[Cite as In re Application of Columbus S. Power Co., 129 Ohio St.3d 46, 2011-Ohio-2383.]
IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY FOR
APPROVAL OF ITS PROGRAM PORTFOLIO PLAN;
INDUSTRIAL ENERGY USERS-OHIO, APPELLANT; PUBLIC UTILITIES
COMMISSION ET AL., APPELLEES.
[Cite as In re Application of Columbus S. Power Co.,
129 Ohio St.3d 46, 2011-Ohio-2383.]
Public utilities — R.C. 4928.66 — Public Utilities Commission’s order approving
electric-distribution utility’s program portfolio plan upheld.
(No. 2010-1533 — Submitted April 6, 2011 — Decided May 24, 2011.)
APPEAL from the Public Utilities Commission, No. 09-1089-EL-POR.
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LUNDBERG STRATTON, J.
{¶ 1} In the case below, the Public Utilities Commission approved a
“program portfolio plan” proposed by the American Electric Power (“AEP”)
operating companies. The plan, developed in consultation with a wide array of
interested parties, contains a variety of programs that are designed to increase
energy efficiency and reduce peak demands on AEP’s system. Such programs are
required by law. R.C. 4928.66(A)(1).
{¶ 2} Industrial Energy Users-Ohio (“IEU”) appeals from the
commission’s approval of the plan on four grounds. None of its arguments
compels reversal, and we affirm.
Background
{¶ 3} Under R.C. 4928.66, electric-distribution utilities must implement
programs to increase energy efficiency and to reduce peak demand. R.C.
4928.66(A)(1)(a) and (b). Energy-efficiency measures reduce the amount of
energy required to perform tasks. Ohio Adm.Code 4901:1-39-01(L). “Peak
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demand” refers to the measure of electricity usage at the time when the most
energy is being consumed simultaneously. Ohio Adm.Code 4901:1-39-01(R).
Reducing peak demand, other things being equal, lowers the price of power and
forestalls the need to add new generation plants. See, e.g., Natural Resources
Defense Council, Inc. v. Herrington (C.A.D.C.1985), 768 F.2d 1355, 1414
(discussing benefits of peak-demand reductions). The statute imposes annual
goals in both categories, R.C. 4928.66(A)(1)(a) and (b), and if an electric-
distribution utility does not meet the goals, the law authorizes forfeitures, R.C.
4928.66(C).
{¶ 4} The statute also allows the commission to approve “a revenue-
decoupling mechanism.” R.C. 4928.66(D). Such mechanisms separate (or
“decouple”) the recovery of fixed distribution costs from the volume of sales.
Before it can approve a proposed revenue-decoupling mechanism, the
commission must determine two things: first, that the mechanism “provides for
the recovery of revenue that otherwise may be foregone by the utility as a result
of or in connection with the implementation by the electric distribution utility of
any energy efficiency or energy conservation programs,” and second, that the
mechanism “reasonably aligns the interests of the utility and of its customers in
favor of those programs.” Id.
{¶ 5} On November 12, 2009, the AEP operating companies, Columbus
Southern Power (“CSP”) and Ohio Power Company, filed an application seeking
approval of a “Three-Year Program Portfolio Plan,” which presented a three-year
approach to meeting the companies’ energy-efficiency and peak-demand-
reduction goals. The plan had been developed in consultation with a group of
interested parties, and along with the plan, the companies filed a stipulation to
help resolve various issues. Among other things, the stipulation provided AEP
with a revenue-decoupling mechanism, which the parties expected to run for three
years.
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{¶ 6} IEU opposed the stipulation. It intervened, lodged objections to
the portfolio plan, and sponsored testimony in support of its objections.
{¶ 7} The commission held a hearing on the stipulation on February 25,
2010, and on May 13, it issued an order modifying and approving the stipulation.
One of the modifications pertained to the proposed decoupling mechanism.
Instead of allowing the mechanism to run for three years (and thus end sometime
in 2013), the commission prescribed an end date of January 1, 2011. This
limitation on the period in which AEP could recover forgone revenue reflected the
commission’s concern whether the companies’ distribution rates—which had last
been reviewed in 1991 (CSP) and 1994 (Ohio Power Company)—accurately
reflected their costs. The commission “encouraged” the companies “to propose a
mechanism to answer the Commission’s concern regarding quantification of fixed
costs.”
