Motion to Dismiss or Affirm — Cleveland Electric Illuminating Co. v. Public Utilities Commission

Office - Supreme Court, U.S.

FILED

NOV 2380.

Case No. 82-704

— = - STEVAS.

IN THE SUPREME COURT OF THE UNI

October Term, 1982

THE CLEVELAND ELECTRIC ILLUMINATING

COMPANY,

8 *

Appellant,

vs.

THE PUBLIC UTILITIES COMMISSION OF OHIO,

and

OFFICE OF CONSUMERS’ COUNSEL,

Appellees.

ON APPEAL FROM THE SUPREME COURT OF OHIO

MOTION OF APPELLEZ,

OFFICE OF THE CONSUMERS’ COUNSEL,

TO DISMISS APPEAL, OR IN THE

ALTERNATIVE, MOTION TO AFFIRM

WILLIAM A. SPRATLEY

CONSUMERS’ COUNSEL

STEVEN M. SHERMAN

Associate Consumers’ Counsel

Counsel of Recora

MARTIN J. MARZ

GRETCHEN J. HUMMEL

Associate Consumers’ Counsel

Office of the Consumers’ Counsel

137 Bast State Street

Columbus, Ohio 43215

(614) 466-9537

ATTORNEYS FOR APPELLEE

TABLE OF CONTENTS

Page

Table of Authorities 11

Statement of the case 1

Motion to Dismiss and in the

Alternative, Motion to Affirm.........+.7

Argument in Support of Motion

to Z

Motion to K

PTT TTT eee eee

ii

TABLE OF AUTHORITIES

Cases

Page

Bluefield Water Works Co. v. Public

ervice Commission, 8. 9

0 % % % % % hh,Hẽ e eee ee. 34

Cleveland Electric Illuminatin

c n The v. Oftice of the

Consumers’ Counsel, et al.,

United States Supreme Court

Case No. 81-1002 (February 25,

1982); 71 L. Ed. 2d 455

61962) 2, 5, 6, 10, 12, 13, 14

Consumers’ Counsel v. Pub. Util. Comnm.,

0 . * N. *

ohh. . o. eeeeeeeeeeeeeeeee eee ee ee. 38

Consumers’ Counsel v. Pub. Util. Comm.,

0 * * . *

(1961). . . I, 2, 5, 10, 13, 14, 16, 17,

18, 19, 20, 22, 24, 25, 26,

27, 28, 29, 30, 33, 35, 36, 37

Durley v. Mayo, 351 U.S. 277 (1956).......29

Federal Power Commission v. Ho

Natural Gas Co., 320 U.S. 881

6 6 000% %% 00, 32, 33, 35, 36, 38

Garner a Louisiana, 368 U.S. 157

eee eee eee

Grubb v. Pub. Util. Comm., 281 U.S.

„ 0 % %% % %% % % % 06 06 %% 0 40, 21

iii

Heiser v. Woodruff, 327 U.S. 726

Neceeeeee eee eee eee eee eee ee een

Henr Mississippi, 379 U.S. 443

eee eee eee eee eee eee eee ee eee

Hicks v. Miranda, 422 U. v. 332

eee eee eee eee eee eee ee eee eee eee

Kulko v. Superior Court of California,

>. >. Deeceeeeeeeee eee ree.

eles Gas & Electric Corp. v.

. Commission, 8.

rere

Bradley, 432 U.S. 173

eee eee ee eee eee eee ee eee

Los An

Mandel v.

Mercado v. 121571 et 502 F.2d 666

ert. den. 420

U.S. 925 133... 0

Sea-Land Service v. Gaudet, 414 U.S.

SS PYVTTTTTTTTTT eee eee eee eee eee

Washington Gas Light Co.

Cert. “den. 340 U.S. 952 (1951)....36, 37

Zacchini v. Scripps Howard Broadcasting

Co., 8. eee eee een

Statutes

* Baker,

28 U.S.C. SIZST (Adc . . . „0% % eee 9

U.S. Sup. ct. Rule 15, 28 U. S. c Aa.. 14

Ohio Rev. Code 54909.1564J( II .⁊ 35

iv

Ohio Rev. Code $4909 .15(A}(4)......2. 7. 22.

26, 27, 29. . 33. 3

Ohio Rev. Code §$4905.22....... 18, 26. 77. 32

STATEMENT OF THE CASE

Appellee, the Office of the Consumers’

Counsel, will confine its statement of the

case to those points with which it dis-

agrees with the Appellant's Statement of

the Case in Appellant's statement in sup-

port of its jurisdiction. The procedural

aspects of this case with respect to the

course of proceedings below, as set forth

in Appellant's Jurisdictional Statement,

are correct except as noted hereafter.

