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

Supreme Court brief1983

Ask Donna

What actually matters in this document.

Text

Case No. 83-43

IN THE SUPREME COURT OF THE UNITER 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 COURT OF OHIO

MOTION OF APPELLEE,

OFFICE OF THE CONSUMERS' COUNSEL

TO DISMISS APPEAL, OR IN THE

ALTERNATIVE, MOTION TO AFFIRM

WILLIAM A. SPRATLEY

CONSUMERS' COUNSEL

MARTIN J. MARZ

Associate Consumers' Counsel

Counsel of Record

GRETCHEN J. HUMMEL

STEVEN M. SHERMAN

Associate Consumers' Counsel

Office of the Consumers' Counsel

137 East State Street

Columbus, Ohio 43215

(614) 466-1312

ATTORNEYS FOR APPELLEE

TABLE OF CONTENTS

Page

Table of Authorities....... cece eevevvees ii

Statement of the CaSe@... cee e eevee vseees 1

Motion to Dismiss and in the

Alternative, Motion to Affirm........ ll

Argument in Support of Motion

Of, REE AE ea er a rr eee 11

Argument in Support of Motion

OR Re era ree a 32

Og EPPS CCE EEE CEE ELECT TTC Te 50

TABLE OF AUTHORITIES

Cases

Page

Bluefield Water Works Co. v. Public

Service Commission, 262 U.S. 679

C1OZS) ac ccccccccccccccccccecs 38, 39, 40

e cI in

Cc a Vv fice of the

Consumers' Counsel, et al.,

United States Supreme Court

Case No. 81-1002 (February 25,

1982): 71 L.Ed.2d 455

C19SZ) on ccccccccsccscvcsce 1, 13, 19, 26

Cleveland Electric Illuminating

Company v. The Public Ut:

United

States Supreme Court Case

No. 82-704 (January 10,

1983); 51 U.S.L.W. 3507

CIOSD) ccccvvccssccesceees 1, 15, 19, 26

ic. Util.

Comm., 4 Ohio St.3d 107,

447 N.E.2d 746 (1983)....5. 8, 21, 31,

34, 110, 49, 50

Comm., 67 Ohio St.2d 153,

423 N.E.2@ 820 (1981)...1, 4, 5. 8. 9,

10, 12, 21, 22, 25, 26, 28,

33, 35, 36, 37, 39, 47, 49

iii

Vv. b.

.. 4 Ohio St.3d 91,

447 N. E.2d 733 (1983)...32, 33, 45,

Ope

Natural Gas Co., 329 U.S. 591

C19G6) cccccccccccce cde 42, 43, 44,

ura

» 315 U.S.

575, 62 S.Ct. 736, 86 L.Ed.

1052 (1942)... eee eevee eveveeeeee dl,

.. 386 U.S.

237 (1967)... ccc ccccvececevessvvves

. 368 U.S. 157

(1961). cece eee erence eer eeneeeeeeesees dO

: .. 281 U.S.

470 (1930)... cece eee e rece rnnene rtd, 24

. 327 U.S. 726

(1946)... ec eeevesvees cece eeeee e+e e+ 20

» 379 U.S. 443

ERPOR Po cccséccecvece eer eevee 27, 28, 37

. 324 U.S. 117

CAPES) ccccccscevceccceos eevee eevee eee 29

« 442 U.S. 332

OS.) Pr eo)

Honeyman v. Hanan, 300 U.S. 14, 57

S.Ct. 350 (1937)..... ee euee coccce ee dO

» 413 U.S. 173

$5 7 3) re ee saan cael anreabiia 17, 18

Mercado v. Rockefeller, 502 F.2d

666 (2d Cir. 1974), cert.

denied, 420 U.S. 925

ee Sea cea icistabet lawclll

NEPCO Municipal Rate Committee v.

FERC, 668 F.2d 1327 (D.C. Cir.

SS eee ee 40, 48, 49

Cc tric Co. v.

- 265 U.S. 403

(1924). ce cc ccccccves eocccces coccece --40

llu atin

Company, Case No. 81-146-EL-AIR,

Opinion and Order (March 17,

BOGE Pd ccecces SANT SEE CS Oecd o:5 a a Fe

—— e 414 U.S.

oo: 2)... ) eee Sp hata aeiniek x eae & 20

* * k o

168 F.2d 11 (D.C. Cir. 1950),

cert. denied 340 U.S. 952

CBUEER sc ccscee LOPS i re ae

» 433 U.S. 562

CUPP ee ee eho eeesessesesbcbescoooscent

Statutes

U.S. Sup. Ct. Rule 15.1, 28 U.S.C.A..... 16

U.S. Sup. Ct. Rule 16.1, 28 U.S.C.A..... ll

26 U.S.C. §1257(2).. eee neve vvves ---ll, 12

Ohio Rev. Code §4909.15........++..24, 29,

35, 37, 39

Amendments

Fifth Amendment to the Constitution of

the United States..... cocccceeh, 36, 40

Fourteenth Amendment to the Constitution

of the United States.........4, 38, 40

STATEMENT OF THE CASE

The issue Appellant seeks to have re-

viewed has twice previously been presented

to this Court. (See, Clevelan tric

Illuminating Company v. Office of the Con-

sumers' Counsel, et al., United States Su-

preme Court Case No. 81-1002 (February 25,

1982); 71 L.Ed.2d 455 (1982); Cleveland

Electric Illuminating Company v. The Pub-

lic Utilities Commission of Ohio, United

States Supreme Court Case No. 82-704 (Jan-

uary 10, 1983), 51 U.S.L.W. 3507 (1983).)