{¶ 8} IEU filed an application for rehearing, which the commission
denied on July 14. This appeal followed. Apparently due to a filing error before
the commission, IEU appealed the order only as it pertained to CSP and not to its
sister company, Ohio Power Company. CSP has intervened as an appellee.
Discussion
{¶ 9} IEU raises four propositions of law. All lack merit, and
accordingly we affirm.
A. IEU has not shown that the commission erred in modifying and
approving the revenue-decoupling mechanism
{¶ 10} In its first proposition of law, IEU challenges the commission’s
approval of CSP’s requested decoupling mechanism. The commission actually
agreed with IEU’s contention that “the record fails to establish what revenue is
necessary to provide AEP-Ohio with the opportunity to recover its costs and to
earn a fair and reasonable return.” But rather than disapprove the decoupling
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mechanism altogether, the commission shortened its lifespan from three years to
about seven months.
{¶ 11} We agree with IEU that the commission’s reasoning had a serious
flaw—which we address below—but at the same time, we do not see that the flaw
warrants reversal.
1. The outcome of the order was reasonable and lawful
{¶ 12} IEU’s argument assumes that CSP was required to prove “ ‘what
revenue is necessary to provide [it] with the opportunity to recover its costs and to
earn a fair and reasonable return.’ ” According to IEU, this cost-of-service
evidence is required by R.C. 4928.66(D) and Ohio Adm.Code 4901:1-39-07(A).
We disagree.
{¶ 13} We can quickly dispense with the administrative-rule argument
made by IEU. Ohio Adm.Code 4901:1-39-07(A) contains no requirement that
utilities demonstrate their cost of service. It simply allows “appropriate lost
distribution revenues.”
{¶ 14} As for the statute, R.C. 4928.66(D) contains two requirements that
an application for a revenue-decoupling mechanism must meet before the
commission may approve it, but IEU does not explain which one it alleges was
not met, and we fail to see any statutory violation.
{¶ 15} The first requirement is that the decoupling mechanism provide
only for “the recovery of revenue that otherwise may be foregone by the utility as
a result of or in connection with the implementation by the electric distribution
utility of any energy efficiency or energy conservation programs.” This clause
does not require the commission to find that the recovery of the lost revenue is
necessary to recover costs and to ensure a fair rate of return. In fact, the word
“revenue” means the opposite: it means “[g]ross income or receipts.” (Emphasis
added.) Black’s Law Dictionary (8th Ed.2004) 1344. If CSP loses sales, it loses
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gross income, regardless of its costs, so the first part of subsection (D) does not
prohibit recovery.1
{¶ 16} The second part of R.C. 4928.66(D) requires the commission to
find that the decoupling mechanism “reasonably aligns the interests of the utility
and of its customers in favor of [energy-efficiency and energy-conservation]
programs.” This part of the statute also does not require what IEU says was
needed: evidence of the utility’s cost of service.
{¶ 17} Thus, none of the authorities cited by IEU require evidence of the
utility’s cost of service. Nevertheless, the commission plainly took the lack of
cost evidence into account. Sharing IEU’s concern that CSP’s distribution rates
might be too high, the commission sharply limited the period in which CSP could
recoup lost revenue. If anyone was harmed by that decision, it was CSP, but CSP
did not appeal. We therefore need not decide whether R.C. 4928.66 entitled the
commission to do what it did: reduce the recovery of lost revenue based on
concerns regarding the utility’s cost of service. But the statute plainly does not do
what IEU wants it to: absolutely prohibit recovery if the utility’s cost of service is
unknown. For these reasons, we affirm this part of the order.
2. Although the commission erred in its reasoning, that error
does not warrant remand
{¶ 18} Although we affirm the commission’s order regarding decoupling,
we are troubled by some of the reasoning in the commission’s order. The
commission appeared to believe that the requirement that its findings be based on
record evidence is somehow lessened when the commission is reviewing a
stipulation. For example, the commission stated in its entry on rehearing that “in
1. The statute permits recovery of revenue that otherwise might be forgone “as a result of or in
connection with” certain programs. R.C. 4928.66(D). IEU does not argue that this causal
requirement was unmet, and we do not consider the matter.
