. 81-146-EL-AIR, which will commence hearings in a few months. The Commission, however, has chosen to implement the Supreme Court’s mandate through the initiation of this proceeding. We believe that this is the best method to effectuate the Supreme Court’s mandate in the most expedient fashion. The Office of Consumers’ Counsel (OCC) and the City of Cleveland both contend that the remand of the Supreme Court of Ohio requires that this Commission immediately redetermine CEI’s allowable operating ex- ~~ Jt should be noted that intervenor Senior Citizens, et al., noticed an appeal, which appeal is presently pending, which did raise the issue of the lawfulness of the inclusion of the amortization in allowable expenses. By letter dated September 3, 1981, Senior Citizens, et al., notified the Court that it would not pursue that issue. E-5 Opinion and Order, PUCO Case No. 81-1096-EL-COI penses excluding therefrom the expenditures attributable to the cancelled nuclear facilities and reduce CEI's cur- rent rates accordingly. OCC and the City of Cleveland contend that the order of the Supreme Court was spe- cifically directed to a single issue and that changes that may have taken place in other items since the establish- ment of these rates need not be considered. The City of Cleveland aad OCC contend that the adjustment can be made on the data available to the Commission in the most recent rate proceeding. In essence, these parties contend that this Commission should apply the remand of Case No. 79-537-EL-AIR to Case No. 80-376-EL-AIR in a simplistic fashion. The problem, of course, is that CEI’s present rates were fixed not in Case No. 79-537-EL-AIR, but in Case No. 80-376-EL-AIR, and there is no remand or man- date in the latter. The Company contends that the rates established in Case No. 80-376-EL-AIR are presumptively just and rea- sonable pursuant to Section 4909.15, Revised Code, and the Supreme Court's decision in the prior rate case does not change this presumption. The Company contends that the decision of the Supreme Court should not result in an automatic adjustment of previously-established rates. In the alternative, the Company contends that if the Supreme Court decision is deemed a sufficient basis for the institution of an investigation into the current rates, such an investigation must consider more than a single item subtracted from the Company’s allowable expenses. The Company points out that the test period in Case No. 80-376-EL-AIR was the calendar year 1980, and that we are currently through most of 1981 and a great number of the circumstances have changed. The Company con- tends that in order to make a determination that CEI's rates should be reduced, this Commission must consider more than the one expense item dealt with by the Supreme Court. The Company points out that the theories behind rate making and the test year concept do not provide for E-6 Opinion and Order, PUCO Case No. 81-1096-EL-COI an item by item guaranteed dollar-for-dollar recovery, but rather the establishment of a reasonable allowance for a normal and necessary utility function. The Company argues that although the Supreme Court has stated that the abandonment loss can no longer be considered in establishing this “reasonable allowance”, it does not neces- sarily follow that it must be removed from a reasonable allowance established in the past, without considering all of the elements that make up that allowance. A further complicating factor is that we are not con- cerned solely with the inclusion in rates of this expense, but with the impact of the disallowance of the same, re- quiring careful consideration of all of the implications of such disallowance on the accumulated deferred balances being amortized. Some of those implications were dis- cussed in the Commission’s Opinion in Case No. 79-537- EL-AIR and their significance was indicated in Ohio Edison, Case No. 81-898-EL-AEM. The potential influence on the cost of capital and the financial standing of CEI should not be overlooked. The Commission, thus, is confronted with a series of involved and inter-related problems. In the first instance, it cannot meaningfully act directly on the remand, because the remand is in a case which has since been superseded. Similarly, we must reject OCC’s request (OCC Brief p. 5) that we calculate CEI’s allowable expenses “based upon the test year data in the remand proceeding,” which is the 1979 data while CEI’s present rates are based on a 1980 test year. On the other hand, CEI’s argument that we must, in effect, conduct a new rate case now seems impracticable in view of the fact that hearings should be conducted in the relatively near future in Case No. 81-146- EL-AIR in which the adequacy of CEI’s present rates may be fully explored. The Commission does not mean to say that it is appropriate or, even for that matter, lawful, generally speaking, to adjust rates by a single item because of events occurring after its decision nor, conversely, that E-7 Opinion and Order, PUCO Case No. 81-1096-EL-COI the technical status of a case or series of cases should be employed to promote form over substance. We believe that a practicable solution is required and that the basic thrust of the Ohio Supreme Court's decision in Consumers’ Counsel v. Public Utilities Commission, supra, can be implemented in these circumstances, while preserving the legal rights of the utility. In a sense, the fact that the rates set in Case No. 79-537-EL-AIR have been superseded in Case No. 80-376-EL-AIR is, as a practical matter, counter- balanced by the fact that rates set in Case No. 80-376-EL- AIR will, presumably, soon be superseded in Case No. 81-146-EL-AIR. The Commission concludes, therefore, that CEI should be directed to file tariffs which reduce its present rates. The Commission is mindful, however, that CEI’s appeal to the United States Supreme Court ‘s still pending and that CEI has stated that it intends to pursue that appeal vigorously. In order to obviate any future questions with respect to the amount foregoing through this rate reduc- tion, therefore, CEI is authorized and directed to maintain the same in the appropriate deferred reserves. Such re- serves, including this presently foregone amortization, should be maintained by CEI pending a final decision on the lawfulness of the inclusion of these costs in allowable expenses for rate-making purposes or such action as the Comunission may take after a full review of all aspects of this question in CEI’s pending electric rate case. Obviously, if CEI should eventually prevail on its appeal to the United States Supreme Court, this will do no more than tempo- rarily postpone the recovery of these costs while, in the meantime, CEI consumers will receive the present rate relief which we believe the Ohio Supreme Court expected and which the intervening parties have requested. The Commission will also be able in the context of a full rate case, to consider all of the implications of the Ohio Su- preme Court's decision and take such pertinent action as it may deem appropriate. E-8 Opinion and Order, PUCO Case No. 81-1096-EL-COI ORDER: It is, therefore, ORDERED, That The Cleveland Electric Illuminat- ing Company submit tariffs for the approval of this Com- mission, reducing its present rates by an amount equal to the revenue requirements attributable to the cancelled nuclear facilities included therein. It is, further, ORDERED, That The Cleveland Electric Illuminat- ing Company submit three (3) complete copies of the tariffs by October 26, 1981, to be reviewed by the Com- mission and approved by subsequent entry. It is, further, ORDERED, That The Cleveland Electric Iluminat- ing Company continue to defer the accumulated amounts, including the amounts which would have been amortized but for this rate reduction, on its books, as part of the presently accrued deferred reserves with respect to such costs, pending further direction from this Commission and that, at the time it submits the tariffs required by the preceding paragraph of this order, it submit to the Com- mission's accounting staff the details of the accounting procedures by which it intends to maintain such deferral. It is, further, ORDERED, That a copy of this Opinion and Order be served on all parties of record in this proceeding. THE PUBLIC UTILITIES COMMISSION OF OHIO /s/ Joun Ketiy Entered in the Journal Oct. 21, 1981 A True Davi M. David M. Polk Secretary F-1 APPENDIX F THE STATE OF OHIO, 1982 Term Crry or Co_umsBus. To wit: September 11, 1981 Office of Consumers’ Counsel , Senior Citizens Coalition et al., City of Cleveland, Appellants No. 80-1480 - > No. 80-1528 No. 80-1547 Public Utilities Commission of Ohio, Appellees. J Upon consideration of the motion for stay of execu- tion of mandate, it is ordered by the court that this motion be, and the same hereby is, denied. I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of the State of Ohio, do hereby certify that the foregoing entry was correctly copied from the records of said Court, to wit, from Journal No. __.__. Page _____.. IN WITNESS WHEREOF, I have hereunto sub- scribed my name and affixed the seal of the Supreme Court this _____. day of , 19 : : G-l APPENDIX G-1 DECISIONS OF THE SUPREME COURT OF OHIO DENYING REHEARING (Filed September 1, 1981) THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1981 Term Crry or CoLumsus. To wit: September 1, 1981 CITY OF CLEVELAND, ) Appellant, vs. r = No. 80-1547 PUBLIC UTILITIES REHEARING COMMISSION OF OHIO et al., Appellees. , It is ordered by the court that rehearing in this case is denied. I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of the State of Ohio, do hereby certify that the foregoing entry was correctly copied from the records of said Court, to wit, from Journal No. _. Page _.. IN WITNESS WHEREOF, I have hereunto sub- scribed my name and affixed the seal of the Supreme Court this Ist day of September, 1981. Tuomas L. STARTZMAN, Clerk. By Deputy. G-2 APPENDIX G-2 DECISIONS OF THE SUPREME COURT OF OHIO DENYING REHEARING (Filed September 1, 1981) THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1981 Term —— To wit: September 1, 1981 SENIOR CITIZENS COALITION ) et al., Appellants, vs. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees. J It is ordered by the court that rehearing in this case is denied. I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of the State of Ohio, do hereby certify that the foregoing entry was correctly copied from the records of said Court, to wit, from Journal No. _.. Page _... No. 80-1528 REHEARING IN WITNESS WHEREOF, I have hereunto sub- scribed my name and affixed the seal of the Supreme Court this lst day of September, 1981. Tuomas L. STARTZMAN, Clerk. a Deputy. G-3 APPENDIX G-3 DECISIONS OF THE SUPREME COURT OF OHIO DENYING REHEARING (Filed September 1, 1981) THE SUPREME COURT OF THE STATE OF OHIO THE STATE OF OHIO, 1981 Term Crry or CoLumsws. To wit: September 1, 1981 OFFICE OF CONSUMERS’ ) COUNSEL, Appellant, vs. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees. : It is ordered by the court that rehearing in this case is denied. No. 80-1480 REHEARING I, THOMAS L. STARTZMAN, Clerk of the Supreme Court of the State of Ohio, do hereby certify that the foregoing entry was correctly copied from the records of said Court, to wit, from Journal No. _. Page _... IN WITNESS WHEREOF, I have hereunto sub- scribed my name and affixed the seal of the Supreme Court this lst day of September, 1981. Tuomas L. STARTZMAN, Clerk. By . a Deputy. H-1 APPENDIX H DECISION AND OPINION OF THE SUPREME COURT OF OHIO (Filed July 15, 1981) Statement of the Case. Orrice or Consumers CouNsEL, APPELLANT, 0. Pusiic Utitities CoMMISSION OF OHIO ET AL., APPELLEES. Sentor Crrizens COALITION ET AL., APPELLANTS, 0. Pusiic Utiuities CoMMISSION OF OHIO ET AL., APPELLEES. Crry or CLEVELAND, APPELLANT, 0. Pusiic Utmiries CoMMISSION OF OHIO ET AL., APPELLEES. [Cite as Consumers’ Counsel v. Pub. Util. Comm. (1981), 67 Ohio St. 2d 153.] Public Utilities Commission—Electric companies—Rate in- crease—Allowable operating expenses—Amortization of cost of terminated nuclear facilities, unlawful. The Public Utilities Commission’s treatment of a utility's in- vestment in terminated nuclear generating stations as amortizable costs to be recovered from the utility's ratepayers is inconsistent with the ratemaking formula contained in R. C. 4909.15 and is unreasonable and unlawful. (Nos. 80-1480, 80-1528 & 80-1547— Decided July 15, 1981.) Apprats from the Public Utilities Commission of Ohio. These three cases are appeals taken from an order of appellee, Public Utilities Commission of Ohio (hereinafter “commission” ), granting intervening appellee, the Cleve- land Electric Illuminating Company (hereinafter “CEI”), a rate increase of approximately $69.6 million. The commis- H-2 Consumers’ Counsel vy. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Statement of the Case. sion order further provided for the amortization over a ten- year period of CEI’s substantial investment in four termi- nated nuclear power plants.’ The commission’s order dealt with two cases that had been consolidated. Case No. 79-537-EL-AIR involved CEI’s application to increase rates. Case No. 79-744-EL- CMR concerned a complaint and appeal taken by CEI from a 1979 rate setting ordinance passed by the City of Cleveland. Inasmuch as these three appeals primarily concern issues relating to the nuclear power plant cancellations, we shall briefly reprise the history of these now terminated facilities. In 1967, CEI joined with four other electric com- panies to form the Central Area Power Coordination Group (CAPCO). The CAPCO companies sought to achieve economies of scale and greater service reliability by jointly planning, constructing, and operating electrical generating facilities. In 1973, the CAPCO group committed itself to build the four nuclear plants at issue herein based on fore- casts that predicted a substantially increased demand for electricity by the CAPCO companies’ customers during the 1970's and 1980's. These forecasts subsequently had to be revised downward when increasing energy costs spurred conservation efforts and significantly softened the demand for electricity. Moreover, the 1979 accident at Three Mile Island prompted the Nuclear Regulatory Commission to issue stringent and costly new standards for nuclear power plants, requiring major design changes in the Babcock and Wilcox units that CAPCO planned to construct and oper- 1 Davis-Besse Units 2 and 3 and Erie Units 1 and 2 are the cancelled facilities at issue. 2In addition to CEI the CAPCO group consists of Toledo Edison, Ohio Edison, and two Pennsylvania utilities, Duquesne Light Co. and Pennsylvania Power Co. H-3 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Statement of the Case. ate. After much study and redesign the CAPCO companies decided to terminate the four units on January 23, 1980. When the decision to cancel the plants was announced, CAPCO had already invested considerable sums in the projects. Preliminary expenses included expenditures for engineering, siting, environmental, geological, and seismic studies, and for obtaining state and federal licenses. More- over, to comply with detailed regulatory requirements and complete all the necessary documents, certain plant com- ponents had to be purchased at a fairly early stage in the planning process. CEI's share of the total CAPCO invest- ments in the four cancelled plants amounted to approxi- mately $56,400,000 as of the date of termination. The instant CEI rate case was pending before the commission when the plant terminations were announced.’ The commission had accepted CEI’s application for a rate increase as of September 17, 1979, and had established calendar year 1979 as the test year and June 30, 1979, as the date certain. The commission staff conducted an in- vestigation and issued its initial report in March 1980. This report did not make reference to the terminated nuclear plants because CEI did not officially inform the commis- sion of the plant cancellations until February 1980. The commission staff, at appellants’ request, then conducted a supplemental investigation to consider the effect of the terminated plant expenditures on CEI's rate application. The staff completed its investigation of the cancelled nuclear facilities and filed revised schedules in mid-April. The staff recommended that the investment in the four nuclear plants should be amortized over a ten-year period as CEI had requested. 8 The rates established by the commission order in the instant ratemaking case have recently been superseded by new rates set by order on May 4, 1981 in case No. 80-376-EL-AIR. H-4 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. Public hearings on the rate increase application began on April 2, 1980, and continued for 32 days. Staff witnesses appeared and testified at the hearings in regard to the cancelled nuclear plants and other matters contained in the application. Appellants were represented at, and par- ticipated fully in, these public hearings. The commission issued its order on July 10, 1980. Ap- pellants timely filed for a rehearing which the commission denied as to the issues raised in the present appeal. These causes are now before this court upon appeals as of right. Mr. William A. Spratley, consumers’ counsel, Mr. Gary M. Petroff and Ms. Gretchen J. Hummel, for appellant Consumers’ Counsel. Mr. Joser P. Meissner, for appellants Senior Citizens Coalition et al. Mr. Thomas E. Wagner, director of law, and Mr. Craig A. Glazer, for appellent City of Cleveland. Mr. William J. Brown, attorney general, Mr. Marvin I. Resnik and Mr. David M. Neubauer, for appellee Public Utilities Commission. Mr. Alan D. Wright, Mr. Craig I. Smith, Messrs. Squire, Sanders & Dempsey, Mr. Alan P. Buchmann, Mr. Lowell L. Garrett, Mr. William C. Donahue and Mr. Rich- ard W. McLaren, Jr., for intervenor-appellee The Cleveland Electric Iluminating Co. SwEENEY, J. The scope of this court's re siew of com- mission orders is set forth in R. C. 4903.13, which states in pertinent part: “A final order made by the public utilities commission shall be reversed, vacated, or modified by the supreme court on appeal, if, upon consideration of the record, such H-5 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. court is of the opinion that such order was unlawful or un- reasonable.” “Under the ‘unlawful or unreasonable’ standard specified in R. C. 4903.13, this court will not reverse or modify an opinion and order of the Public Utilities Com- mission where the record contains sufficient probative evi- dence to show that the commission’s determination is not manifestly against the weight of the evidence and is not so clearly unsupported by the record as to show misappre- hension, mistake or willful disregard of duty,” Columbus v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 103, 104. See, also, Consumers’ Counsel v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 108, 110; Ohio Utilities Co. v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 153, 164; Duff v. Pub. Util. Comm. (1978), 56 Ohio St. 2d 367, 370; General Motors Corp. v. Pub. Util. Comm. (1976), 47 Ohio St. 2d 58, paragraph two of the syllabus; Cleveland Electric Illuminating Co. v. Pub. Util. Comm. (1975), 42 Ohio St. 2d 403, paragraph eight of the syllabus. We assess the appellants’ objections with this standard of review in mind. I A. In its order the commission allowed approximately $91 million to be included in the rate base for construction work in progress (CWIP) pursuant to R. C. 4909.15(A) (1) and 4909.15(E). R. C. 4909.15(A)(1) states in relevant “°°°The commission may, in its discretion, permit a reasonable allowance for construction work in progress but, in no event, may any allowance for construction work in progress be made by the commission until it is determined, after a physical inspection, that the particular construction project is a least seventy-five per cent complete.” R. C. 4909.15(E) imposes the following limitation on allowable CWIP: H-6 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. “In no event shall an allowance for construction work in progress under division (A)(1) of this section exceed twenty per cent of the total valuation as stated in such division, not including such allowance.” Some $90 million of the CWIP allowance was directly attributable to the Bruce Mansfield coal-fired generating station, which came on line several months after the new rates became effective. It is unquestioned that Bruce Mansfield met the 75 percent completion criterion for rate base eligibility pursuant to R. C. 4909.15(A)(1). More- over, it is uncontroverted that inclusion of the Bruce Mans- field-related CWIP did not exceed the 20 percent of total valuation limitation imposed by R. C. 4909.15(E). I A(i). Appellants Senior Citizens Coalition et al. ( hereinafter “SCC”), in case No. 80-1528, challenge the commission's allowance for CWIP in this case on the basis that the CWIP provisions contained in R. C. 4909.15(A)(1) represent an unconstitutional delegation of legislative power. Specifi- cally, SCC contends that the statute “*°°establishes no definite policy nor provides any standard for the exercise of PUCO discretion in permitting an allowance for con- struction work in progress and°**therefore the PUCO should be prohibited from granting any such allowance.° °°” We find no merit in SCC’s constitutional challenge to the CWIP provisions because the commission's discretion is sufficiently circumscribed by the specific eligibility cri- teria enumerated in the statute. As we stated in Consumers’ Counsel v. Pub. Util. Comm., supra (58 Ohio St. 2d 108), at page 113: “®*°We believe these limitations adequately confine commission discretion. Further restriction would conceiv- ably hinder the flexibility necessary to enable the com- H-7 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. mission to carry out legislative will. For these reasons, this court holds that the discretion granted the commission under R. C. 4909.15 to authorize a reasonable allowance for construction work in progress in a utility’s rate base constitutes a lawful delegation of the state’s police power by the General Assembly.” We expressed the same view of the CWIP provisions of R. C. 4909.15( A) (1) in Cleveland v. Public Util. Comm. (1980), 63 Ohio St. 2d 62, 68. In the case at bar we decline to strike down the CWIP statute as an unconstitutional delegation of legislative authority. I A(ii) Both SCC and appellant City of Cleveland, in case No. 80-1547, contend that the inclusion of a CWIP allowance in this case constituted an abuse of commission discretion. As previously noted, the Bruce Mansfield generating sta- tion, which accounted for virtually all of the CWIP at issue, met the 75 percent completion criterion and came on line several months after the new rates went into effect. Under these circumstances, we cannot say that the commission’s decision was either manifestly against the weight of the evidence or unsupported by the record. Columbus vs. Pub. Util. Comm., supra. Therefore, we refuse to disturb the commission's findings on the propriety of including a CWIP allowance in CEI's rate base. Accordingly, we reject appel- lants’ assertions that the commission abused its discretion in granting the CWIP allowance. Il. SCC alleges that the commission did not adequately investigate CEI’s generating capacity to determine whether the utility had excess capacity. The commission staff in- vestigated CEI's generating capacity and determined that H-8 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. the reserve capacity was adequate but not excessive.