The factual situation giving rise to this

Appeal has not changed at all from the

prior two cases. Appellant once again

seeks the opportunity to relitigate issues

previously decided in Consumers' Counsel

v. Pub. Util. Comm., 67 Ohio St.2d 153,

423 N.E.2d 820 (1981).

The instant appeal arose out of Case

No. 81-146-EL-AIR, a proceeding before the

Public Utilities Commission of Ohio. In

No. 81-146-EL-AIR, the Commission

stated with regard to the four terminated

units that:

Applicant has requested an allowance

for ratemaking purposes for the amor-

tization of the costs incurred with

respect to four cancelled nuclear u-

nits. This subject was fully discuss-

ed in Cleveland Electric Illuminating

Company, Case No. 79-537-EL-AIR, Opin-

ion and Order, July 10, 1980, in which

the Commission approved such an amor-

tization. The Commission approved the

same amortization in Applicant's sub-

sequent rate case, eveland ctric

Illuminating Company, Case No. 80-376-

EL-AIR , supra, and approved a simi-

lar amortization in Ohio Edison, Case

No. 80-141-EL-AIR, Opinion and Order,

April 9, 1981. The Commission would

approve the amortization again if it

were not constrained by the decision

of the Supreme Court of Ohio in Office

of th umers' Vv. blic

t 67 Ohio S&t.2d

153 (1981). This case clearly holds

that this expense is, as a matter of

law in Ohio, not includable as an op-

erating expense for ratemaking pur-

poses. The Commission must, there-

fore, deny applicant's request.

e Clevela ct t

Company, Case No. 81-146-EL-AIR, Opin-

ion and Order at 28 (March 17, 1982).

The Commission went on, however, to

state:

The Commission believes that the re-

turn allowed in this proceeding pro-

vides cevenues sufficient to provide

for amortization of that balance over

a reasonable period of time. Accord-

ingly, although we cannot allow an

amortization allowance for ratemaking

purposes, for book purposes, the ap-

plicant is authorized to amortize the

balances assignable to the terminated

nuclear units over an appropriate pe-

riod of time, not to exceed 15 years.

Id. at 28.

The Commission in addressing the rate

of return stated specifically:

We are of the opinion that the in-

crease in investors' perceived risk

should be reflected in the return on

equity granted in this case. Indeed,

the Supreme Court in Consumers’ Coun-

sel_v. Public Utilities Commission,

. specifically acknowledged that

ts decision in that case could seri-

ously disadvantage Ohio utilities in

the capital markets (Id. at p. 176).

As a result, instead of selecting the

low point of the Staff's recommended

range, we are of the opinion that the

first quartile should be utilized.

Id. at 40.

Following the Commission's decision,

the Appellant undertook its second appeal

of the same issue to the Ohio Court, once

again alleging that the Commission's deci-

sion in Case No. 81-146-EL-AIR, supra, and

the Ohio Supreme Court's decision in Con-

u ‘Counsel v. b Utilities Con-

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

(1981) was incorrect and violative of the

Fifth and Fourteenth Amendments of the

U.S. Constitution. The Ohio Supreme

Court, in addressing the issues raised by

Appellant, stated:

The question whether the expenditures

associated with the four terminated

generating stations may be included in

test year expenses as allowable oper-

ating expenses was addressed by this

Court in , - Supra.

In that case we held in the syllabus

that:

"The Public Utilities Commission's

treatment of a utility's investment in

terminated nuclear generating stations

as amortizable costs to be recovered

from the utility's ratepayers is in-

consistent with the ratemaking formula

contained in R.C. 4909.15 and is un-

reasonable and unlawful."

In the present case, we are confronted

with exactly the same issue arising

out of exactly the same facts. We are

no more persuaded by appellant's argu-

ments today than we were when they

were originally advanced in Consumers'

Counsel. We adhere to our position

taken in that case for the reasons ex-

pressed therein.

Cleveland Electric Illuminating Com-

pany _v. Public Util. Comm., 4 Ohio

St.3rd 107, 108-109 (1983).

The Ohio Court's discussion of consti-

tutional matters was not necessary to its

result. The Court's decision in the case

below was supported by its reasoning in

Consumers' Counsel without the necessity

of addressing the constitutional issues

raised by Appellant. Cleveland Electric

Illuminating Co. v. Pub. Util. Comm., su-

pra at 108-109. Nevertheless, the Court

did address the constitutional claim made

by Appellant as follows:

Appellant suggests, however, that

such an interpretation of a...

4909.15(A)(4) cometitutes a confisca-

tion of private property in violation

of the Fifth and Fourteenth Amendments

to the United States Constitution. We

recently addressed this precise con-

stitutional question in Dayton Power &

Light Co. v. Pub. Util. Comm. (1983),

S Gase St. 3a 92. After a thorough

review of the applicable constitution-

al standards, we determined that R.C.

4909.15(A)(4) does not violate the

Fifth and Fourteenth Amendments, stat-

ing, at pages 103-106:

"***Pursuant to the statutory

ratemaking formula investors are as-

sured a fair and reasonable return on

property that is determined to be used

and useful, R.C. 4909.15(A)(2), plus

the return of costs incurred in ren-

dering the public service, R.C.

4909.15(A)(4), while consumers may not

be charged for utility investments and

expenditures that are neither included

in the rate base nor properly catego-

rized as costs. [Footnote omitted.)

We see no constitutional infirmity in

the balance thus struck by the General

Assembly.

*« ” «

"“***Per ge confiscation in a u-

tility rate case may exist as an ab-

stract premise, but the constitutional

cases make it clear that a successful

challenge must demonstrate that the

rate order when reviewed in its en-

tirety falls outside the ‘broad zone

of reasonableness' [Permian Basin Area

Rate Cases (1968), 390 U.S. 747, 770)

and the ‘heavy burden' of establishing

unreasonableness must be borne by the

challenger. {(FPC v. Hope Natural Gas

Co. (1943), 320 U.S. 591, 602.)