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a litigated case,” it “would have required more information to find that AEP-Ohio
had met its burden of proof.”
{¶ 19} Contrary to the commission’s statement, this was “a litigated
case”—IEU contested the stipulation. When the commission reviews a contested
stipulation, the requirement of evidentiary support remains operative. While the
commission “may place substantial weight on the terms of a stipulation,” it “must
determine, from the evidence, what is just and reasonable.” (Emphasis added.)
Consumers’ Counsel v. Pub. Util. Comm. (1992), 64 Ohio St.3d 123, 126, 592
N.E.2d 1370. Numerous cases, including several in the last ten years, confirm the
point. See, e.g., Duff v. Pub. Util. Comm. (1978), 56 Ohio St.2d 367, 379, 10
O.O.3d 493, 384 N.E.2d 264 (“The commission may take the stipulation into
consideration, but must determine what is just and reasonable from the evidence
presented at the hearing”); Elyria Foundry Co. v. Pub. Util. Comm., 114 Ohio
St.3d 305, 2007-Ohio-4164, 871 N.E.2d 1176, ¶ 38; Constellation NewEnergy,
Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885,
¶ 49; AK Steel Corp. v. Pub. Util. Comm. (2002), 95 Ohio St.3d 81, 83, 765
N.E.2d 862. Indeed, the very case cited by the commission concerning the
approval of stipulations made precisely this point: “stipulations are considered
merely as recommendations to the commission and, while entitled to substantial
weight, they must be supported by the evidence of record to withstand [appellate]
scrutiny.” Indus. Energy Consumers of Ohio Power Co. v. Pub. Util. Comm.
(1994), 68 Ohio St.3d 559, 563, 629 N.E.2d 423. The agreement of some parties
is no substitute for the many procedural protections reinforced by the evidentiary-
support requirement.
{¶ 20} Here, however, no one challenges the legality of the commission’s
specific decision to cut short CSP’s decoupling mechanism. And IEU has not
shown that the law required the commission to go any further. While the
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commission may have erred in its reasoning, that error is harmless. For that
reason, we reject IEU’s first proposition of law.
B. Contrary to IEU’s assertions, the commission considered price impact
{¶ 21} In its second proposition of law, IEU argues that the commission
failed to “consider[] the overall rate impacts on Ohio customers.” This claim is
meritless.
{¶ 22} The commission expressly considered the impact of rate increases.
The order contained a section entitled “Consideration of Rate Increases.” In that
section, the commission discussed IEU’s argument that “approval of the
Stipulation will result in a rate increase for customers” and that the commission
should not view the increase in isolation “but must consider other recent rate
increases approved by the Commission.” The entry on rehearing stated, “The
Commission is mindful of the rate impact of this case on AEP-Ohio’s customers.”
{¶ 23} The commission considered the overall effects of rates, and we
reject IEU’s second proposition of law.
C. IEU has not shown that CSP’s plan for reducing peak demand was unlawful
{¶ 24} In its third proposition of law, IEU raises two challenges to CSP’s
plan for reducing peak demand. One challenge was forfeited, and the other is
flawed.
{¶ 25} IEU’s first argument is that CSP’s peak-reduction program is “not
designed to achieve” the statutory mandates of R.C. 4928.66. This argument was
not raised before the commission on rehearing, so we lack jurisdiction to consider
it. See, e.g., Ohio Partners for Affordable Energy v. Pub. Util. Comm., 115 Ohio
St.3d 208, 2007-Ohio-4790, 874 N.E.2d 764, ¶ 15.
{¶ 26} IEU did raise its second argument below, but it lacks merit. The
commission did not adopt IEU’s preferred way of reducing peak demand—details
on that method need not be discussed to dispose of IEU’s argument. Pertinent
here, IEU asserts that its preferred method “could lower the overall cost of AEP-
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Ohio’s Portfolio Plan by approximately $7 million.” IEU then argues, “Ignoring
known lower cost options that reduce the overall cost of AEP-Ohio’s Portfolio
Plan does not benefit ratepayers and is not in the public interest.”