‘ Staff and CEI witnesses testified to the same effect at the hear- ings before the commission wherein they explained the methodology by which they reached their conclusions. We have in a previous case acknowledged the diffi- culties the commission and utilities face on the excess ca- ty issue. “°**Since utilities must anticipate load growth years in advance to maintain adequate capacity to ensure reliable service, it is unrealistic to expect a utility to have only the precise amount of capacity needed at a given time.” Cleve- land v. Pub. Util. Comm., supra, at 65. To paraphrase what we stated in Consumers’ Counsel v. Pub. Util. Comm. (1980), 64 Ohio St. 2d 71, 79: Limited judicial review of an excess capacity determination is sound for the reason that while excess capacity analyses have an aura of pre- cision about them, they are fraught with judgments and assumptions. Given the inherent problems of accurately projecting load growth, we are satisfied that the commis- sion’s excess capacity methodology is reasonable and that the factual findings are supported by the record. SCC’s challenge on the question of excess capacity is, therefore, without merit. Ill A. Before proceeding to the merits « ppellants’ conten- tions on the question of whether the commission lawfully and reasonably treated the four cancelled nuclear power plants as amortizable costs, we must first consider two pro- cedural issues raised by appellant Cleveland in case No. 80-1547. Cleveland first contends that CEI violated the * The record indicates that CEI had available 3,469 (MW) of capacity. The 1979 peak load was 3,097 MW and the forecasted 1980 peak load was 3,450 MW. H-9 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. notice provisions of R. C. 4909.18 and 4909.19, R. C. 4909.18(E) requires that “[a] proposed notice for news- paper publication fully disclosing the substance of the application” must accompany the rate increase application. R. C. 4909.19 requires the applicant to publish in news- papers of general circulation the “substance and prayer of its application.” Cleveland asserts that CEI’s proposed notice under R. C. 4909.18 and its published notice under R. C. 4909.19 were inadequate because no mention was made of the four terminated nuclear units in either notice. Cleveland relies on Committee Against MRT v. Pub. Util. Comm. (1977), 52 Ohio St. 2d 231, and Ohio Assn. of Realtors v. Pub. Util. Comm. (1978), 60 Ohio St. 2d 172, to support its contention that CEI’s statutory notices were inadequate. In MRT, supra, we stated, at page 233, that “°° a highly innovative and material change in the method of charging customers should be included in the notice.” (Emphasis added.) The cancelled power plant information that Cleveland insists should have been included in the CEI notices herein complained of did not relate to an innovative method of charging that would profoundly affect the rates paid by certain categories of utility cus- tomers. Therefore, Cleveland's reliance on MRT and Real- tors is misplaced. The proposed notice under R. C. 4909.18(E) need only convey the “substance” of the application and the notice published pursuant to R.C. 4909.19 need only con- tain the “substance and prayer’ of the application. The decision of the CAPCO companies to terminate the pro- Realty Co. v. Cleveland (1975), 41 Ohio St. 2 41, 43. H-10 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. posed plants did not alter the “substance” or the “substance and prayer’ of CEI’s application because CEI did not re- quest additional rate relief when it revised its original application to reflect the terminated plant expenditures. We hold that the CEI notices met the standards of R. C. 4909.18 and 4909.19, and consequently Cleveland's asser- tions to the contrary are unfounded. Ill B. Cleveland's second procedural objection relates to the adequacy of the staff investigation and report in regard to the cancelled nuclear power plants. R. C. 4909.19 re- quires that the commission investigate and issue a report on rate increase applications. The commission did conduct an investigation and prepared a report on the original CEI application. As noted however, the initial commission staff report was silent on the subject of the terminated plants because the decision to cancel the plants was announced too late to be included in the report. However, the staff did subsequently investigate the matter of the terminated facilities and assessed the effect of the cancelled generat- ing stations on CEI’s pending rate application. Cleveland now complains that the omission of these matters from the original report and the tardy presentation of the staff re- view of the four terminated plants after hearings on the application had already begun were prejudicial and in violation of R. C. 4909.19. Cleveland asserts that “inter- venors have been consistently denied the opportunity to adequately prepare their case. They have [had] no oppor- tunity to review the Staff's findings prior to hearings and thus no opportunity to prepare evidence to support or rebut the same.” H-11 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. Notwithstanding these contentions, Cleveland, after posing objections to the original report, did receive the benefits of the staff's investigation of the four terminated nuclear plants and had ample opportunity to cross-examine the commission’s and CEI'’s experts at the public hearings. Cleveland did not seek additional time to prepare its case while these matters were pending before the commission. Moreover, Cleveland had already intervened in the case before the plant closing issue surfaced and therefore was not prejudiced by the omission of the cancelled plant data in the original report. Worthington Hills Civic Assn. v. Pub. Util. Comm. (1976), 45 Ohio St. 2d 11. The purpose of the staff report is “°**to facilitate meaningful contest of rate increase applications by provid- ing interested parties with the materials necessary for an informed challenge.” Duff v. Pub. Util. Comm. (1978), 56 Ohio St. 2d 367, 376. The commission report in this case, as supplemented by the follow-up investigation conducted by the commission staff, provided appellant Cleveland with the opportunity to make an informed challenge. Therefore, the commission’s investigation and report in the instant rate application case comply with the statutory require- ments set forth in R. C. 4909.19. IV A. The core issue in each of these appeals is whether the commission lawfully and reasonably permitted CEI to treat its investment in the four cancelled nuclear generating stations as amortizable costs. The commission order stated and analyzed the ques- tion in this fashion. “°° *What the company seeks is the recovery of costs incurred on behalf of its ratepayers to assure that adequate service could be maintained***. The significant question, H-12 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. given the Commission's past pronouncements with respect to the impropriety of the recovery of past losses through future rates, is whether the amortization of these extra- ordinary costs does violence to this principle. The dis- tinguishing feature that sets this adjustment apart from those we have rejected on this ground in the past is that costs associated with the termination of the units did not really become costs until the fact of termination. Cancella- tion does not create a past loss, but gives rise to a current cost.*°**[RJejection of this adjustment would have a very direct impact on applicant’s final performance as, in the absence of funding of the amortization through rates, ap- plicant would be required to write off these costs cur- rently***. Thus, we now see the wisdom of the standard emerging from the cases from other jurisdictions; if the expenditures are prudent, amortization should be per- mitted. “In determining whether these expenditures were pru- dent, one must bear in mind what is and what is not at issue. No one disputes that the 1973 decision to embark on the construction in question was reasonable as it was based on the best data available***. Similarly, no one disputes that the decision to terminate construction was reasonable, given the intervening decline in growth ex- pectations and the uncertainties which now attend the construction of nuclear units.°** The Commission finds that applicant’s decisions were reasonable and prudent at every step of this process, and concludes that the proposed adjustment should be approved.” The appellants argue that the commission exceeded its authority and disregarded a carefully crafted statutory scheme when it acceded to CEI’s request to amortize the cancelled nuclear plant expenditures. There is no question but that the overwhelming weight of authority from other jurisdictions supports the H-13 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. position of the commission.’ In only two instances has amortization been disallowed." It is important to note, how- ever, that none of the previous rulings on this precise éz:ue represents the opinion of the highest court of the jurisdic- tion in which the case arose. Virtually all of the decisions that the commission, CEI, and the amici cite in support of amortization derive from regulatory proceedings. Even more significant is the fact that no other case has consid- ered the propriety of the commission’s proposed amortiza- tion with reference to Ohio law. Thus, while counsel for the parties and intervenors before the court in this cause have thoroughly canvassed the administrative decisions in other jurisdictions and have supplied this court with copies of those decisions, we must regard these foreign regulatory opinions as advisory in nature. The construction of Ohio law is particularly the province of this court, and we are nowise bound by the pronouncements of regulatory regimes elsewhere in effect. ® See, e.g., Re San Diego Gas & Electric Co. (Cal. Pub. Util. Comm. 1979), 29 P.U.R. 4th 613; Re Potomac Electric Power Co. (Md. Pub. Ser. Comm. 1977), Order No. 6999; Re Consumer Power Co. (Mich. Pub. Ser. Comm. 1975), Case No. F-700; Re Northern States Power Co. (Minn. Pub. Ser. Comm. 1977), Dkt. E-0021 GR-76-934; Re Public Service Electric and Gas Co. (N.J. Dept. of Energy, Bd. of Pub. Util. 1980), Dkt. No. 794-310; Re Consolidated Edison Co. of New York (N.Y. Pub. Ser. Comm. ), Case No. 9187; Re Carolina Power & Light Co. (N.C. Util. Comm. 1979), Dkt. No. E-2, Sub. 352; Re Gulf States Utilities Co. (Pub. Util. Comm. of Texas 1979), Dkt. No. 2677; Re Virginia Electric & Power Co. (Va. Corp. Comm. 1979), 29 P.U.R. 4th 65; Re Wiscon- sin Electric Power Co. (Pub. Ser. Comm. of Wis. 1980), Case No. 05-C1-3; Re Potomac Electric Power Co. (D.C. Pub. Ser. Comm. 1979), 29 P.U.R. 4th 517. ™See Re Arizona Public Service Co. (Ariz. Corp. Comm. 1980), Decision No. 51009; Re Northern States Power Co. (Pub. Ser. Comm. of N.D. 1980), Case No. 10,097. H-14 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. IV B. The commission’s approval of amortization was pre- dicated on the prudence of CEI’s original decision to build the nuclear facilities and the subsequent decision to cancel the plants. We must decide whether the test of prudence, as applied by the commission, which supports treating the expenditures associated with the terminated nuclear gen- erating stations as amortizable costs, is consistent with the statutorily mandated ratemaking formula contained in R. C, 4909.15. IV B(i). The controversy surrounding the cancelled nuclear power plants focuses primarily on R. C. 4909.15(A)(4), which delineates the service-related costs that a utility may recover from its ratepayers. This section states in relevant “The public utilities commission, when fixing and de- termining just and reasonable rates, fares, tolls, rentals, and charges shall determine: “(4) The cost to the utility of rendering the public utility service for the test period®*°” The commission urges that “an expenditure by a utility can be considered a cost of rendering the public utility service if it fails in fact to achieve its intended purpose***° [if] the expense was reasonably calculated to provide [future] utility service at a reasonable cost.” The under- pinnings for the commission rationale may be found in those statutory provisions that require utilities to maintain adequate service presently and for the foreseeable future. See, e.g., R. C. 4905.22 (adequate service and facilities). Notwithstanding the provisions that impose a duty on utility companies to plan for the future, the question under H-15 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. R. C. 4909.15( A) (4) remains whether the cancelled plant expenditures represent “[t]he cost to the utility of render- ing the public utility service for the test period.” Test period considerations aside, what the company sought and what the commission granted was the amortization as service-related costs of an investment that never provided any service whatsoever to the utility’s customers. We seriously question whether the General Assembly contemplated that the commission would treat the type of expenditures controverted herein as costs under R. C. 4909.15( A) (4). The now terminated nuclear plants repre- sented a major capital investment that ultimately would have been included in the rate base under R. C. 4909.15 (A)(1), had the projects not been cancelled. It is our opinion that R. C. 4909.15(A)(4) is designed to take into account the normal, recurring expenses incurred by utilities in the course of rendering service to the public for the test period.’ A non-exhaustive list of such expenses would include reasonable expenditures for repairs, maintenance, personnel-related costs, administrative expenses, and taxes. The extraordinary loss sustained by CEI in connection with the terminated n..clear plants cannot be transformed into an ordinary operating expense pursuant to R. C. 4909.15( A) (4) by commission fiat. The commission’s state- ment that “[c]ancellation does not create a past loss, but gives rise to a current cost” is unpersuasive. Under this rationale we question whether there could ever be a “past loss” the return of which would not be recoverable in future ratemaking proceedings notwithstanding the com- 8 Appellants contend that the “direct, primary benefit” test enunciated in Cleveland v. Pub. Util. Comm. (63 Ohio St. 2d 62), supra, is applicable to the case at bar. We disagree. The direct, pri- mary benefit standard should not be wrenched from the institu- tional advertising expenses and charitable contributions context in which it arose. H-16 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. missio:. » assertion to the contrary. The commission’s char- acterization of the investment in the four terminated plants as “cost” under R. C. 4909.15(A)(4) in light of what we perceive to be the legislative intention underlying that section is unreasonable. Therefore, to the extent that the commission’s order in regard to the cancelled plants is predicated on R. C. 4909.15(A)(4), the order cannot stand. IV B(ii). The commission and CEI also argue that even if, as we have found, R. C. 4909.15( A) (4) is inapplicable, then un- der R. C. 4909.15(D)(2)(b) the commission may autho- rize the amortization of the investment in the terminated nuclear facilities. R. C. 4909.15 states in relevant part: “(D) When the public utilities commission is of the opinion, after hearing and after making the determinations under divisions (A) and (B) of this section®**that the maximum rates, charges, tolls, or rentals chargeable by any such public utility are insufficient to yield reasonable com- pensation for the service rendered, and are unjust and un- reasonable, the commission shall: “(2) With due regard to all such or matters as are proper, according to the facts in each case, “(b) °° *fix and determine the just and reasonable rate, fare, charge, toll, rental, or service to be rendered, charged, demanded, exacted, or collected for the performance or rendition of the service that will provide the public utility the allowable gross annual revenues under division (B) of this section, and order such just and reasonable rate, fare, charge, toll, rental, or service to be substituted for the existing one.*°*” H-17 Consumers’ Counsel vy. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. Fox purposes of R. C. 4909.15(D)(2)(b) the question presented is whether the cancelled nuclear power plant costs fall under the “all such matters as are proper” language of the statute. The commission views R. C. 4909.15(D)(2)(b) as a virtual wild card to be played whenever the commission in its discretion sees fit. We interpret the statute less sweepingly, first because the pro- visions are linked inextricably with the ratemaking factors contained in R. C. 4909.15(A) and (B), and secondly be- cause the General Assembly undoubtedly did not intend to build into its recently revised (1976) ratemaking formula a means by which the commission may effortlessly abro- gate that very formula. To be a proper matter giving rise to a permissible adjustment under R. C. 4909.15(D)(2)(b), the matter in . question must relate to factors otherwise included in R. C. 4909.15. R. C. 4909.15(D)(2)(b) makes reference to “the allowable gross annual revenues under division (B).” (Em- phasis added.) Having previously determined that the nu- clear plant costs are not properly includable under R. C. 4909.15(A), then these costs can have no effect on the gross annual revenue determination under R. C. 4909.15(B). Therefore, we reject the commission’s argument invoking R. C. 4909.15(D)(2)(b) as alternative statutory authority for its order granting CEI permission to amortize its invest- ment in the cancelled nuclear facilities. It is our view that R. C. 4909.15(D)(2)(b) is de- signed to allow the commission to make minor adjustments to rates ascertained by the statutory formula when the criteria upon which the rates are based are skewed for one reason or another. Thus, under R. C. 4909.15(D)(2)(b), the commission may smooth out anomalies in the rate- making equation that tend to make the test year data un- representative for ratemaking purposes. H-18 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. IV B(iii) “[T]his court has consistently recognized that the Public Utilities Commission is a creature of the General Assembly and may exercise no jurisdiction beyond that conferred by statute.” Dayton Communications Corp. v. Pub. Util. Comm. (1980), 64 Ohio St. 2d 302, 307. See, also, Werlin Corp. v. Pub. Util. Comm. (1978), 53 Ohio St. 2d 76, 80; Ohio Public Interest Group v. Pub. Util. Comm. (1975), 43 Ohio St. 2d 175, 176, paragraph five of the syllabus; Penn Central Transportation Co. v. Pub. Util. Comm. (1973), 35 Ohio St. 2d 97, paragraph one of the syllabus. Stated differently, the commission may not legis- late in its own right. This, however, is what the commis- sion has attempted to accomplish in the case at bar. The commission order enrafts upon the statutory rate- making scheme an exception © »at would allow utility com- panies to recover their investment in unfinished projects ineligible for rate base treatment if the original decision to build the facilities and the subsequent decision to cancel the projects are prudent under the circumstances. In so doing the commission has exceeded its statutory mandate. We hold that the commission unreasonably and unlawfully exceeded its statutory authority when it approved amor- tization of CEI’s investment in the four terminated nuclear power plants. IV C. Appellants contend that the commission also erred in including the cancelled plant costs in the calendar year 1979 test period because the termination was not an- nounced until January 23, 1980. Inasmuch as we have already determined that the commission improperly allowed amortization of the utility’s investment in the terminated nuclear facilities, it is unnecessary for us to address the timing issue raised in this cause. H-19 wonsumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. IV D. We are mindful of the policy considerations that prompted the commission’s decision. The commission, CEI, and the amici argue strenuously that to rule as we have today will seriously disadvantage Ohio utilities in capital markets thereby “driv[ing] up the return on investment required by investors in Ohio utilities.” This gloomy sce- nario, however, does not imbue the commission with the authority to rewrite the statutes. The statutes in question contain no provisions insulating investors from the type of losses sustained in the cancelled-plants venture. If, as has been argued, these are parlous times for the utilities industry, and if, therefore, in order to attract and retain investment capital, utility companies must not only be granted a fair and reasonable rate of return pursuant to statute but must also be assured the return of capital invested in failed projects that would otherwise not be recoverable under the ratemaking formula, then the com- mission and the utilities should petition the General Assem- bly to enact changes in the ratemaking structure so as to provide this extra modicum of protection for the investors. Absent such explicit statutory authorization, however, the commission may not benefit the investors by guaranteeing the full return of their capital at the expense of the rate- payers. Under the ratemaking formula now in effect con- sumers are not chargeable for utility investments and expenditures that are neither included in the rate base nor properly categorized as costs. What we previously stated in a rate base case is applicable to the case at bar: “°**Tt is only proper that their [the investors] venture be found operational before they commence to recoup their capital outlays from the consumers.” Consumers’ Counsel v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 449, 456-457. H-20 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Opinion, per SWEENEY, J. We take a dimmer view of the second policy argu- ment advanced by the commission to support its order. The commission suggests that if the appellants prevail on this issue, then “[rJather than prudently cance] certain projects, it is not inconceivable that at least some utility managements would complete expenditures on a project and have ratepayers pay a return on dollars which would have more wisely not been spent.” R. C. 4909.154 specifi- cally empowers the commission to investigate manage- ment policies, practices and organization to determine whether a public utility is properly managed. If a utility completes a project that should have been abandoned, then the commission must under the “used and useful” requirement of R. C. 4909.15(A)(1) disallow rate base treatment and under R. C. 4909.154 disallow any claimed operating expenses related to the unnecessary project. We are confident that if any utility managers who might be tempted to act as the commission suggests are aware that the commission, pursuant to its statutory responsibilities, is vigorously scrutinizing all proposed and in-progress construction projects, these managers will decide whether or not to abandon a particular project according to their best and most prudent business judgment. Thus, we re- ject the commission’s argument that our decision today may engender imprudent decision making in utility com- pany boardrooms. For reasons hereinbefore stated the order of the com- mission is affirmed in part and reversed in part, and this cause is remanded to the commission for a redetermina- tion of CEI’s allowable operating expenses, excluding therefrom the expenditures attributable to the cancelled nuclear facilities. Order reversed in part and affirmed in part. H-21 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Concurring and Dissenting Opinion, per P. BROWN, J. Ce.esrezze, C. J.. W. Brown and C. Brown, JJ., P. Brown, Locuer and Hoimes, JJ., concur in part and dissent in part. Pau. W. Brown, J., concurring in part and dissenting in part. I concur in Parts I, II and III of the majority opinion insofar as they affirm the commission’s decision to allow rate base treatment for CWIP attributable to the Bruce Mansfield coal-fired generating station. I dissent, however from Part IV of the opinion. In Part IV of its opinion, the majority reverses the commission’s decision to allow amortization of the costs incident to termination of the four nuclear facilities in question. In so doing, the majority does not disturb the commission's findings that CEI acted both prudently and reasonably in incurring these costs. Instead, the majority holds that it was not the intent of the General Assembly to treat expenditures of this type as “costs” within the mean- ing of R. C. 4909.15(A)(4). I believe the majority's inter- pretation of this section to be too restrictive. The term “cost” is not defined in R. C. Chapter 4909. Therefore, it is necessary to look elsewhere to ascertain the meaning of this word. In 1961, the commission adopted standard accounting procedures to be used by Ohio util- ities. “The system of accounts and records identified and designated as ‘Uniform System of Accounts Prescribed for Public Utilities and Licensees effective January 1, 1961’ * * * is adopted by this Commission * * *.” Ohio Adm. Code 4901:1-9-05. This “Uniform System of Accounts” was promulgated in 18 C.F.R., Part 101. An analysis of this uniform system clearly demon- strates that expenditures such as those incurred in the termination of the four nuclear generating units were in- H-22 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Concurring and Dissenting Opinion, per P. BROWN, J. tended to fall within the statutory definition of “costs.” The uniform system states, in part: “182 Extraordinary property losses. “A. * ° ° this aceount shall include extraordinary losses on property abandoned or otherwise retired from service which are not provided for by the accumulated provisions for depreciation or amortization and which could not reasonably have been foreseen and provided for °°*” (Emphasis added.) Id., at 324. “407 Amortization of property losses. “This account shall be charged with amounts credited to account 182°°*.” Id., at 356. This accounting system has been in effect in Ohio for approximately two decades. Given this fact, we can rea- sonably assume that the General Assembly was cognizant of its existence when it amended R. C. 4909.15 in 1976, and that it was not the intent of the General Assembly to treat these extraordinary property losses in a different man- ner in which they were treated by the Public Utilities Commission. Moreover, as the majority correctly notes, “the over- whelming weight of authority from other jurisdictions sup- ports the position of the commission.” The majority dis- misses this significant point with the facile statement that none of the cases from these other jurisdictions represents the opinion of the highest court of the jurisdiction; nor, has any other jurisdiction construed or applied Ohio law in reaching its determination. While I do not assert that decisions from other jurisdictions are controlling in Chio, I cannot accept the majority's summary disposition of these foreign decisions. First, this court, in the past, has recognized the persuasive value of decisions from other jurisdictions in this area. See Ohio Water Service Co. v. Pub. Util. Comm. (1980), 64 Ohio St. 2nd 12. Second, the H-23 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Concurring and Dissenting Opinion, per P. BROWN, J. near unanimity of decisions from other jurisdictions allow- ing amortization of these types of expenditures further demonstrates the reasonableness of the commission’s de- cision in this case. Appellants urged before this court that before any ex- pense or cost could be passed on to the ratepayers, it must confer a direct and primary benefit upon said ratepayers. Implicit in the majority's decision is an acceptance of this argument. Thus, the majority, today, takes another step toward entrenching the spurious “direct, primary benefit” test into the public utilities law of Ohio.’ “Review of orders of the Public Utilities Commission on appeal is limited to a consideration of whether the order is unreasonable or unlawful®**.” Cremean v. Pub. Util. Comm. (1976), 48 Ohio St. 2d 163, paragraph one of the syllabus. The order in the instant cause is neither unreasonable nor unlawful. Accordingly, I would affirm the decision of the commission in its entirety. Hoiaes, J., concurs in the foregoing concurring and dissenting opinion. Locuer, J., concurring in part and dissenting in part. I concur in the syllabus and Parts III (notice and staff investigation) and IV (amortization) of the majority opinion. I would also note, however, that the financial effect of this decision on CEI will be insignificant. CEI informed its investors in its “1979 Annual Report”:“*** The Company [CEI] will seek the approval of the Federal Energy Regulatory Commission and The Public Utilities Commission of Ohio for authority to amortize [the costs previously expended toward the four nuclear units whose construction CAPCO terminated] over a suitable number of years. The extent to which these costs may be recovered *See Justice Herbert's dissent in Cleveland v. Pub. Util. Comm. (1980), 63 Ohio St. 2d 62, 75, in which I concurred. H-24 Consumers’ Counsel v. Pub. Util. Comm. 67 Ohio St. 2d 153 (1981) Concurring and Dissenting Opinion, per P. BROWN, J. through rates will he determined by the PUCO. If any costs of termination are not permitted to be recovered, the Company would be required to reduce Net Income by the disallowed amount. In any event, the resolution of these matters should not have a material adverse impact on the financial position of the Company.” I dissent from Part I of the majority opinion (CWIP), because PUCO refuses to define standards for review of CWIP matters. My dissenting opinions in Consumers Counsel v. Pub. Util. Comm. (1979), 58 Ohio St. 2d 108, 117, and Consumers Counsel v. Pub. Util. Comm. (1981), 66 Ohio St. 2d 162, 167, express the reasons for my con- cern. I-l APPENDIX I BEFORE THE PUBLIC UTILITIES COMMISSION OF OHIO In the Matter of the Application of The Cleveland Electric Illuminating Company for Authority to Amend and Increase Certain of its Filed Sched- ules Fixing Rates and Charges for Electric Service. In the Matter of the Complaint and Appeal of The Cleveland Electric ['luminating Company from Ordi- nance Nv. 1673-79 of the Council of the City of Cleveland, Ohio Passed August 7, 1979, entitled “An Ordi- nance Setting the Maximum Rates which may be Charged by The Cleveland Electric Illuminating Company for Electric Service Within the City of Cleveland.” s + Case No. - 79.774-EL-CMR 4 REHEARING ENTRY The Commission, coming now to consider the above- entitled matters, and, specifically, its opinion and Orders in these dockets of July 10, 1980, and its applications for rehearing filed by the applicant and other participating parties, hereby makes the following findings. a fC Py By in granting, in part, the application of the Cleveland Electric a Company for authority to increase its rates charges for electric service rendered 1-2 Rehearing Entry, PUCO Case No. 79-537-EL-AIR 2) 3) 4) jurisdictional customers, and sustaining the com- pany’s complaint that Ordinance No. 1673-79 of — of Cleveland was unjust and unreason- able. Rehearing applications were timely filed pursuant to the provisions of Section 4903.10 Revised Code by the applicant, the City of Cleveland, the Office Consumers’ Counsel, Senior Citizens, et al., and the Industrial Electricity Consumers. Through its rehearing application, the [lluminat- ing Company alleges that the Commission's July 10, 1980 Opinion and Order is unreasonable and unlawful in some 39 particulars. Review of these assignments of error indicates that the majority represent yr? —- than a ogy ae company's ori objections relative to issues which have now been decided adversely to the applicant. The Commission is of the opin- ion that t claims were adequately considered in the order now complained of with the excep- tion of three of the issues which the applicant elected to address in the memorandum accom- panying its rehearing application. By its twenty-fourth assignment of error, appli- cant alleges that the Commission unreasonably refused to adjust test-year labor expense to - nize wage increases which became effective su sequent to the test period. In considering this ground for rehearing, the Commission must first point out that adjustments for out-of-. 2riod cost changes, while accepted in some instances where strict conditions are satisfied, are the exception rather than the rule. If the test-year concept is to remain a viable basis for determining cost of service, a matching of revenues and expenses must be maintained. The Commission has de- parted from this principle in only the most com- pelling circumstances as, for example, in cases where we are confronted with a very remote test I-3 Rehearing Entry, PUCO Case No. 79-537-EL-AIR 5) 6) year (Columbia Gas of Ohio, Case No. 77-1309- GA-AIR [May 24, 1979]). Applicant that the adjustment proposed in pr ng does satisfy the conditions discussed in prior Com- mission orders, specifically East Ohio Gas Com- ee ee No. 79-535-GA-AIR (July 9, 1980). As the Commission has granted rehearing on this issue in the East Ohio case (East Ohio Gas Com- pany, supra, Entry on Rehearing, August 7, 1980) we believe the matter deserving of further con- sideration in these dockets as well. Rehearing on this ground should be granted. Through the twenty-eighth ground advanced by the company as a basis for rehearing, applicar: contends that the Commission erred in exclud- ing certain advertising costs from allowable ex- penses without evidence as to whether the ad- vertisements in question benefited the custo- mers. As the Commission found in the order now complained of, these advertisements appeared to be solely promotional in character. However, on the day preceeding the issuance of the Opin- ion and Order, the Supreme Court of Ohio hand- ed down its decision in Cleveland v. Public Utili- ties Commission, 63 Ohio St. 2d 62 (1980), whereby a new test for the eligibility of adver- tising expenses was apparently established. As the Commission will herein grant the rehearing sought by certawr, other participants with respect to the advertising question in light of this devel- opment, we deem it appropriate to also permit the company to participate in our efforts to in- terpret the import of the Court’s decision. We, therefore, find the application for rehearing on this ground to be well made and hereby grant rehearing on this issue. By its twenty-ninth assignment of error, appli- cant charges that the Commission acted unrea- sonably in failing to include any allowance for charitable contributions in the cost of service Bf pie it | ’ aH Mie Ain 1 aeutcll Hit Hi ii | bis i it i i Hi iH nt ii it i bil aa ‘getevtumstiom 4: The amemamen | ace Sus or te lta | Seg Eat PCCD Car Ne S01 10) 11) 12) pany. We commend Applicant's Exhibit Nos. 6, 9 and | (Sched. B-6 and Sched. C-4) to the Se eee. Ainaag Gs gums caus only the Commission's determination that 1-6 Rehearing Entry, PUCO Case No. 79-537-EL-AIR 14) 1980 in this docket whereby the Commission ac- cepted applicant's new tariffs for filing. —_ venors cael that this Entry contains erroneous finding that the tariffs, as SS conformed to Commission's July 10, 1980 Opinion and Order. y, intervenors charge that the Ind and Large Industrial rate schedules approved (PUCO No. 11, 6th Rev. Sheet No. 26 and PUCO No. 11, 6th Rev. Sheet No. 28) are not consistent with the Commission's directive concerning the adjustments to the pro- posed tariffs to reflect the fact that the revenue increase aut was somewhat less than that originally requested by the company. In the July a. - Opinion and Order, the Commission did poe set out the method to be employed in in ad justin the tariffs. The Commission oa poly - t the staff tariff recommendations which were not hens g to spe- cific objection should be implemented. Among those recommendations was the staff yg that if the rate relief authorized w that requested, the reductions in the ‘canes — sched should be performed so as to retain the proportionality between the various blocks (S.R., p. 56). The applicant also supported this tochaigue (Tr xX, oe, | 55-56) which, it might Renee May og sae the approach customarily Commission under such circum- stances eeaceny A e.g. on Power and Light, Case No. 79-510-EL-AIR [July 31, 1980]). The Commission a with the Industrial Elec- tricity Consumers that the Industrial and Large ee rate sheets submitted by the applicant ed by the Commission's July 14, 1980 ok - no downward adjustment to the —— energy portions o rate struc- tures as se cen aget “oe the impact of the failure of ry ust all portions of these rates is so y less than a 1-7 Rehearing Entry, PUCO Case No. 79-537-EL-AIR ORDERED, That the rehearing application filed August 8, 1980, by the Cleveland Electric Illuminating Company be, and hereby is granted to the extent provided above and denied in all other respects. It is, further, ORDERED, That the rehearing application filed August 11, 1980, by the City of Cleveland be, and hereby is granted to the extent provided above and denied in all other respects. It is, further, ORDERED, That the rehearing application filed August 8, 1980, by the Office of Consumers’ Counsel be, and hereby is denied. It is, further, ORDERED, That the rehearing application filed August 8, 1980, by Senior Citizens, et al., be, and hereby is granted to the extent provided above and denied in all other respects. It is, further, ORDERED, That the rehearing application filed August 7, 1980, by the Industrial Electricity Consumers, be and hereby is denied. It is, further, ORDERED, That the rehearing granted to consider the issues identified above be, and hereby is scheduled to commence at 9:30 A.M. on Wednesday, October 8, 1980, at the offices of the Commission, 375 South High Street, Columbus, Ohio. It is, further, 1-8 Rehearing Entry, PUCO Case No. 79-537-EL-AIR ORDERED, That copies of this Entry be served upon all parties of record. THE PUBLIC UTILITIES COMMISSION OF OHIO /s/ Wu11am Newcoms ( Chairman ) /s/ Svermen A. Reuiy /s/ Micuart DetBane ( Commissioners ) Company for Authority to Amend Case No. Filed { 79-537-EL-AIR the City of Cleveland, Ohio Passed Case No. Ordi- F 19 774-FL-CMR filed by the Cleveland Electric Iuminating Company pur- J-2 Opinion and Order, PUCO Case No. 79-537-EL-AIR suant to Section 4909.34 Revised Code; the Staff Report of Investigation issued pursuant to Section 4909.19 Re- vised Code; having appointed its attorney examiner, Barth E. Royer, pursuant to Section 4901.18 Revised Code to conduct a public hearing and to certify the record thereof directly to the Commission; the testimony and exhibits introduced into evidence at the public hearing commencing April 2, 1980, and concluding May 22, 1980; its prior Entries and Orders in these dockets; and being otherwise fully advised in the premises and in compliance with Sec- tion 4903.09 Revised Code, hereby issues its Opinion and electric light company within the definitions of Sections J-3 Opinion and Order, PUCO Case No. 79-537-EL-AIR