* * «

"***The rule is clear: '***If the

total effect of the rate order cannot

be said to be unjust and unreasonable

judicial inquiry***is at an _end.'***"

(Emphasis added.) Moreover, the Con-

stitution imposes no methodological

strictures on ratemaking authorities.

See Dayton Power & Light Co., supra,

at page 98, fn. 8.

CEI has not demonstrated that the

rate order in its entirety is confis-

catory. The commission submits that

CEI's failure to do s0 "precludes a

finding of confiscation in this

case." The commission specifically

adjusted the cost of common equity up-

ward to reflect the perceived in-

creased risk to investors as a result

of this court's decision in Consumers'

Counsel, supra. See the commission's

order in case No. 81-146-EL-AIR, at

page 40, and Consumers' Counsel _ v.

Pub. Util. Comm. (1983), 4 Ohio St. 3d

Sane This adjustment buttresses the

conclusion that the instant order

falls within the broad zone of reason-

ableness. Thus, even if appellant

were correct in its assertion that the

exclusion based on R.C. 4909.15(A)(4)

is improper, there is nothing in the

record to suggest that the commis-

sion's order, viewed in its entirety,

would not still be constitutional be-

cause “any rate selected*** from the

broad zone of reasonableness*** cannot

be attacked as confiscatory." Permian

Basin Area Rate Cases, supra, at page

770.

Id. at 109-110.

It is from the Ohio Court's rejection

of Appellant's constitutional claims that

Appellant seeks to perfect the instant ap-

peal.

There are several other brief points

Appellee feels compelled to address.

First, Appellant implies that it first

presented the constitutional questions to

the Ohio Supreme Court in its Brief as In-

tervening Appellee in Consumers’ Counsel

ub. Ut . 67 Ohio St. 153, 423

N.E.2d 820 (1981). (Appellant's Jurisdic-

tional Statement at 8-9). However, con-

trary to Appellant's assertion, Appellant

did not, in Consumers’ Counsel, supra,

raise any constitutional issue in its

Brief as Intervening Appellee. Review of

this opinion of the Ohio Supreme Court re-

veals that nowhere was any federal ques-

tion mentioned, nor was any federal ques-

tion mentioned in the dissenting opinions

in Consumers' Counsel, supra. There was

no presentation of a federal question in

Consumers' Counsel by Appellant, and the

suggestion that a federal question was

raised on brief is simply incorrect.

Secondly, Appellee is compelled to

take exception with Appellant's descrip-

tion of the consequences of non-recovery.

Appellant suggests that there will be a

severe financial impact resulting from a

write-off of the costs associated with the

cancelled plants. Yet, Appellant in its

1979 Annual hapert to Shareholders pre-

sented a rather different picture than the

gloom and doom scenario presented in its

jurisdictional statement.

..-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 nun-

ber of years. The extent to which

these costs may be recovered through

rates will be 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 e-

vent, the resolution of these matters

should not have a material adverse in-

pact on the financial position of the

Company.

Consumers' Counsel _v. Pub. Util.

Comm., 67 Ohio St.2d 153, 171, 423

N.E.2d 820 (1981) (Justice Locher,

concurring.).

Finally, it should be noted that Ap-

pellant was granted an additional incre-

ment to the rate of return to reflect the

perceived increase in risk flowing from

the Ohio Supreme Court's decision in Con-

sumers' Counsel. As such, the _ conse-

quences of non-recovery, by Appellant's

own admission, will “not have a material

adverse impact" upon Appellant's financial

position.

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 Consumers' Counsel, hereby moves that

this Court dismiss the appeal of the

Cleveland Electric Illuminating Company as

improperly taken from the Supreme Court of

Ohio under 28 U.S.C. §1257(2). In the al-

ternative, the Office of the Consumers’

Counsel moves that this Court affirm the

decision of the Supreme Court of Ohio ren-

dered in the case below.

ARGUMENT IN SUPPORT OF

MOTION TO DISMISS

This is the third time in a two year

period that Appellant has attempted to in-

voke the jurisdiction of this Court with

respect to the same issue 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 re-

viewed by the Supreme Court as follows:

*« * *

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

tion the validity of a statute of any

state on the ground of its being re-

pugnant to the Constitution treaties

or laws of the United States, and the

decision is in favor of its validity.

* * *

The express language of 28 U.S.C.

§1257(2) requires that the highest court

of a state render a decision favoring the

validity of a state statute before review

of the state court decision may be sought

in the Supreme Court of the United States.

In 1981, Appellant, appealing from the

decision of the Ohio Supreme Court in Con-

sumers' Counsel v. Pub. Util. Comm., 67

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

presented the following questions to this

Court:

QUESTIONS PRESENTED

a May the State of Ohio, by stat-

ute, constitutionally require a public

utility to invest its capital to pro-

vide adequate service for the conven-

ience of the public in the future and

simultaneously prohibit, by statute,

the utility from recovering through

rates such capital when prudently in-

vested?

ae May the State of Ohio, by stat-

ute, constitutionally prohibit a pub-

lic 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 compensated through the au-

thorized or achieved rate of return

for the risk of exclusion of such cost

from rates?

This Court dismissed that appeal "for want

of a properly presented federal gques-

tion." The Cleveland Electric Illumina-

ting Company v. Office of Consumers' Coun-

sel, et al. United States Supreme Court

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

L. Ed. 2d 455 (1982).

In 1982, following the Ohio Court's

summary dismissal of an appeal to it on

the same issue with the same facts, Appel-

lant again appealed to this Court, pre-

senting the same questions a second time:

QUESTIONS PRESENTED

hs May the State of Ohio, by stat-

ute, constitutionally require a public

utility to invest its capital for the

convenience of the public to provide

adequate service in the future and si-

multaneously prohibit, by statute,

that utility from recovering through

rates such capital when prudently in-

vested?