As Exhibit I attached to Appellant's

Jurisdictional Statement reveals, the pro-

cedural history of the issue on which the

instant appeal is based is complicated. It

bears emphasizing that the proceeding here-

in appealed from is nothing more than the

mechanical manifestation of the Public

Utilities Commission of Ohio's compliance

with the Mandate issued to it by the Ohio

Supreme Court in Consumers' Counsel v. Pub,

2

Util, Comm., 67 Ohio St.2d 153, 423 N.E.2d

820 (1981), already reviewed by this Court

in The Cleveland Electric Illuminating Com-

pany _v. Office of Consumers' Counsel, et

al., United States Supreme Court Case No,

81-1002 (February 25, 1982); 71 L.Ed.2d 455

(1982).

Appellant raises no new issues in this

appeal, but rather seeks merely to reliti-

gate the decision of the Ohio Supreme Court

in Consumers' Counsel v. pub, Util. Comm,.,

Supra. The question faced by the Ohio

Court was simply whether costs associated

with terminated nuclear units were a proper

cost of service upon which a utility's

rates could be based. At question was Ohio

Rev. Code §4909.15(A)(4), which statute go-

verns ratemaking in Ohio. The crux of the

controversy in this case is best stated in

the words of the Ohio Supreme Court:

The controversy surrounding the can-

celled nuclear power plants focuses

3

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 part:

"The public utilities commission,

when fixing and determining just and

reasonable rates, fares, tolls, rent-

als, and charges shall determine:

eae

"(4) The cost to the utility of ren-

dering the public utility service for

the test period***,*

The commission urges that "an expen-

diture 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 ex-

pense was reasonably calculated to pro-

vide [future] utility service at a rea-

sonable cost." The underpinnings for

the commission rationale may be found

in those statutory provisions that re-

quire utilities to maintain adequate

service presently and for the foresee-

able future. See, e.g, N. . 4905.22

(adequate service an acilities).

Notwithstanding the provisions that

impose a duty on utility companies to

plan for the future, the question under

R. C. 4909.15(A)(4) remains whether the

cancelled plant expenditures represent

"[t]he cost to the utility of rendering

the public utility service for the test

period," Test period considerations

aside, what the company sought and what

the commission granted was the amorti-

4

zation as se:vice-related costs of an

investment that never provided any ser-

vice whatsoever to the utility's custo-

mers,

We seriously question whether the

General Assembly contemplated that the

commission would treat the type of ex-

penditures controverted herein as costs

under R. C. 4909.15(A)(4). The now ter-

minated nuclear plants represented a

major capital investment that ultimate-

ly 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 de-

Signed to take into account the normal,

recurring expenses incurred by utili-

ties in the course of rendering service

to the public for the test period,

A nonexhaustive list of such expenses

would include reasonable expenditures

for repairs, maintenance, personnel-re-

lated costs, administrative expenses,

and taxes.

The extraordinary loss sustained by

CEI in connection with the terminated

nuclear plants cannot be transformed

into an ordinary operating expense pur-

suant to R.C. 4909.15(A)(4) by commis-

Sion fiat. The commission's statement

that "[c]Jancellation does not create a

past loss, but gives rise to a current

cost“ is unpersuasive. Under this ra-

tionale we question whether there could

ever be a “past loss" the return of

which would not be recoverable in fu-

ture ratemaking proceedings notwith-

standing the commission's assertion to

the contrary. The commission's charac-

terization of the investment in the

5

four terminated plants as cost“ under

R. C. 4909.15(A)(4) in light of what we

perceive to be the legislative inten-

tion underlying that section is unrea-

sonable. 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.

Consumers’ Counsel v. Pub. Util. Comm.,

0 . * 423 N. F. 2d 820

(1981).

This excerpt from the court's opinion

clearly demonstrates the limited scope of

the issue on appeal. As noted by Appel-

lant, this Court dismissed the appeal from

the Ohio Supreme Court decision above in

Case No. 81-1002 (February 25, 1982).

Appellant correctly claims that Appel-

lee argued to this Court in Case No. 86l-

1002 that a constitutional question was not

timely raised nor ruled upon by the Ohio

Supreme Court. However, Appellant is mis-

taken in its insinuation that, only after

this Court dismissed its appeal in Case No.

81-1002, did Appellee then intervene in Ap-

pellant's subsequent appeal to the Ohio Su-

6

preme Court from Public Utilities Commis-

sion of Ohio Case No. 81-1096-EL-COI (COI

Order) and argue that the Ohio Court had,

indeed, decided the constitutional ques-

tion. The accurate facts are that Appellee

did intervene in Appellant's appeal from

the COI Order in a timely fashion pursuant

to Ohio Supreme Court rules. Appellee ar-

gued, not that the Ohio Court had decided

the constitutional question, but rather

that Appellant's attempt to litigate an al-

ready litigated issue with identical facts

on new grounds was barred by the doctrine

of res judicata, as discussed below.