effect the Iuminating Company's existing rates for service within that municipality for a two-year period commencing June 19, 1980. The company filed a complaint and appeal from said ordinance pursuant to the provisions of Section 4909.34 Revised Code on August 31, 1979. By Entry of September 26, 1979, the Commission determined that the | 4 T JA x (SetTY EET Gas : a He He HUH eee HAH HG lil a : tit THE Hi i it Mr ‘vl ras AL ee eta a ) iat : an ett i at ie lal fue sen Bi tietgrcrg reel ice ite J-46 Opinion and Order, PUCO Case No. 79-537-EL-AIR J-7 Opinion and Order, PUCO Case No. 79-537-EL-AIR its rehearing entry of October 5, 1979, for a review of the reasonableness of the rates contained therein in the con- text of the pending rate proceedings. We will address the street lighting matter through a separate opinion. JURISDICTIONAL ALLOCATIONS In assigning rate base and demand-related expenses J-8 Opinion and Order, PUCO Case No. 79-537-EL-AIR in the past, the test-year data, as the staff points out, shows a leveling of the monthiy peaks (S.R., pp. 4-5, Tr. XX, p. 117). The lowest actual 1979 monthly peak (October) was 87 percent of the highest monthly peak (July) (S.R., pp. 4-5). In six other months, the peak was in excess of 95 percent of the annual peak ( App. Ex. 6C ). When the 1979 monthly peaks are plotted graphically, it is evident that the peaks have become hills and that the valleys have filled in (Tr. XX, p. 117). If the Commission limits its analysis to this data, it is clear that the staff's 12-month coincident peak method should be preferred. Indeed, this is the method applicant uses before the Federal Energy Regulatory Commission, although, in fairness, it should be noted that the FERC apparently now requires the use of the 12-month method (S.R., p. 5, Tr. XV, p. 13). Applicant attempts to justify its continued use of the two peak method by relying on estimates of the 1980 summer and winter peaks which, it contends, more ac- curately portray expected conditions. This novel approach is attended by several significant problems. First, from a conceptual standpoint, there should be some matching of the data sets involved in the determination of the alloca- tion ratios and the property and expenses to which they are to be applied. After all, the purpose of the exercise is to assign existing plant based on existing demand, not to allocate future plant constructed to serve some future level of demand. However, quite apart from this theoreti- cal consideration, is the question of the reliability of ap- plicant’s projections. The company attacks the staff method by claiming it does not adequately consider normal weath- er conditions (Tr. XX, pp. 113-115), an assumption auto- matically taken into account in applicant's forecast. No one disputes that temperature is a significant factor but there are also other factors to be assessed such as the level of economic activity ‘n the service territory, the j-9 Opinion and Order, PUCO Case No. 79-537-EL-AIR availability of the natural gas heating alternative, the im- pact of conservation efforts, the effect of rapidly increas- ing electric rates, and the track record of the company in predicting peak loads. On balance, the Commission does not believe that the test year data relied on by the staff is so unrepresentative as to yield an unreasonable result. Finally, we come to applicant's complaint that the staff method does not adequately consider daily operating characteristics because ten of the twelve monthly peaks were daytime peaks (App. Brief, pp. 27-28). Applicant attaches great significance to figures indicating that its daily load exceeds 90 percent of the daily peak for fifteen to nineteen hours on an average weekday basis (Tr. XV, p. 14). Because its projected winter peak is an evening peak, applicant contends that its method more properly weights the evening load’s contribution to capacity re- quirements. This argument loses sight of the fact that both methods are peak responsibility methods and have nothing whatever to do with load duration. If applicant believes this diversity factor to be of such critical impor- tance, the company should employ an allocation method specifically designed to recognize it rather than risk using a method which, in theory, could have resulted in the selection of two daytime peaks, thereby losing the evening load’s contribution in its entirety. In fact, had applicant used calendar 1979 data, this would have been the case (App. Ex. 6C). The Commission does not believe that the staff method, which at least affords twelve measurements instead of only two, can be faulted on this score. In light of the foregoing discussion, the Commission is of the opinion that the staff’s 12-month method should be adopted for purposes of these proceedings. Although we do not view the fact that the FERC mandates the use of this method as being in any way controlling for the purposes at hand, there is a certain comfort in the sym- TE Tel fat i ee ir i 7 ce it utd Hii Hie Hid il ith iit ih ) : ! | j-ll Opinion and Order, PUCO Case No. 79-537-EL-AIR Jurisdictional Rate Base (000's Unmitted) Applicant! —_Staff Plant In Service ____ . $1,889,583 $1,876,927 Depreciation Reserve ........... (464,002) (466,049) Net Plant In Service $1,424,981 $1,410,878 CWIP 95,501 91,521 Working Capital 128,394 62,565 Deferred Taxes and Tax Credits ___. (25,687 ) (79,215) Jurisdictional Rate Base $1,623,189 $1,486,049 ‘App. Rev. Sched. B-1 *Staff Ex. 7, Appendix D, Rev. Sched. 7.1 The difference between the respective plant in service determinations of the applicant and the staff is, in part, attributable to the difference in the allocation methodolo- gies employed. There are, however, additional reasons for the discrepancy in these figures which must be explored, as well as other related issues arising from intervenors objections which must be considered. Land and Land Rights: As a part of its investigation in these proceedings, the Commission staff reviewed the company’s land accounts in order to assure that the real property proposed for inclu- sion in rate base satisfied the statutory used and useful Similar staff analyses in prior cases involving this company have resulted in some transfers to future use or non-utility property accounts, and the staff inspec- tion of additional parcels ir. -onnection with the cases now before us has again produced a recommendation that the rate base be adjusted (S.R., pp. 21-22). Specifically, the staff concluded that a deduction in the amount of $368,938 was appropriate based on its finding that three ash disposal J-12 Opinion and Order, PUCO Case No. 79-537-EL-AIR sites associated with the East Lake plant were no longer used and useful and its opinion that the acreage at the Inland substation and Strongsville service center was in excess of that reasonably required for utility operations (S.R., p. 21; $.R., Sched. 8.2; Staff Ex. 2, pp. 8-11). Appli- cant objected to the deduction from rate base of the origi- nal cost dollars represented by these parcels ind, through its witness Kemper, presented evidence in support of its position that the property in question was used and useful at date certain (App. Ex. 3A, pp. 4-7). The staff excluded the Vine, Syracuse A, and Syracuse B ash disposal sites based on its conclusion that the capacity of these areas to receive fly ash had been exhausted. Appli- cant points out that one of the sites can still accommodate fly ash and is also being used to store cinders which are eventually sold to municipalities (App. Ex. 2A, p. 4). The Commission agrees that the value of this parcel, $25,499, must be restored to rate base. The Commission does not agree, however, that the other two ash disposal sites con- stitute used and useful property as contemplated by the statute. Applicant acknowledges that these two parcels are filled to capacity, but argues that they are still satisfying one of their original purposes, holding fly ash. Further, the company claims that the sites have little resale value and, because land is not depreciable property, there is no way that any cost recovery or return can be realized unless the parcels are included in rate base. There is no merit in either of these arguments. Property can only be considered used and useful if it is utilized in providing service. The record is clear that the two parcels in question can no longer receive fly ash; thus, they do not meet this require- ment. Moreover, the fact that the parcels may have limited resale value is totally irrelevant. Once the property has been found not to be used and useful, it goes without saying that ratepayers cannot be required to contribute toward a return on it. The Commission, therefore, accepts J-13 Opinion and Order, PUCO Case No. 79-537-EL-AIR the staff's rate base adjustment for these two ash disposal sites. The staff's proposed deductions for excess land at the Inland substation and the Strongsville service center pre- sent much closer questions (Staff Ex. 2, pp. 10-11). The Commission has previously recognized that there are a number of factors which must be considered in evaluating adjustments involving the elimination of minor portions of land parcels on the theory that the total acreage at a site is above that reasonably required to support a given installation (Ohio Edison Company, Case No. 78-1567-EL- AIR, et al. [January 30, 1980]). Obvious practical con- straints exist upon obtaining precisely the acreage neces- sary for a particular operation, and there is a possibility that severance damages would actually produce a net detri- ment to the ratepayer if a somewhat smaller parcel had, in fact, been acquired. Although the site maps introduced by the applicant might appear to suggest the need for this type of analysis in this case (App. Ex. 3A, pp. 28-29), the Commission finds the critical evidence in this area to be the admissions of applicant's own witness with respect to the company’s specified plans for the future use of much of the area excluded by the staff at these two locations (App. Ex. 3A, pp. 5-6). Given this state of the record, we conclude that the dollar associated with these areas should properly be assigned to Account 105 (Land Held for Fu- ture Use) until such time as the planned construction is accomplished. Applicant's objection to the staff adjust- ments should be overruled. Beaver Valley Common Facilities: In arriving at its recommended rate base for purposes of these proceedings, the Commission staff excluded from plant in service the amount of $8,894,241 which repre- sents applicant’s share of the common facilities at the Beaver Valley nuclear generating plant (S.R., p. 22; S.R., J-14 Opinion and Order, PUCD Case No. 79-537-EL-AIR Sched. 8.1). Because applicant's ownership interest in Beaver Valley is limited to Unit No. 2, a unit still under construction, the staff concluded that it would be improper to consider the company’s share of the common facilities, although completed in connection with the first Beaver Valley unit, as used and useful property until such time as Unit No. 2 is placed in service. Applicant objects to the staff's treatment. The Commission has had occasion to consider this precise question in a number of its recent decisions, includ- ing that issued in this company’s last rate case (Cleveland Electric Mluminating Company, Case No. 78-677-EL-AIR [May 2, 1979]; Ohio Edison Company, Case No. 77-1249- EL-AIR [November 17, 1978]; Toledo Edison Company, Case No. 79-143-EL-AIR [February 29, 1980]). We have repeatedly held the staff adjustment to be proper, and nothing presented in this record would persuade us to alter that view (App. Ex. 4, pp. 43-44). Although the Com- mission recognizes that FERC accounting principles re- quire that common facilities be classified as plant in service at the time the first unit is placed in service, this does not change the fact that the common facilities in question do not satisfy the statutory criteria for rate base eligibility (Section 4905.15(A)(1) Revised Code). Cleveland Elec- tric Illuminating Company does not own Beaver Valley Unit No. 1. Although applicant's customers may, from time to time, receive power from the first Beaver Valley unit by virtue of certain CAPCO transactions, this does not render the portion of the common facilities assignable to Unit No. 2 used and useful property for ratemaking purposes. This objection is again overruled. Applicant contends that if the common facilities are to be eliminated from rate base, consistency requires that the Commission direct the company to reclassify this prop- erty as plant held for future use, to