2. May the State of Ohio, by stat-

ute, constitutionally prohibit a pub-

lic 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 compensated through the au-

thorized rate of return for the risk

of exclusion of such cost from rates?

The second appeal, like the first, was

dismissed by this Court "for want of a

properly presented federal question.” The

leve tric u t a

The Pu on of QO.

United States Supreme Court Case No. 82-

704 (January 10, 1983), 51 U.S.L.W. 3507

(1983).

In this appeal, again on the same is-

sue with the same facts, Appellant pre-

sents the following question to the Court:

QUESTION PRESENTED

May the State of Ohio, by statute,

constitutionally require a public u-

tility to invest its capital for the

convenience of the public to ensure

reliable service in the future and si-

multaneously prohibit, by statute,

that utility from recovering through

rates such capital when prudently in-

vested? (Appellant's Jurisdictional

Statement, p. i).

It is believed that the second ques-

tion was omitted in this appeal because

the adjustment made in the case below by

the Public Utilities Commission to the au-

thorized rate of return to account for any

increase in investor-perceived risk asso-

ciated with the cancelled plants has ef-

fectively silenced that complaint. It is

interesting to note that, having twice

Claimed to this Court a constitutional

right to explicit rate of return recogni-

tion for the cancelled plants, and having

finally received it from the Ohio Commis-

sion in the case below, Appellant itself

offered expert testimony in its subsequent

rate case that such explicit recognition

Was unnecessary because of the rate of re-

turn methodology traditionally employed by

the Ohio Commission. (Appellant's Appen-

dix, p. 134). Regardless, this is the

third time this Court has been asked to

review the same question related to the

same issue based on the same facts.

Rule 15.1(a) of the Rules of the Su-

preme Court of the United States (28

U.S.C.A., U.S. Sup. Ct. Rule 15) requires

that a jurisdictional statement contain

the questions to be presented by the ap-

peal. Many decisions have labeled a Ju-

risdictional Statement as the indicator of

what issues the Supreme Court has decided

in a summary disposition. Mercado v.

Rockefeller, 502 F.2d 666 (2d Cir. 1974),

cert. denied, 420 U.S. 925 (1975). Appel-

lee submits that this Court has already

disposed of the question submitted in this

appeal by its dismissal in Case Nos. 8l-

1002 and 82-704.

Furthermore, this Court has ruled on

numerous occasions that summary affira-

ances and dismissals without doubt reject

the specific challenges presented in the

Statement of Jurisdiction. Mandel v.

Bradley, 413 U.S. 173° (1977). This Court,

in its Per Curiam opinion on the constitu-

tionality of Maryland's Election Code, en-

phasized that summary actions should not

be understood as breaking new ground, but

as applying principles established by pri-

or decisions to the particular facts in-

volved. This Court further indicated that

summary affirmances and dismissals prevent

lower courts from coming to opposite con-

clusions on the precise issues presented

and necessarily decided in the cases sun-

marily dismissed. Mandel v. Bradley, su-

pra.

Since the question presented here is

id atical to those presented in the two

previous CEI appeals, it follows, pursuant

to Mandel, supra, that the prior decisions

are dispositive of the issue presented in

this appeal.

Moreover, it is equally clear that a

summary disposition either by affirmance

or by dismissal is a disposition on the

merits and need not be reconsidered by the

Court. Hicks v. 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 two previous appeals, cannot revive

its already unsuccessful arguments in a

subsequent appeal on the same issue with

the same facts. The summary dismissal of

the issues presented in Case Nos. 81-1002

and 82-704 are, therefore, dispositive of

the issue 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

fashion is barred by the doctrine of res

udicat

The doctrine of fes judicata operates

to bar repetitious suits involving the

same cause of action. The doctrine is

based upon considerations of economy of

judicial time and public policy favoring

the establishment of certainty in legal

relations. = Vv et,

414 U.S. 573, 578-579 (1974). This Court

has also previously noted that res judica-

ta is founded upon "the generally recog-

nized public policy that there must be

some end to litigation 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 re-

new the litigation in another Court."

Heiser v. Woodruff, 327 U.S. 726, 733

(1946).

While the instant appeal may have

grown from an Ohio Supreme Court decision

separate and distinct from the one from

which Appellant took its first appeal to

this Court, Appellant raises issues herein

which have already been considered and

disposed of in the previous two appeals.

The Ohio Court agrees:

In the present case, we are confronted

with exactly the same issue arising

out of exactly the same set of facts

cts.

We are no more persuaded by appel-

lant's arguments today than we were

when they were originally advanced in

Consumers' Counsel. We adhere to our

ositio aken that 5

t n.

Cc and c. Illum. Co. v. Pub.

Util. Comm., 4 Ohio St. 3d 107 at

108-109, 447 N.E.2d 746 (1983). (Enm-

phasis added).

It is that language of the Ohio Court

which indicates clearly that the basis for

its decision is no different from that in

Consumers' Counsel from which Appellant

originally appealed. The fact that the

Ohio Court gratuitously included a discus-

sion of constitutional matters cannot

change the meaning of its express language

that the basis for its decision is limited

to its interpretation of Ohio ratemaking

law as found in its discussion in Consun-

ers' Counsel.

It is apparent that Appellant had the

opportunity to present its constitutional

arguments, as an Intervening Appellee,

both to the Public Utilities Commission of

Ohio and the Ohio Court, in Consumers'

Counsel, supra. Appellant is now, through

this third appeal, seeking to present an

argument which was not made in a timely

manner in Consumers' Counsel.