Additionally, Appellant continues to

assert its timeliness in raising a consti-

tutional question in spite of this Court's

dismissal of Case No. 81-1002 for want of a

properly presented federal question. The

Cleveland Electric Illuminating Company v.

Office of the Consumers’ Counsel, et al.

7

Supra (February 25, 1982). The plain fact

is that there is no constitutional question

here; the Ohio Supreme Court has clearly

limited its decision to a determination as

to what costs appropriately fall within the

meaning of Ohio Rev. Code §4909.15(A)(4).

There is nothing inherently unconstitution-

a1 in excluding from the cost of service

the costs of cancelled generating plants

which will never provide service.

Thus, this court, faced now with the

same appeal faced by it less than a year

ago should, once again, dismiss it on the

bases set forth below,

MOTION TO DISMISS AND IN THE ALTERNATIVE,

MOTION TO AFFIRM

Pursuant to Supreme Court Rule 16.1(b),

and 16.1(d) Appellee, Office of the Consum-

ers' Counsel, hereby moves that this Court

dismiss the Appeal of the Cleveland Elec-

tric Illuminating Company as improperly ta-

8

ken from the Supreme Court of Ohio under 28

U.S.C. §1257(2). In the alternative, the

Office of the Consumers’ Counsel moves that

this Court affirm the decision of the Su-

preme Court of Ohio rendered in the case

below.

ARGUMENT IN SUPPORT OF

MOTION TO DISMISS

The Appellant has invoked the jurisdic-

tion of this Court under 28 U.S.C. §1257

(2), which states in pertinent part:

Final judgments or decrees rendered by

the highest court of a state in which a

decision could be had, may be reviewed

by the Supreme Court as follows:

2 „ * 2

(2) By appeal, where is drawn in ques-

tion the validity of a statute of any

state on the ground of its being repug-

nant to the Constitution treaties or

laws of the United States, and the de-

cision is in favor of its validity.

0 * 2 0

The express language of 28 U.S.C.

§1257(2) requires that the highest court of

9

a state render a decision favoring the va-

lidity of a state statute before review of

the state court decision may be sought in

the Supreme Court of the United States.

The necessary predicate of an appeal under

28 U.S.C. §1257(2) is, therefore, that the

validity of the state statute in question

must first be challenged in the _ state

court. Where the highest court of a state

is not called upon to review a statute

claimed to be in conflict with the United

States Constitution, or where that state

court renders a decision which does not ad-

dress the validity of the statute, an ap-

peal under 28 U.S.C.A. §1257(2) will not

lie. Kulko v. Superior Court of Califor-

nia, 436 U.S. 84 (1978).

In the present case the Appellant is

again trying to present arguments already

considered by this Court regarding its

claim that it properly raised the issue of

10

the constitutional validity of Ohio Revised

Code §§4905.22 and 4909.15(A)(4).

This court on February 25, 1982 dis-

missed Appellant's appeal from Consumers‘

Counsel v. Pub. Util. Comm., 67 Ohio St.2d

153, 423 N.E.2d 820 (1981), “for want of a

properly presented federal question". The

Cleveland Electric Illuminating Company v.

Office of Consumers' Counsel, et al., Unit-

ed States Supreme Court Case No. %1-1002

(February 25, 1982), 71 L. Ed.2d 455

(1982). CEI now wishes to try to invore

this Court's jurisdiction through this back

door request seeking review of the same is-

sue presented in Consumers’ Counsel, supra.

The appeal in the instant case is

brought from the Ohio Public Utilities Com-

mission's response (PUCO Case No. 81-1096-

EL-COI, decided October 21, 1981) to the

Ohio Supreme Court's remand in Consumers’

Counsel v. Pub. Util. Comm., 67 Ohio St.2d

11

153, 423 N. E. 2d 820 (1981). This appeal is

simply a relitigation of the same questions

contained in Appellant's previous juris-

dictional statement, which the Court ad-

dressed by summary dismissal.

Appellant presents herein the same

questions presented to this Court in its

prior statement of jurisdiction. The ques-

tions set forth in the Jurisdictional

Statement in the former appeal are as fol-

lows:

QUESTIONS PRESENTED

1. May the State of Ohio, by statute,

constitutionally require a public util-

ity to invest its capital to provide

adequate service for the convenience of

the public in the future and simultane-

ously prohibit, by statute, the utility

from recovering through rates such cap-

ital when prudently invested?

2. May the State of Ohio, by statute,

constitutionally prohibit a public

utility from recovering through rates

its capital, prudently invested for the

convenience of the public where the un-

disputed facts show that the utility,

and its investors, have never been con-

pensated through the authorized or

12

achieved rate of return for the risk of

exclusion of such costs from rates?