cease accruing depre- ciation, and to resume the accumulation of AFUDC until J-15 Opinion and Order, PUCO Case No. 79-537-EL-AIR such time as Unit No. 2 is transferred to plant in service (App. Ex. 4A, p. 49). The staff has also recommended a reclassification of the property (S.R., p. 22). In the Toledo Edison case, supra, the Commission agreed that the prin- ciples underlying the exclusion of the common facilities from rate base dictate that the property be reclassified for Ohio regulatory purposes and directed that depreciation accruals be stopped. The Commission did not reach the question of the resumption of AFUDC in the context of that decision, but believes that such a measure would be inconsistent with the classification of the property as plant held for future use. The Commission, therefore, orders applicant to reclassify the Beaver Valley common facilities and to cease accruing depreciation. Applicant's proposal Davis-Besse Nuclear Plant: Through their filed objections, intervenors City of Cleveland and Senior Citizens et al., contend that appli- cant’s share of the Davis-Besse nuclear plant, a generating facility co-owned by Cleveland Electric Illuminating Com- pany and Toledo Edison Company, should be excluded from the rate base on the theory that the plant is not “used and useful” within the meaning of that term as employed in Section 4909.15(A)(1) Revised Code. The Commission is on familiar ground in considering these objections as the City of Cleveland advanced similar argu- ments in the company’s last rate proceeding (Cleveland Electric Illuminating Company, Case No. 78-677-EL-AIR [May 2, 1979] ). The Commission's finding in that case that Davis-Besse was properly includable in rate base has just been affirmed by the Supreme Court (City of Cleveland v. Public Utilities Commission, S.Ct. Case No. 79-1158 [July 9, 1980], 63 Ohio St. 2d [1980]). Although a considerable portion of the record now before us is devoted J-16 Opinion and Order, PUCO Case No. 79-537-EL-AIR to this question, when the law and the evidence are sifted out from the rhetoric and the statements of counsel, the Commission once again comes to the same inescapable conclusion. Davis-Besse must and should be included in the rate base. This is a most difficult issue to address, not because it presents a close question, but because much of intervenors’ attack is so illogical as to defy analysis (See, Tr. XXIII, pp. 73-81). Rather than begin with counsel for the City of Cleve- land’s repeated charge that Davis-Besse is a “white ele- phant” that is unsafe and unreliable (City of Cleveland Brief, p. 4), it may prove more fruitful to begin with an unimpassioned look at the facts. No one, including com- pany witnesses who were examined on the subject, dis- putes the fact that the unit's 1979 performance was ex- tremely disappointing (Tr. VIII, p. 67). The plant actually produced only some 59 percent of its budgeted generation during the test year (Senior Citizens Ex. 1). It exhibited a unit capacity factor in 1979 of only 39.4 percent (City of Cleveland Ex. 2L). Davis-Besse was forced off line 15 times during the test period, although in five of those instances the duration of the outage was less than one day (City of Cleveland Ex. 8). The principal reason for the unit’s poor annual availability factor was the 103-day shutdown mandated by the Nuclear Regulatory Commis- sion in the wake of the Three Mile Island incident (City of Cleveland Ex. 8). In terms of production expense, Davis- Besse is by far the cheapest source of energy available to the company (City of Cleveland Ex. 4). Despite the three month outage referred to above and another extended outage in December of 1979, the unit contributed over 1.6 billion Kwh to applicant's system generation during the test year, roughly 10 percent of the company’s total production (City of Cleveland Ex. 4). Where, in these facts, is there support for the proposition that Davis- Besse is not used and useful? j-l7 Opinion and Order, PUCO Case No. 79-537-EL-AIR Senior Citizens, et al., suggests that if the plant can- not be excluded from rate base in its entirety, then, at minimum, the Commission should eliminate a portion of its value based on a calculation comparing its actual per- formance to its expected performanc>. The contention that forced outage rate during the test year. The proper re- sponse is not the exclusion of all or part of the plant from cisely the applicant and the staff have proposed in this case (App. Ex. 1, Sched. 3.12; S.R., p. 12). The ap- such an adjustment for ratemaking purposes j-18 Opinion and Order, PUCO Case No. 79-537-EL-AIR What the evidence does show is that in each instance where a problem forced the unit off line, the problem was identified, reported, and remedied to the satisfaction of the Nuclear Regulatory Commission, the agency that does have authority in this area. It is true that the NRC has ordered a number of modifications, and that some of these have been quite costly (Tr. XXIII, p. 130); but it must be re- membered that the plant has been subject to NRC scrutiny since the time it was on the drawing board and that it was last case, the Supreme Court of Ohio issued its decision in Consumers’ Counsel v. Public Utilities Commission, 58 Ohio St.2d 449 (1979). This case represented an appeal of a Toledo Edison rate order ( Toledo Edison Company, Case No. 76-1176-EL-AIR [June 9, 1979] ) wherein the Commis- sion had determined that the Davis-Besse plant should be considered used and useful and, therefore, includable m rate base despite the fact that it had not been assigned commercial operating status before the date certain. The Commission based this conclusion on the fact that the unit had been synchronized with the system and was producing electricity, albeit through test generation, prior to date certain. The Court reversed, finding as follows: jJ-19 Opinion and Order, PUCO Case No. 79-537-EL-AIR as support for the proposition that Davis-Besse should not : : i | 3 Biais pelapes HHT fisast flerst : # u i } ler Hi are the primary cause of the CEI financial ad of Cleveland Brief, p. 4). Assuming for the sake of argument that this statement is correct, how would the exclusion of the plant from rate base do anything but exacerbate these problems? The fact is that the capital costs associated with the construction of all types of capac- J-20 Opinion and Order, PUCO Case No. 79-537-EL-AIR (Tr. VIII, p. 69). The relevant point is that the investment in the plant has been made, the plant is providing service, and the suppliers of the required capital are entitled to a return on their investment. There are other inconsistencies in intervenors’ argu- exante Ghat chocill act op unnetiead. The City of Clovdaad complains that it costs the ratepayers approximately $800,000 per week for each week the plant does not oper- ate (City of Cleveland Brief, p. 3). Which way does this cut? We would have thought that this testifies to the bene- fit of having Davis-Besse on the system. Then, there is the suggestion by Senior Citizens, et al., that the uncertainties associated with Davis-Besse increase risk, thereby driving up investors’ return requirements (Senior Citizens Brief, p. 21). We would merely inquire as to what impact on the company’s cost of capital intervenor would anticipate were the Commission te disallow any return on the tremendous investment in this plant as it would have us do. Finally, we come to the theory that if the Commission includes Davis- Besse in rate base, the company will have no incentive to seek legal redress for any losses occasioned by the alleged defects in the design or construction of the unit or by the alleged negligence of Toledo Edison personnel in managing its operation. Senior Citizens’. et al., even suggests that if the Commission recognizes Davis-Besse for ratemaking purposes, such a step would afford a defense in any legal action that applicant might maintain. These arguments are totally without merit. In the first place, they assume that the company has some actionable claim arising out of the unit's admittedly poor performance. It would certainly be improper for the Commission to engage in speculation in this area, and even more improper to base a rate case de- duction on the innuendo of intervenors’ attorneys. Detailed contracts and agreements govern applicant's relationship with those firms that constructed and operate Davis-Besse. Intervenors should examine their provisions before spread- J-21 Opinion and Order, PUCO Case No. 79-537-EL-AIR ing these assertions on the record. The Commission cannot deny applicant a return on this plant at this point in time with the instruction that it go sue someone or other in hopes thai it will recover something from them in the fu- ture. If it should eventuate that applicant does obtain some _ recovery through litigation, whether involving Davis-Besse or any other aspect of its operation, under circumstances where customers are entitled to share in the benefits the Commission will see to it that they are properly credited (Ohio Power Company, Case No. 77-380-EL-FAC (Feb- ruary 7, 1979); Ohio Power Company, Case No. 78-676- EL-AIR [April 16, 1979] ). There is simply no basis in law or fact for excluding all or part of the net original cost of Davis-Besse from the rate base determined for purposes of these proceedings. Excess Capacity: The Commission staff, as a part of its investigation in these proceedings, examined applicant’s generating ca- pacity to determine whether capacity exists which exceeds that reasonably required to meet the company’s net peak demand and afford a reasonable reserve margin. As a result of this review, the staff concluded that applicant's produc- tion system was not excessive (S.R., pp. 22-23; Tr. XXI, pp. 114-120). Intervenors City of Cleveland and Senior Citizens, et cl., object to the staff's finding, contending that property is not used and useful. The short answer here would be to simply point out that there is nothing in this tL ) J-22 Opinion and Order, PUCO Case No. 79-537-EL-AIR once again set out the considerations which must be taken into account in dealing with this question. This so-called “excess capacity” issue has been before the Commission time and time again in recent years in cases involving almost all major electric companies subject to our jurisdiction, including this applicant. (See e.g., Day- ton Power and Light Company, Case No. 76-823-EL-AIR [July 22, 1977]; Monongahela Power Com-zany, Case No. 76-824-EL-AIR [September 7, 1977]; Dayton Power and Light Company, Case No. 78-92-EL-AIR [March 9, 1979]; and Cleveland Electric Illuminating Company, Case No. 78-677-EL-AIR [May 2, 1979]). One fact that has clearly emerged from these cases, as it has from the record in the instant proceedings, is that it is most inappropriate to mea- sure the reasonableaess of existing capacity levels by a simple comparison to some assumcd ideal reserve margin (Tr. VIII, pp. 106-109; Tr. XXI, pp. 116-117). Reserve requirements are company-specific, and what is reasonable for one electric utility may not be reasonable for another depending on factors such as unit sizes and generation mix. Next, assuming appropriate reserve criteria can be estab- lished, it must be recognized that in light of the extensive lead times invclved in the construction of generating facil- ities and the variety of factors which can influence load growth, it is obviously unrealistic to assume that any utility would have the forecasting capability which would allow it to add capacity in the precise increments required to maintain the theoretically appropriate margin. This prob- lem is intensified by the large size of the units being added today. Thus, the relevant inquiry is not whether the reserve at any point in time matches some optimum margin, but whether, given all those factors which can influence con- struction and load growth, the company can be fairly said to have acted imprudently in its capacity planning. As we will discuss in more detail infra, there has been no showing that this has been the case with respect to this applicant. J-23 Opinion and Order, PUCO Case No. 79-537-EL-AIR Finally, there is the conceptual problem which at- tends a capacity adjustment based on the theory that a portion of a company’s production capacity is not used and useful. All applicant's generating stations, although they may have been downrated or off line from time to time, were in service meeting customer demand pursuant to principles of economic dispatch during the test period. Thus, each unit, standing alone, clearly would meet the used and useful requirement. A percentage adjustment to system capacity ignores the reality that such capacity is comprised of individual units which represent actual substantial dollar investments committed to assure that adequate service can be maintained. As the Commission stated in the Columbus and Southern decision cited above: dn lt ne ee ying a SS eae tae actually used in need be, shown than =f yt, L-- was Intervenors’ objections are, hereby, overruled. Depreciation Reserve: Section 4909.05(H) Revised Code requires that the Commission determine the proper and adequate reserve for depreciation to be deducted from the original cost of applicant’s used and useful property. The staff, in the course of its investigation, tested applicant's booked ratemaking purposes (S.R., pp. 23-24). The staff did take exception, however, to a retroactive adjustment to the the performed by applicant in order to reflect j-%4 Opinion and Order, PUCO Case No. 79-537-EL-AIR mission in Determination of Depreciation Charges, Case No. 77-1368-EL-UNC (December 12, 1979). The Com- Construction Work In Progress: J-25 Opinion and Order, PUCO Case No. 79-537-EL-AIR allowance was subsequently reduced to $95,501,269 in light of applicant's acceptance of a staff adjustment which reclassified 48 of the job orders based on a finding that the construction in question was complete and the property in service at date certain (App. Ex. 3A, p. 28; App. Rev. Sched. B-1). The staff recommends a jurisdictional al- lowance of $91,521,464 (S.R.., pp. 24-25; S.R., Sched. 