This Court was faced with a similar

situation in Grubb v. Pub. Util. Comna.,

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

stated:

validity of the order upon one ground

not brought to the attention of the

gtate 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 ground of objection is not con-

cluded by the judgment of the state

court, and therefore is open to exami-

at dju tion upo t er-

it e di ct court. But the

judgment has a broader operation as

res judicata than is thus suggested.

The certificate referred to was grant-

ed several months before the appellant

applied for a certificate and he had

personal knowledge of it from the time

it was granted. It was shown upon the

records of the commission and was eas-

ily accessible when the hearing was

had upon his application. Thus it is

a matter which, if having the bearing

now suggested, could have been brought

to the attention of the commission ei-

ther at that hearing or in hie request

for a rehearing (543, General Stat-

utes); 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 re-

spect of it that is now made in his

bill.

he had knowledge. He was not at lib-

erty .to prosecute that right by piece-

meal, as by presenting a part only of

the available grounds and reserving

others for another suit, if failing in

that.

t bed wa ~

vailab t the ap-

pellant must abide the rule that a

judgment upon the merits in one suit

is rc d in othe h the

ar d ct- t a the

same, not only as respects matters ac-

tually presented to sustain or defeat

the right asserted, but also as re-

spects any other available matter

which might have been presented to

that end.

Grubb, supra, at 478-479. (Emphasis

added).

The question here is, when the state

court opinion appealed from is based sole-

ly on a state ground articulated in an

earlier decision, can Appellant now claim

a federal question so as to invoke this

Court's jurisdiction? Certainly not.

The Ohio Court made it clear that its

earlier decision and its decision in the

matter sub judice was strictly limited to

a construction of Ohio Rev. Code

§4909.15(A)(4), which defines allowable

Operating expenses as a component of the

ratemaking formula set out in Ohio law.

The question decided by the Ohio Court was

precisely articulated by it:

Notwithstanding the provisions that

impose a duty on utility companies to

plan for the future, the question un-

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

the cancelled plant expenditures rep-

resent "(tjhe cost to the utility of

rendering the public utility service

for the test period."

Consumers' Counsel Vv. Pub. Util.

Comm., 67 Ohio St. 2d 153, 163-164,

423 N.E.2d 820 (1981).

The Court's answer to that question was

likewise narrowly limited:

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 serv-

ice to the public for the test period.

The extraordinary loss sustained by

CEI in connection with the terminated

nuclear plants cannot be transformed

into an ordinary operating expense

pursuant to R.C. 4909.15(A) (4) by

Commission fiat.

* * *

The Commission's characterization of

the investment in the four terminated

plants as "costs" under R.C.

4909.15(A)(4) in light of what we per-

ceive to be the legisiative intention

underlying the section is unreason-

able. 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, supra at 164.

The reasoning of the Ohio Court in

Consumers' Counsel on which it based its

decision in the case below does not ad-

dress a federal question, but rather re-

lies solely on state grounds. Appellant

seeks to address the same issue on a

ground available to it, but not put for-

ward for the Court's consideration, in

Co ers' ounsel. 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. and this

Court in Case No. 81-1002, as well as Case

No. 82-704, the Appellant now wishes the

same parties to relitigate 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 to present

its arguments on the identical facts pre-

sented in the proceeding sub judice and

apparently chose not to do s0. The doc-

trine of res judicata compels dismissal.

Even if res judicata were not applica-

ble here to bar a federal claim by Appel-

lant, the fact that the Ohio Court's de-

cision is supported by adequate state

grounds precludes review by this Court.

It is well settled that the decision of a

state court supported by adequate and in-

dependent state grounds will not be re-

solved by the United States Supreme

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

(1965). The reliance of the Ohio Court in

the matter sub judice on the state grounds

enunciated in Consumers' Consent precludes

review by this Court:

Before we may undertake to review a

decision of the court of a State it

must appear affirmatively from the re-

cord, not only that the federal ques-

tion was presented for a decision to

the highest court of the State having

jurisdiction but that its decision of

the federal question was necessary to

the determination of the cause. Lynch

v. New York, 293 U.S. 52, 54, 55 S.

Ct. 16, 17, 79 L. Ed. 191, and cases

there cited.

Honeyman v. Hanan, 300 U.S. 14,18; 57

S. €C. 356, sea C20eres (Emphasis

added).

Furthermore, even where both state and

federal questions are 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 al-

so decide federal questions.

Henry v. Mississippi, supra at 446.

The justification for the adequate state

ground rule has been explicitly stated by

this Court:

The reason is so obvious that it has

rarely been thought to warrant state-

ment. It is found in the partitioning

of power between the state and federal

judicial systems and the limitations

of our own jurisdiction. Our only

power over state judgments is to cor-

rect them to the extent that they in-

correctly adjudge federal rights. And

our power is to correct wrong judg-

ments, not revise opinions.

» 324 U.S. 117, 125-

126 (1945).

Not only was the case below not decid-

ed on the basis of federal questions, the

claimed conflict between state law and the

Federal Constitution simply does not ex-

ist. The Ohio Court did not scrutinize

the entire Ohio statutory ratemaking for-

mula in this case. The Ohio Court only

reviewed the construction of Ohio Rev.

Code §4909.15(A)(4) which defines proper

operating expenses for ratemaking pur-

poses. The mere exclusion of a cost from

allowable operating expenses does not per

se render the rates confiscatory. This

Court has stated:

Under the statutory standard of "just

and reasonable" it is the result

reached not the method employed which

is controlling.

edera Ow mm. v. Hope Natural

Gas Co., 320 U.S. 591, 602 (1944).

This Court, in discussing the duties of

the Federal Power Commission in setting

rates, has defined just and reasonable

rates as those:

which will be sufficient to permit the

company to recover its cost of service

and a reasonable return on its invest-

ment.