The Cleveland Electric Utility Compan

v. Office of Consumers’ Counsel, e

al., United States Supreme Court Case

No. 81-1002 (February 25, 1982); 71 L.

Ed. 2d 455 (1982).

* e 4 5

In the case sub judice, Appellant pre-

sents the following questiors in its Juris-

dictional Statement:

QUESTIONS PRESENTED

1. May the State of Ohio, by statute

constitutionally require a public util-

ity to invest its capital for the con-

venience of the public to provide ade-

quate service in the future and simul-

taneously prohibit, by statute, that

utility from recovering through rates

such capital when prudently invested?

2. May the State of Ohio, by statute

constitutionally prohibit a public

utility from recovering through rates

its capital, prudently invested for the

convenience of the public, where the

undisputed facts show that the utility,

and its investors, have never been com-

pensated through the authorized rate of

return for the risk of exclusion of

such costs from rates?

Electric IIIuninat in

The Cleveland

13

mission of Ohio, et al., United States

Supreme Court Case No. 82-704.

Clearly Appellant currently seeks re-

view of the same questions already consid-

ered by this Court in Case No. 81-1002.

It bears repeating that this appeal is

brought from a proceeding which, although

captioned independently, cannot be separat-

ed from the Ohio Court's decision in gen-

sumers' Counsel, supra. The COI Order was

merely a continuation of the earlier pro-

ceedings requiring compliance with the Ohio

Court's Mandate. Practically speaking, Ap-

pellant requests that this court, having

already denied review of the Ohio Court's

decision, less than a year ago, step into

the proceeding at a different, later time

to gain results already denied to Appel-

lant. It follows that, if Appellant failed

to raise properly any federal question in

Consumers’ Counsel, supra, it cannot cure

that failure by an attempt to raise a fed-

14

eral question when the Public Utilities

Commission of Ohio merely complies with the

Mandate of the Ohio Supreme Court in Con-

Sumers' Counsel.

Rule 15.l(a) of the Rules of the Su-

preme Court of the United States (U.S. Sup.

Ct. Rule 15, 286 U.S. c. A.] requires that «a

jurisdictional statement contain the ques-

tions to be presented by the appeal. Hany

decisions have labelled a Jurisdictional

Statement as the indicator of what issues

the Supreme Court has decided in a summary

disposition. Mercado v. Rockefeller, 502

r. 2d 666 (2d Cir. 1974); Cert. den. 420

U.S. 925 (1975). The Office of Consumers"

Counsel submits that this Court has already

disposed of the questions submitted in this

appeal by its dismissal in Case No. 81-1002.

Purthermore, this Court has ruled on

numerous occasions that summary affirmances

and dismissals without doubt reject the

15

specific challenges presented in the State-

ment of Jurisdiction. Mandel v. Bradley,

432 U.S. 173 (1977). This Court, in its

Per Curiam opinion of the constitutionality

of Maryland's Election Code, emphasized

that summary actions should not be under-

stood as breaking new ground, but as apply-

ing principles established by prior deci-

sions to the particular facts involved,

This Court further indicated that summary

affirmances and dismissals prevent lower

courts from coming to opposite conclusions

on the precise issues presented and neces-

sarily decided by the issues in the cases

summarily dismissed. Mandel v. Bradley,

supra.

Since the questions presented are iden-

tical in the two CEI appeals, it should

follow, pursuant to Mandel, supra, that the

prior decision is dispositive of the issues

presented in this appeal.

16

Moreover, it is equally clear that a

summary disposition either by affirmance or

by dismissal is a disposition on the merits

and should not need to be reconsidered by

the Court. Hicks », Miranda, 422 U.S. 332

(1975). Appellant has had its day in

Court, and has been unsuccessful. Appel-

lant, having failed to obtain this Court's

review of a claimed federal question in its

appeal from Consumers’ Counsel, cannot re-

vive its already unsuccessful arguments in

an appeal from an order which simply car-

ried out the Ohio Court's Mandate. The

summary dismissal of the issues presented

in Case No. 81-1002 is, therefore, disposi-

tive of the issues presented herein.

It is also clear that relitigation of

the identical facts on grounds either pre-

viously presented or grounds Appellant

failed to present in a proper and timely

17

fashion is barred by the doctrine of res

judicata,

The doctrine of res judicata operates

to bar repetitious suits involving the same

cause of action. The doctrine is based up-

on considerations of economy of judicial

time and public policy favoring the estab-

lishment of certainty in legal relations.

Sea-Land Service v. Gaudet, 414 U.S. 573,

578-579 (1974). This Court has also previ-

ously noted that res judicata is founded

upon “the generally recognized public poli-

cy that there must be some end to litiga-

tion and that when one appears in Court to

present his case, is fully heard, and the

constituted issue is decided against him,

he may not later renew the litigation in

another Court.“ Heiser v. Woodruff, 327

U.S. 726, 733 (1946).