10). the staff's recommendation as reasonable (O.C.C. Ex. 1, pp. 7-8); but the City of Cleveland and Senior Citizens, et al., contend that there should be no construction work in progress allowance authorized in these cases. The claims of the intervenors opposing any allowance (See Ohio Edison Company, Case No. 78-1567-EL-AIR [January 30, 1980] and cases summarized therein). Senior Citizens’ contention that the statute creating the allow- ance is unconstitutional has been definitively laid to rest (Consumers’ Counsel v. Public Utilities Commission, 58 Ohio St. 2d 108 [1979]), and its charge that the Com- : Fl i : re i pr. Intervenors’ —_ —_ Cleveland and Senior Citizens, et al., urge the Commission J-26 Opinion and Order, PUCO Case No. 79-537-EL-AIR to ignore this substantial capital investment in establishing rates in this case. Given our perception of the purpose of the statutory provision allowing consideration of construc- tion work in progress as explained in Columbus and South- ern Ohio Electric Company, Case No. 77-545-EL-AIR (March 31, 1979), and recently reiterated in Ohio Edison, supra, we would think that there would be less room for argument concerning the propriety of including Mansfield Unit No. 3 than any other of the items for which applicant has requested recognition. In light of the Commission’s rejection of intervenors’ excess capacity theory and con- sistent with our prior holdings with respect to proposed “overwhelming need” standards, the Commission over- rules these objections (Dayton Power and Light Com- pany, Case No. 76-823-EL-AIR [July 22, 1977]; Cleve- land Electric Mluminating Company, Case No. 78-677- EL-AIR [May 2, 1979]). As indicated above, the difference in the applicant and staff construction work in progress recommendations is relatively minor, and part of the remaining disparity is attributable to the difference in the allocation methods for each of these items is set out in the testimony of ap- plicant’s witness Kemper (App. Ex. 3A, pp. 10-28). Given the obvious constraints which preclude the Commission from proceeding with an individual analysis of each one of these job orders within the confines of this written opinion, we believe it reasonable to resolve the matter through a more general discussion. In light of the fact nnn De eonay Senne Oe Sa J-27 Opinion and Order, PUCO Case No. 79-537-EL-AIR statute. However, the staff has inspected each of these items and has offered additional reasons why they should not be considered (Staff Ex. 1, pp. 3-18). Nothing in this record would persuade us that the allowance recom- mended by the staff is unreasonable. Applicant begins its criticism of the staff's findings by suggesting that the Commission should, as a matter of policy, recognize in the allowance any expenditures re- lating to efforts to improve power plant productivity or required by various governmental agencies for environ- mental or safety reasons (App. Ex. 3A, p. 9). The un- fortunate negative implication of this recommendation is that if the Commission fails to adopt these criteria it is unconcerned about applicant's productivity, the environ- ment, or the public safety. We trust that all concerned will recognize this smoke screen for what it is and will realize that the real issue here is whether or not the ex- penditures represent qualifying construction projects un- der the statute and our past decisions. Review of the testimony of staff witness Weiss indi- cates that the reasons underlying the staff's exclusion of the projects now in issue fall in four basic categories (Staff Ex. 1, pp. 3-18). Some were excluded because the staff found them to be less than 75 percent complete. Several were eliminated upon a finding that they represented a purchase rather than a construction project. Others were excluded because they were of a replacement nature. Finally, there were exclusions based on the conclusion that the expenditures involved were more properly as- sociated with maintenance rather than construction. In several instances, the exclusion was tied to more than one of these reasons. Each one of the identified criteria has been recognized by the Commission in past cases as repre- senting an appropriate standard by which to test the eligibility of specific expenditures for inclusion in the con- struction work in progress allowance (S.R., p. 25). More- over, the Commission has also pointed out that there is J-28 Opinion and Order, PUCO Case No. 79-537-EL-AIR judgment involved in applying every one of these tests. Despite the complaints from those who would have the Commission establish rigid rules to be strictly applied in every case, we continue to believe that judgment must play an important role in determining what evidence is properly considered in authorizing an allowance for con- struction work in progress in a given case. For purposes of illustration, consider the Commis- sion’s determination that items which constitute purchases are not construction projects within the meaning of the statute. The logical foundation of this standard is so clear that an explanation is almost superfluous. An item ac- quired by a utility through a single-payment transaction is either in service at date certain and, therefore, in rate base, or it is not, and no return may be earned on it. A purchase is not construction, nor is it a project. Appli- cant’s job order no. 50030, a caterpillar tractor-scraper acquired for use at one of the company’s power plants, is a clear-cut example of a purchase (App. Ex. 3A, p. 23). It was properly excluded by the staff (Staff Ex. 1, p. 14). But compare this situation to job order no. 50228, a crawler tractor purchased and delivered prior to date certain but which required additional company labor before it was ready for use (App. Ex. 3A, p. 22; App. Ex. 3B). Does this change its essential nature from a purchase to a con- struction project? The Commission would agree with the staff conclusion that it clearly did .ot (Staff Ex. 1, p. 13), but there is now an element of judyment involved. This same element of judgment is also present to some degree in each of the other tests the staff employed. The staff's finding that several of the job orders proposed for inclusion by applicant were not 75 percent complete followed from the staff's opinion that these items, because of their scope and purpose, should be examined individu- ally and not considered as a part of a larger project as the company had suggested (Staff Ex. 1, p. 7). The exclusion J-29 Opinion and Order, PUCO Case No. 79-537-EL-AIR of items on the ground that they represent replacement projects or maintenance work also requires that a view be taken as to the basic characteristic of the expenditure (See Toledo Edison Company, Case No. 79-143-EL-AIR [February 29, 1980]). In each instance, the Commission believes the treatment recommended by the staff to be consistent with the intent of the statute and, therefore, finds that the construction work in progress allowance proposed by the staff should be adopted for purposes of these proceedings. Those items excluded are not properly as major new construction when the amount of the obligated capital involved is considered in connection with time period for which it has been committed and the purpose to which it has been put. Applicant's objec- tion is overruled. Working Capital: The applicant, the staff, and Consumers’ Counsel each proposed an allowance for working capital to be included in the rate base valuation in accordance with the provisions of Section 4909.15(A)(1) Revised Code. All three estimates were derived through the use of the formula approach, but there are significant differences between the results of the respective calculations. Appli- cant requests an allowance of $128,393,775 (App. Rev. Sched. B-1), while the staff's 1ecommended allowance is $62,865,000 (Staff Ex. 7, Rev. Sched. 7). Consumers’ Counsel's calculation resulted in a proposed allowance of $56,935,000 (O.C.C. Ex. 1, Rev. Sched. JTC-2). Issues exist with respect to each element of the formula which we will address, in turn, below. The difference in the cash component of the formula as presented by the parties is, in part, the product of the sponsors’ respective positions on various expense issues and, in some measure, created by the difference in alloca- tion methods. The most significant difference, however, J-30 Opinion and Order, PUCO Case No. 79-537-EL-AIR arises from the fact that the applicant failed to exclude fuel expense from operation and maintenance expenses in computing its proposed cash allowance. Staff witness Hanna and Consumers’ Counsel witness Chapski both believe this deduction to be appropriate (Staff Ex. 7, p. 12; O.C.C. Ex. 1, pp. 12-13). Much of the debate on this point has centered on applicant's complaint that fuel ex- pense was not deducted under the original formula as propounded by the FPC (now FERC) (App. Brief, p. 12). Be that as it may, it is clear that this Commission has consistently excluded fuel expense under its version of the formula for some years, and, in most instances, without objection from the utility involved (See, e.g., Ohio Edison Company, Case No. 78-1567-EL-AIR [Jan- uary 30, 1980]). The Commission has cited as one of the virtues of the formula method for determining a working capital allowance that it assurcs evenhanded treatment among rate applicants (United Telephone Company of Ohio, Case No. 72-995-Y [September 9, 1974]). It has never suggested that the formula does more than approxi- mate the result of a full-blown lead-lag study. If appli- cant wishes to depart from this formula on the grounds that it does not properly recognize one item or another, we suggest that it support this claim with a properly con- ceived lead-lag study which examines all the timing dif- ferences involved between when expenses are incurred and payments are received. Applicant’s objection is over- ruled The applicant and the staff utilized the date certain balance for purposes of determining the materials and supplies component of the working capital formula. Con- sumers’ Counsel witness Chapski used the average of thir- teen monthly balances in arriving at his recommendation with respect to this component, a technique approved by the Commission on numerous past occasions, including this company’s last rate case, on the grounds that it may J-31 Opinion and Order, PUCO Case No. 79-537-EL-AIR produce a more representative allowance. The staff has indicated that one of the reasons it utilized the date cer- tain balance in this case was that actual test-year data was not available at the time of its audit (Tr. XXI, pp. 174-175). This data is now available to the Commission through Senior Citizen’s Ex. 10, and the Commission concludes that the thirteen monthly balance method may properly be adopted utilizing the information contained therein. Jurisdictional materials and supplies calculated on this basis total $19,034,217. This amount must then be ad- justed to [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_1047%3A2. Public record. Not legal advice.