FPC v. United Gas Pipe Line Co., 386

U.S. 237, 243 (1967). (Emphasis ad-

All that has been determined by the

Ohio Court is that the costs of cancelled

plants are not a cost of service. The re-

turn authorized was adjusted upward spe-

cifically to recognize the effects of the

Court's decision on the risk perceived by

investors. Cleve. Elec. Illum. Co., supra

at 109. The exclusion of one cost from

allowable operating expense does not auto-

matically render rates resulting from the

application of the Ohio ratemaking scheme

in conflict with the constitutional stand-

ards enunciated by this Court.

It is clear, therefore, that this

Court is faced with nothing more than what

it faced in Appellant's two previous ap-

peals. The issue is the same; the facts

are the same; the parties are the same;

and the basis for the decision of the Ohio

Court is the sane. This Court has already

disposed of the issue twice; further ap-

peal is barred by res judicata; adequate

state grounds support this, as well as the

previous, decision; and no conflict exists

between state law and federal Constitu-

tion. It is respectfully requested that

this Honorable Court dismiss this appeal.

ARGUMENT IN SUPPORT OF

MOTION TO AFFIRM

Appellant has sought to blend several

concepts into one argument. However, in

s0 doing, Appellant has failed to grasp

one essential problem with its position.

The hurdle Appellant must overcome was set

out quite distinctly and clearly by the

Ohio Supreme Court in Dayton Power & Light

Co. v. Pub. Util. Comm., 4 Ohio St.3rd 91,

447 N.E.2d 733 (1983). That problem is to

determine whether the expenses associated

with the cancelled nuclear plants are al-

lowable operating expenses. The question

raised, i.e. whether the costs are recov-

erable is one which rests upon state law,

as the Ohio Supreme Court correctly point-

ed out:

"it is not the Uniform System of Ac-

counts which governs public utility

ratemaking, but rather the Ohio Re-

vised Code."

Dayton Power & Light Co., supra at 104.

The question of whether the costs are

includable for ratemaking purposes is one

which is governed by Ohio law and, in par-

ticular, Ohio Rev. Code §4909.15(A)(4).

In Consumers' Counsel, the Ohio Su-

preme Court specifically limited its de-

cision to “whether the cancelled plant ex-

penditures represent ‘[t]Jhe cost to the

utility of rendering the public utility

service for the test period.'" Consumers'

Counsel, supra at 153. The Ohio Court

strictly limited its determination to what

costs appropriately fall within the mean

ing of Ohio Rev. Code §4909.15(A)(4). In

Cleveland Electric Illuminating Company v._

Pub. Util. Comm., 4 Ohio St. 3rd 4107

(1983), the Ohio Court, once again pre-

sented with the question of the includa-

bility of cancelled plant costs as allow-

able operating expenses, stated:

Th tion whether expenditures

associated with the four terminated

nuclear ;aenerating stations may be in-

cluded in test year expenses as allow-

able operating expenses was addressed

by this court in Consumers' Counsel

supra. In that case we held in the

syllabus that:

"The Public Utilities Commis-

sion's treatment of a utility's in-

vestment in terminated nuclear gener-

ating stations as amortizable costs to

be recovered from the utility's rate-

payers is inconsistent with the rate-

making formula contained os 2&€.&,

§4909.15 and is unreasonable and un-

lawful."

In the present case, we are con-

fronted with exactly the same issue

arising out of exactly the same set of

facts. We are no more persuaded by

appellant's arguments today than we

were when they were originally ad-

vanced on Consumers’ Counsel. We ad-

here to our position taken on that

case for the reasons expressed therein.

Cl land Electr Illuminatin om-

pany v. Pub. Util. Comm., supra at

108-109. (Emphasis added).

The question presented to the Court in

Consumers' Counsel involved the interpre-

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

Rev.

...the question under R.C.

§4909.15(A) (4) remains whether the

cancelled plant expenditures represent

"Ct)he cost to the utility of render-

ing the public utility service for the

test period."

Consumers' Counsel, supra at 163-164.

The court went on to interpret Ohio

Code §4909.15(A)(4) as follows:

It is our opinion that R.C. §4909.15

(A)(4) is designed to take into ac-

count the normal recurring expenses

incurred by utilities in the course of

rendering service to the public for

the test period.

Consumers’ Counsel, supra at 164.

Hence, it is clearly apparent that the

decision below was derivative of the plain

meaning of the statute's language. CEI

investors have no statutory right to re-

cover their investment through amortiza-

tion as service-related costs, when that

“investment*** never provided any service

whatsoever." Id. In reaching this hold-

ing, the Ohio Supreme Court was fairly in-

terpreting the law of the State of Ohio.

This Court should affirm the Ohio Court's

decision as the United States Supreme

Court has stated that state "courts have

the final authority to interpret and where

they see fit to reinterpret (their)

state's legislation. Garner v. Louisiana,

368 U.S. 157, 169 (1961).

Where both federal and state questions

have been decided by the state court,

"Cit) is, of course, a familiar principle

that this Court will decline to review

state court judgments which rest on inde-

pendent 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 recent-

ly reiterated by this Court in Zacchini v.

Scr s-Howard Broadcasting Co.:"(OJur on-

ly power over state judgments is to cor-

rect them to the extent that they incor-

rectly adjudge federal rights." 433 U.S.

562, 566 (1977).

The Ohio Court simply re-affirmed its

prior decision handed down in Consumers'

Counsel. The Court's decision to address

the constitutional claims presented by Ap-

pellant in no way serves as a basis for

the Ohio Court's decision. Rather, the

Ohio Court's decision in Consumers' Coun-

sel re-affirms the adequate state grounds

for the Court's decision. Simply put, the

decision below hinged upon the definition

of the word "cost" as found in Ohio Rev.

Code §4909.15(A)(4). The interpretation

neither presents a federal question nor

gives rise to one. The disposition of the

issue involves nothing but state law.