The Ohio Supreme court in Consumers’

Counsel v. Pub. Util. Comm., 67 Ohio St.2d

18

153, 423 N.E.2d 820 (1981) disallowed re-

covery, as an allowable operating expense,

of the costs associated with the cancelled

plants. This Appellant in Case No. 81-1002

sought review by this Court of the decision

of the Ohio Supreme Court in Consumers’

Counsel, supra. The Court dismissed Appel-

lant's appeal in Case No. 81-1002 for fail-

ure to properly present a federal question.

In accordance with the Opinion of the

Ohio Supreme Court in Consumers' Counsel,

Supra, the Public Utilities Commission of

Ohio reduced Appellant's rates, removing

therefrom the expenditures associated with

the terminated nuclear units, Appellant

prosecuted an appeal to the Ohio Supreme

Court from the decision of the Public Util-

ities Commission of Ohio implementing the

mandate of the Ohio Supreme Court in Con-

sumers' Counsel, supra, arguing that the

Court's original determination in Consum-

19

ers“ Counsel was incorrect. Following the

filing of a motion to dismiss by the Office

of the Consumers’ Counsel responding to

said appeal, the Ohio Supreme Court dis-

missed Appellant's appeal.

Appellant in the instant proceeding was

an intervening Appellee in Consumers' Coun-

sel and did present numerous arguments in

favor of the validity of the Public Utili-

ties Commission's decision in Case No. 79-

537-EL-AIR before the Ohio Supreme Court,

Subsequently, Appellant sought to present

perceived constitutional issues to this

Court for the first time in Case No. 86l-

1002, never before presented to the Public

Utilities Commission and presented to the

Ohio Court only after its decision in Con-

sumers' Counsel.

It is apparent that Appellant had the

opportunity to present its constitutional

arguments, as an intervening Appellee, both

20

to the Public Utilities Commission of Ohio

and the Ohio Court, in Consumers’ Counsel,

supra. Appellant is now, through this sec-

ond proceeding, seeking to present an argu-

ment which was not made in a timely manner

in Consumers' Counsel, supra.

This court was faced with a similar

situation in Grubb v. Pub. Util. Comm., 281

U.S. 470 (1930). In Grubb this Court

stated:

In his bill the appellant assails the

order upon one roun

no roug! 0 e attention 0 the

state court - a ground arising out of

the granting to another interstate mo-

tor line of a certificate to operate

busses over a route including the loop

at Portsmouth; and he insists that this

e state cour an

; to examination and

ct court, e

22312 operation 2 res judicata than

is thus suggested. The cer cate re-

ferred to was granted several months

before the appellant applied for a cer-

tificate and he had personal knowledge

of it from the time it was granted. It

was shown upon the records of the com-

mission and was easily accessible when

the hearing was had upon his applica-

21

tion. Thus it is a matter which, if

having the bearing now suggested, could

have been brought to the attention of

the commission either at that hearing

or in his request for a rehearing (543,

General Statutes); and, if it was not

then given proper effect, he could have

brought it to the attention of the

state court and have made the same

Claim in respect of it that is now made

in his bill.

The thing presented for adjudication

in the case in the state court was the

Validity of the order, and it was in-

cumbent of the appellant to present in

Support of his asserted right of attack

y

prosecute that right by piecemeal, as

by presenting a part only of the avail-

able grounds and reserving others for

another suit, if failing in that.

udgment upon e merits in one gu 8

res judicata in another where the par-

es and subject-matter are e same,

not only as respects matters actually

presented to sustain or defeat the

right asserted, but also as respects

any other available matter which might

have been presented to that end.

Grubb, supra, at 478-479.

(Emphasis added).

Appellant seeks to address the same is-

sue on a ground available to it, but not

22

put forward for the Court's opinion, in

Consumers' Counsel, supra. The issue is

the same; the parties are the same; and the

facts are the same. Having failed to per-

suade the Ohio Supreme Court through its

arguments in Consumers’ Counsel, supra, and

this Court in Case No. 81-1002, the Appel-

lant now wishes the same parties to reliti-

gate the same issue based upon the same

facts.

The appropriate question is how many

times must we reargue the question. This

Appellee most strenuously objects to a

piecemeal approach to litigation. Appel-

lant had a prior opportunity tc present its

arguments on the identical facts presented

in the proceeding sub judice, and apparent-

ly chose not to do. so. The doctrine of

res judicata compels dismissal.

Wherefore Appellee requests tunis Honor-

able Court dismiss the instant appeal.

23

MOTION TO AFFIRM

Appellant has presented this Court with

two grounds pursuant to which it claims

plenary consideration should be given. The

first related to Appellant's argument that

the Ohio Supreme Court erred in its inter-

pretation of an Ohio statute. The second

argument asserts that the Ohio Supreme

Court's decision in this case is in con-

flict with the decision of this Court in

Federal Power Commission v. Hope Natural

Gas Co., 320 U.S. 591 (1944). Both argu-

ments are without merit, and this Court

should affirm the ruling of the Ohio Su-

preme Court.

In the case sub judice, the Ohio Su-

preme Court dismissed an appeal by Appel-

lant from a decision by the Public Utili-

ties Commission of Ohio in Case No. 8l-

1096-EL-COI. In Case No. 81-1096-EL-COI

the Commission reduced Appellant's rates in

24

accordance with the Ohio Supreme Court's

mandate in Consumers’ Counsel v. Pub. Util.

Comm., 67 Ohio St.2d 153, 423 N.E.2d 820

(1981). What Appellant has sought to do is

to use the instant appeal to make arguments

which it failed to present in Consumers’

Counsel, supra. Bearing in mind these

brief comments, Appellee will now address

Appellant's arguments in support of its ap-

peal.

The underpinnings to Appellant's first

jurisdictional argument rest upon the faul-

ty premise that the expenditures associated

with the cancelled plants provided service

to the company's customers. Such an asser-

tion is contrary to the specific determina-

tion of the Ohio Supreme Court in Consum-

ers Counsel v. Pub. Util. Comm., 67 Ohio

St. 2d 153, 423 N.E.2d 820 (1981), wherein

the court stated °*... what the company

sought and what the commission granted, was

25

the amortization as service related costs

of an investment that never provided any

service whatsoever to the utility's custom-

ers." Id., at 164. The theory advocated

by Appellant, that the expenditures somehow

provided service to the ratepayers, was ex-

plicitly rejected by the Ohio Supreme

Court. It is patently obvious that the ex-

penditures never provided any service to

the ratepayers.

Appellant also seeks to convince this

Court that the expenditures in question

were current operating expenditures. The

Ohio Supreme Court soundly rejected this

ploy, noting as well that the Public Util-

ities Commission of Ohio could not convert

past losses into operating expenses by Con-

mission fiat. Consumers’ Counsel, supra,

at 164.

It is axiomatic that a utility has no

constitutional right to recover for past

26

losses. See, Bluefield Water Works Co. v.

Pub. Serv. Comm. of West Virginia, 262 U.S.

679, 694 (1923). As was stated in Los An-

geles Gas & Electric Corp. v. R. RK. Commis-

sion, 289 U.S. 287, 313 (1933), "°...Defi-

cits in the past do not afford a legal ba-

sis for invalidating rates, otherwise com-

pensatory, anymore than past profit can be

used, to sustain confiscatory rates for the

future." These expenditures were found to

be past losses and not recoverable operat-

ing expenses within the meaning of Ohio

Rev. Code §4909.15(A)(4).

A second problem underlying Appellant's

argument hinges upon its continued reliance

upon Ohio Rev. Code §4905.22. The Court's

decision in Consumers’ Counsel, supra, was

specifically limited to “whether the can-

celled plant expenditures represent (t)he

cost to the utility of rendering the public

utility service for the test year." Id.,

27

at 163. Regardless of the Appellant's as-

sertions to the contrary, it is clear that

the Ohio court strictly limited its deter-

mination as to what costs appropriately

fall within the meaning of Ohio Rev. Code

§4909.15(A)(4). Therefore, even if a fed-

eral question had been reviewed, it could

only concern the state court's narrow hold-

ing in the case below and does not involve

Ohio Rev. Code §4905.22.

The Ohio Court further found that

"R.C.4909.15(A)(4) is designed to take into

account the normal, recurring expenses in-

curred by utilities in the course of ren-

dering service to the public for the test

period." Id. Hence, it is clearly apparent

that the decision below was derivative of

the plain meaning of the statute's lan-

guage. Appellant's investors have no stat-

utory right to recover their investment,

through amortization as service-related

28

costs, when that “investment***never pro-

vided any service whatsoever." Id. In

reaching this holding, the Ohio Supreme

Court was fairly interpreting the law of

the state of Ohio. This Court should af-

firm the Ohio Court's decision as the Unit-

ed States Supreme court has stated that

state “courts have the final authority to

interpret, and where they see fit, to rein-

terpret (their) State's legislation.“ Gar-

ner v. Louisiana, 368 U.S. 157, 169 (1961).