Appellant further argues that its

property, meaning the investment in the

terminated nuclear plants, has been con-

fiscated in violation of the Fifth and

Fourteenth Amendments to the United States

Constitution. In support of this conten-

tion, the Appellant directs this Court's

attention to Bluefield Water Works Co. v.

b Service omm on, 262 U.S. 679

(1923). Bluefield mandates that “a public

utility is entitled to such rates as will

permit it to earn a return on the value of

the property which it employs for the con-

venience of the public." 262 U.S. at 692-

93. (Emphasis added.) As this Court

noted in Bluefield:

Rates which are not’ sufficient to

yield a reasonable return on the value

of the property used, at the time it

8 to render the rvice,

are unjust, unreasonable, and confis-

catory, and their enforcement deprives

the public utility company of its

property in violation of the 14th

Amendment.

Id. at 290 (Emphasis added).

The investment in the cancelled plants

was never used to render service to the

public. Ohio Rev. Code §4909.15(A)(4), as

interpreted by the Ohio Supreme Court,

establishes this same rule for the fixa-

tion of a public utility's operating ex-

penses. Ohio law, in accord with Blue-

field, provides for the implementation of

rates based upon property used to render

service to the public. In this case, the

Ohio Court found that this investment was

not even related to property which provid-

ed service to Appellant's customers. Con-

sumers' Counsel, 67 Ohio S:.2a at 164, 423

N.E.2d at 827. Thus, the Appellant's

property has not been confiscated within

the meaning of Bluefield and the Fifth and

Fourteenth Amendments.

The vital, yet unstated, premise in

the Company's argument that its property

has been unconstitutionally confiscated is

that the "property" is the Company's in-

vestment in the cancelled projects. This

view has its roots in Mr. Justice

Brandeis' dissenting opinion in Pacific

Gas & Electric Co. v. San Francisco, 265

U.S. 403 (1924). The federal courts have

“recognized, however, that Justice

Brandeis' formula for ascertaining rate

base--the amount of capital prudently in-

vested--was not to become the prevailing

rule." ee, Vv.

FERC, 668 F.2d 1327 (D.C. Cir. 1981). Ap-

pellant's investment was related to prop-

erty that never provided utility service

to the public, and, whether or not this

investment can be characterized as "prop-

erty", which is doubtful, it is a cost

that cannot lawfully be recovered from the

Company's customers.

What Appellant seeks is for this Court

to hold, as a matter of law, with no re-

gard for the overall rate relief granted,

that the denial of recovery of the costs

associated with the four terminated units

results in the confiscation of Appellant's

property. Such a decision would run con-

trary to the admonition set out in Federal

Power Commission v. Natural Gas Pipeline

Company, 315 U.S. 575 (1942):

The Constitution does not bind

rate-making bodies to the service of

any single formula or combination of

formulas. Agencies to whom this leg-

islative power has been delegated are

free, within the ambit of their statu-

tory authority, to make the pragmatic

adjustments which may be called for by

particular circumstances. Once a fair

hearing has been given, proper find-

ings made and other statutory require-

ments satisfied, the courts cannot in-

tervene in the absence of a clear

showing that the limits of due process

have been overstepped. If the Commis-

sion's order as applied to the facts

before it and viewed in its entirety,

produces no arbitrary result, our in-

quiry is at an end.

Id. at 586. (Emphasis added).

The Ohio Court specifically reviewed

the order of the Commission and found that:

there is nothing in the record to sug-

gest that the commission's order,

viewed in its entirety, would not

still be constitutional because "any

rate selected*** from the broad zone

of reasonableness*** cannot be at-

tacked as confiscatory.

Cleveland Electric I[Illuminatin Con-

pany v. Pub. Util. Comm., supra at 110.

The Ohio Court did nothing less than

follow the guidelines set out by this

Court in atura a eli

which was subsequently affirmed in Federal

Power Commission v. Hope Natural Gas Coa-

pany. 320 U.S. 591 (1944) wherein the

Court stated:

when the Commission's order is chal-

lenged in the courts, the question is

whether that order "viewed in its en-

tirety" meets the requirements of the

act...under the statutory standard of

“just and reasonable" it is the result

reached not the method employed which

is controlling. ...It is not theory

but the impact of the rate order which

counts. If the total effect of the

rate order cannot be said to be unjust

and unreasonable judicial inguiry un-

der the Act is at an end.... And he

who would upset the rate order under

the Act carries the heavy burden of

making a convincing showing that it is

invalid because it is unjust and un-

reasonable in its consequences.

Id. at 602. (Emphasis Added).

The inclusion or exclusion of an item

does not, in and of itself, render the de-

cision of the Ohio Court confiscatory.

The whole order must be viewed in its en-

tirety. In such a context, the decision

appealled from does not result in an un-

constitutional confiscation of property.

The exclusion of cancelled plant costs

from includable expenses for ratemaking

purposes does not, by itself, give rise to

a claim of confiscation.

Finally, the Court's discussion of the

ratemaking process in Hope Natural Gas

Co., need be recalled.

The ratemaking process under the

Act, i.e., the fixing of "just and

reasonable" rates, involves a balanc-

ing of the investor and the consumer

interests.

Thus we stated in the Natural Gas

Pipeline Co. case that “regulation

does not insure that the business

shall produce net revenues." 315 U.S.

p. 590, 86 L.Ed. 1052, 62 S$ Ct 736.

But such considerations aside, the in-

vestor interest has a legitimate con-

cern with the financial integrity of

the company whose rates are being reg-

ulated. From the investor or company

point of view it is important that

there be enough revenue not only for

operation expenses but also for the

capital costs of the business... That

return, moreover, should be sufficient

to assure confidence in the financial

integrity of the enterprise, so as to

maintain its credit and to attract

capital.

Hope Natural Gas Co., supra at 603.

Two points need be made. First, the

Ohio ratemaking formula provides just such

a balancing of the interests of the in-

vestor and the consumer. As the Ohio

Court stated in Dayton Power & Light Co.

v. Pub. Util. Comm., supra;

Under the ratemaking formula now

in effect consumers are not chargeable

for utility investments and expendi-

tures 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 [12 0.0.3d 378].

In Consumers' Counsel vv. Pub.

Util. Comm., (1979), 58 Ohio St. 2d

449 [12 0.0.3d 378] (hereinafter "To-

ledo Edison"), this court held that

the Davis-Besse Unit 1 generating sta-

tion, which was not "used and useful

in rendering the public utility serv-

ice" pursuant to R.C. §4909.15(A)(1),.

could not be included in the utility's

rate base.

* *« *

While we again note that Toledo

Edison involved rate base considera-

tion under 4909.15(A)(1). as opposed

to matters relating to cost of service

under R.C. §4909.15(A)(4), the analogy

is a fair one insofar as it indicates

that the General Assembly has adopted

a consistent position in balancing in-

vestor and consumer interests in util-

ity ratemaking. Pursuant to the stat-

utory ratemaking formula investors are

assured a fair and reasonable return

on property that is determined to be

used and useful, R.C. §4909.15(A)(2),

plus the return of costs incurred in

rendering the public service, R.C.

§4909.15(A)(4), while consumers may

not be charged "for utility invest-

ments and expenditures that are nei-

ther included in the rate base nor

properly categorized as costs." We

see no constitutional infirmity in the

balance thus struck by the General

Assembly.

Id. at 102-103.

Second, the financial integrity of the

Appellant is not in any way effected by

the Ohio Court's decision and possible

write-off, as Appellant so readily ac-

knowledged in its 1979 Report to Share-

holders:

If any costs of termination are

not permitted to be recovered, the

Company would be required to reduce

net income by the disallowed amount.

I ° e

matters should not have a material ad-

verse impact on the financial position

of the Company.

Consumers' Counsel Vv. Pub. Util.

Comm., supra at 171.

(Emphasis added).

The strictures set out in Hope Natural

Gas _Co., have been adhered to. There is

no confiscation.

Finally, Appellee is compelled to ad-

dress one final line of argument set out

by Appellant. Appellant suggests’ that

Washington Gas Light Co. v. Baker, 188

F.2d 11 (D.C. Cir. 1950), Cert. denied 340

U.S. 952 (1951) is "closely analogous" to

the situation presented in the case sub

judice.

Such is most certainly not the case.

Washington Gas Light dealt with a situa-

tion wherein a plant used in the manufac-

ture of gas was abandoned prior to full

recovery through depreciation due to a

switch to natural gas. Prior to abandon-

ment, the plant in question was used in

providing service. This is perhaps the

most important distinction noted by the

Court in discussing this particular aspect;

If a _unit of property resulting

from prudent investment becomes obso-

lete before it has been recovered in

full by the investor (either through

annual depreciation charges or through

returns sufficient to compensate for

such inadequacy), it is not necessar-

ily erroneous as a matter of law for

the Commission to include it in the

rate base until such recovery has oc-

curred....

But inclusion in the rate base

must meet the test of justness and

reasonableness to the consumers as

well as to the investor.

Id. at 19.

This distinction was recognized by the

District of Columbia Court of Appeals in

NEPCO Municipal Rate Committee v. FERC,

supra, wherein the Court, in addressing

the argument that property prudently in-

vested should be included in rate base,

stated:

Similarly, nothing in Washington Gas

Light Co. v. Baker, supra, or Demo-

Cratic Natural Committee v. Washington

Metropolitan Area Transit Commission,

supra, conflicts with FERC's decision

on this case. Those cases involved

property used and retired from service

before investors had been fully con-

pensated. Neither case involved the

issue presented here--how expenditures

should be allocated when a project is

cancelled before any use of the facil-

ity begins.

Id. at 1334.

In the instant case, the expenditures

never provided any service. Appellant

seeks to totally insulate investors from

any risk. The Ohio Court has done nothing

more than properly allocate the risk as-

sociated with cancellation in accordance

with Ohio law.

The decision by the Ohio Supreme Court

in Cleveland Electr i ompa

v. Pub. Util. Comm. did nothing more than

adhere to the Court's previous decision in

Consumers' Counsel. The decision in the

first instance rests solely upon adequate

state grounds. Secondly, the decision ta-

ken as a whole was not s0 unjust and un-

reasonable as to result in the confisca-

tion of Appellant's property. Therefore,

this Court should affirm the decision of

the Ohio Supreme Court in Cleveland Elec-

tric Illuminating Company v. Pub. Util.

Comn.

CONCLUSION

The instant appeal is nothing more

than a third attempt to present the iden-

tical question which has twice previously

been brought before this Court, arising

out of the same facts. This Court's prior

dispositions, as well as the doctrine of

res judicata compel dismissal. Further,

the decision by the Ohio Supreme Court is

based upon adequate state grounds. This

Court should, therefore, sustain Appel-

lee's Motion to Dismiss this appeal. In

the alternative, Appellee submits that the

decision of the Ohio Supreme Court should

be affirmed for the reasons set out in Ap-

pellee's Motion to Affirm.

Respectfully submitted,

WILLIAM A. SPRATLEY

CONSUMERS' COUNSEL

MARTIN J. MARZ

Associate Consumers' Counsel

Counsel of Record

GRETCHEN J. HUMMEL

STEVEN M. SHERMAN

Associate Consumers' Counsel

Office of the Consumers' Counsel

137 East State Street

Columbus, Ohio 43215

(614) 466-1312

Attorneys for Appellee

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.