Appellant further undertakes a rather

lengthy discussion regarding the applica-

bility of a particular portion of the Uni-

form System of Accounts. It appears that

Appellant is seeking to convince this court

that, contrary to the finding in Consumers’

Counsel, supra, the cost associated with

the cancelled facilities are test year op-

erating expenses. It hardly bears stating

that Ohio law as interpreted by the Ohio

29

Court, and not the Uniform System of Ac-

counts, governs the determination of proper

test year operating expenses.

It is clear that determination of costs

within the meaning of Ohio Rev. Code

§4909.15(A)(4) does not present a federal

question. The Ohio Supreme Court limited

its decision in Consumers' Counsel, pra,

to a narrow interpretation of Ohio Rev.

Code §4909.15(A) which defines allowable

operating expenses. The dismissal appealed

from did not alter the decision in Consunm-

ers! Counsel, supra, rather it affirmed the

narrow holding. As this Court stated in

Durley v. Mayo, 351 U.S. 277, 281 (1956):

It is a well-established principle of

this Court that before (the Court) will

review a decision of a state court it

must affirmatively appear from the re

cord that the 177 question was Pre-

Sented to the highest court of the

state having jurisdiction and that its

decision of the federal question was

necessary to its determination of the

Cause.

(Emphasis added).

30

The Ohio Court's dismissal below, affirming

Consumers' Counsel, supra, was strictly

limited to a narrow issue involvine Ohio

Rev. Code §4909.15(A((4). There was no re-

solution of a federal question, nor was one

called for. The decision rests upon an ad-

equate state ground.

Where both federal and state questions

have been decided by the state court, "[it]

is, of course, a familiar principle that

this court will decline to review state

court judgments which rest on independent

and adequate state grounds, even when those

judgments also decide federal questions."

Henry v. Mississippi, 379 U.S. 443, 446

(1965). The rationale for the adequate

state ground rule was recently reiterated

by this Court in Zacchini v. Scripps-Howard

Broadcasting Co.: l[olur only power over

state judgments is to correct them to the

31

extent that they incorrectly adjudge fed-

eral rights." 433 U.S. 562, 566 (1977).

Therefore, due to the nonexistence of a

federal question in this case this Court

should affirm the decision of the Ohio Su-

preme Court. In addition, even if it is

assumed, arguendo, that a federal question

had been presented to the Ohio Supreme

Court, that court rendered a decision only

on a state question, thus leaving this

Court with nothing over which to exercise

its jurisdiction.

Without doubt the ultimate disposition

of the proceeding below hinged upon the ap-

propriate definition of the word cost“ as

found in Ohio Rev. Code §4909.15(A((4).

The interpretation of cost“ neither pre-

sents a federal question, nor gives rise to

one. The disposition of the issue involves

only state law.

32

Appellant's second jurisidictional ar-

gument is based upon Federal Power Commis-

sion v. Hope Natural Gas Company, 320 U.S.

591 (1941). Appellant asserts that the

Ohio Supreme Court's interpretation of Ohio

Rev. Code §§4909.15(A((4) and 4909.22 re-

sults in an unconstitutional deprivation of

property without due process of law. The

underpinning of Appellant's argument is, of

course, Hope Natural Gas Co., supra, where-

in the Court stated:

The ratemaking process under the Act,

i.e., the fixing of “just and reason-

able“ rates, involves a balancing of

the investor and the consumer inter-

ests. Thus we stated in the Natural

Gas Pipeline Co. Case that “regulation

does not insure that the business shall

produce net revenues." 315 US p 590,

86 L ed 1052, 62 S Ct 736. But such

considerations aside, the investor in-

terest has a legitimate concern with

the financial integrity of the company

whose rates are being regulated. From

the investor or company point of view

it is important that there be enough

revenue not only for operating expenses

but also for the capital costs of the

business... That return, moreoever,

should be sufficient to assure confi-

dence in the financial integrity of the

33

enterprise, so as to maintain its cred-

it and to attract capital

Hope Natural Gas Co.,

Supra at 603.

Appellant did express in its 1979 Annual

Report an opinion regarding the impact of a

disallowance, as was noted in a concurring

opinion in Consumers' Counsel, supra:

CEI informed its investors in its

"1979 Annual Report": *°***The Company

(CEI) will seek the approval of the

Federal Energy Commission and the Pub-

lic Utilities Commission of Ohio for

authority to amortize (the costs pre-

viously expended toward the four nu-

clear units whose construction CAPCO

terminated) over a suitable number of

years. The extent to which these costs

may be recovered through rates will be

determined by the poco. If any costs

of termination are not permitted to be

recovered, the Company would be re-

guired to reduce net income by the dis-

allowed amount. In any event, the re-

solution of these matters should not

have a material adverse impact on the

financial position of the Company.

Id., at 171.

(Emphasis added).

The Appellant recognized that a disal-

lowance would not adversely impact its fi-

nancial integrity. Further, it was noted

34

that recovery of the costs would be deter-

mined by the Public Utilities of Ohio, and

ultimately, as investors are well aware, by

the Ohio Supreme Court.

Appellant's investors, it must be pre-

sumed, were cognizant of and took into ac-

count the statement by Appellant that dis-

allowance of the construction expenses

should have no material adverse impact on

the financial position of the company. For

this reason, it cannot be suggested that

the investors in CEI were unaware of the

risk. As this Court noted in Bluefield

Water Works Co. v. Pub. Serv. Comm. of West

Virginia, 262 U.S. 683, 694 (1923), In-

vestors take into account the result of

past operations, especially in recent

years, when determining the terms upon

which they will invest in such an under-

tak ing.

35

By Appellant's own admission, the fi-

nancial integrity of the company suffered

no adverse financial impact. Further, the

investors were aware of the potential for

disallowance.

Appellant suggests that Hope Natural

Sas Co., supra, at 606 requires; 1) that

the utility be made whole for its net in-

vestment and 2) that the integrity of the

investment be maintained. As to the second

item it is clear from the discussion infra

that Appellant's financial integrity was in

no way damaged.

As to the first item, Ohio law certain-

ly allows for the recovery of an investment

when it is used and useful. The Ohio Court

in Consumers’ Counsel, supra, indicated

that the “now terminated nuclear plants re-

presented a major capital investment that

ultimately would have been included in the

rate base under R.C. 4909.15(A)(1), had the

36

projects not been cancelled." Id., at 164.

Before capital recovery is permissible, in

Ohio, a utility project must be found to be

operational. "The initial risk of failure

is appropriately born by the investors, who

have undertaken the project and who will

ultimately profit for its success. It is

only proper that their venture be found op-

erational before they commence to recoup

their capital outlays from the consumers."

Consumers’ Counsel v. Pub. Util. Comm, 58

Ohio St.2d 449, 391 N. E. 2d 311 (1979).

Such treatment results in a balancing of

both the investors’ interest and the rate-

payers’ interest as Hope Natural Gas Co.,

supra, requires: Id., at 603.

Appellant finally suggests that Wash-

ington Gas Light Co. v. Baker, 188 F.2d 11

(1951) is "closely analagous“ to the situa-

tion presented in the case sub judice.

37

Such is most certainly not the case. Wash-

ington Gas Light dealt with a situation

wherein a plant used in the manufacture of

gas was abandoned prior to full recovery

through depreciation due to a switch to

natural gas. Prior to abandonment’ the

plant in question was used in providing

service. This is perhaps the most impor-

tant distinction noted by the court in dis-

cussing this particular aspect;

If a unit of property resulting from

prudent investment becomes obsolete be-

fore it has been recovered in full by

the investor (either through annual de-

preciation charges or through returns

sufficient to compensate for such in-

adequacy), it is not necessarily erro-

neous as a matter of law for the Con-

mission to include it in the rate base

until such recovery has occurred...

But inclusion in the rate base must

meet the test of justness and reason-

ableness to the consumers as well as to

the investor.

Id., at 19

In the present case the expenditures

for which Appellant seeks recovery never

provided any service whatsoever. Consumers’

38

Counsel, supra, at 164. Appellant seeks to

have the investors insulated from all risk

associated with plant construction. The

rate making formula in Ohio does not permit

such insulation. See, Consumers’ Counsel v.

Pub. Util. Comm., 58 Ohio St. 2d 449, 391

N. E. 2d 311 (1979). Nor does Hope Natural

Gas Co. require such a result. There has

been no confiscation of property in viola-

tion of the Fifth and Fourteenth Amendments

to the United States Constitution.

Therefore, Appellee, the Office of the

Consumers’ Counsel, submits that this Court

should affirm the decision of the Ohio

Supreme Court.

CONCLUSION

Appellant in this matter has failed to

timely present for review by the Ohio Su-

preme Court the federal constitutional

questions it would now have this Court re-

view. This court has already found the

39

lack of a properly brought federal question

with respect to the issues presented in

this appeal, and that earlier disposition

is applicable herein. Appellant is barred

from further litigation of the issues by

the doctrine of res judicata. This Court

should, therefore, sustain Appellee's Ho-

tion to Dismiss this appeal. In the alter-

native, Appellee submits that the decision

of the Ohio Supreme Court should be

affirmed based upon Appellee's Motion to

Affirm.

Respectfully submitted,

WILLIAM A. SPRATLEY

CONSUMERS’ COUNSEL

STEVEN M. SHERMAN

Associate Consumers’ Counsel

Counsel of Record

MARTIN J. MARZ

GRETCHEN J. HUMMEL

Associate Consumers’ Counsel

Office of the Consumers’ Counsel

137 East State Street

Columbus, Ohio 43215

(614) 466-9537

Attorneys for Appellee