{¶ 27} IEU is attacking a discretionary decision, so our standard of review
is deferential. The statute creates a goal (peak-demand reduction), but does not
tell the commission how to get there. See R.C. 4928.66(A)(1)(b). This gives the
commission discretion to find its way. See, e.g., Payphone Assn. v. Pub. Util.
Comm., 109 Ohio St.3d 453, 2006-Ohio-2988, 849 N.E.2d 4, ¶ 25 (“When a
statute does not prescribe a particular formula, the PUCO is vested with broad
discretion”).
{¶ 28} IEU has not shown an abuse of discretion. We will assume for the
sake of argument that IEU’s preferred method is in fact less expensive than the
one proposed by CSP. Even so, the mere fact that one program is less expensive
than another is not grounds for selecting it. The applicable statute does not
require use of the “least cost” method. See R.C. 4928.66(A)(1)(b); cf. R.C.
4928.142(C) (requiring selection of the “least-cost bid”). And as a matter of
common sense, one must evaluate costs and benefits, but IEU adduces no
evidence showing the relative benefits of the competing plans. CSP’s peak-
demand-reduction plan covers multiple years and numerous industries and rate
classes to address a highly complex problem, and there are many concerns
(beyond simple cost) that CSP and the commission must account for in structuring
these plans.
{¶ 29} While cost is surely a relevant concern to be balanced in evaluating
peak-demand-reduction plans, it is not the only concern, and the commission is
entitled to consider more. IEU’s third proposition of law is rejected.
D. IEU has not shown that the commission erred when it rejected a cost-saving
program designed for mercantile customers
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{¶ 30} In its fourth proposition of law, IEU argues that the commission
erred by “prohibiting * * * mercantile customers from relying on the ‘benchmark
comparison method’ for agreements reached after December 10, 2009.” R.C.
4928.66(A)(2)(c) permits the commission to “exempt mercantile customers” from
paying energy-efficiency and peak-demand-reduction charges if those customers
“commit their demand-response or other customer-sited capabilities” toward the
utility’s energy-reduction goals.
{¶ 31} The stipulation proposed two methods allowing mercantile
customers to seek this rate exemption. The commission rejected one of them (the
“benchmark-comparison method”) because it had already decided against using
this method in the related rulemaking case. This method had been favored by
IEU.
{¶ 32} On appeal, IEU lists several aspects of this decision that it
disagrees with, but none of its complaints demonstrates reversible error.
{¶ 33} IEU emphasizes that “[t]he PUCO unilaterally modified the only
universally supported provision” of the stipulation. But the commission “is not
bound to accept the terms of any stipulation,” Ohio Consumers’ Counsel v. Pub.
Util. Comm., 114 Ohio St.3d 340, 2007-Ohio-4276, 872 N.E.2d 269, ¶ 16, so this
does not provide grounds to reverse.
{¶ 34} IEU also states that the commission’s rules do not address “what
criteria must be met in order for a mercantile customer to qualify for an
exemption from the rider.” But the commission addressed this issue in its entry
on rehearing. It explained that it was in the process of developing an application
and filing instructions to enable mercantile customers to request the exemption.
IEU gives us no reason to think that the commission needed to develop these
specific standards before it approved the wide-ranging portfolio plan—of which
mercantile-exemption applications are but a part. At its heart, then, IEU’s attack
is against a docket-management decision. We generally defer to the commission
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on such decisions, Toledo Coalition for Safe Energy v. Pub. Util. Comm. (1982),
69 Ohio St.2d 559, 560, 23 O.O.3d 474, 433 N.E.2d 212, and do so here.
{¶ 35} Finally, IEU states, “The [commission] failed to articulate why the
benchmark compliance methodology * * * is not an appropriate methodology or
does not meet the settlement review criteria.” That is not true—the commission
did articulate why IEU’s preferred method was not an appropriate method. As
already noted, the commission had rejected use of that method in a separate
rulemaking case. This was a reasonable basis on which to act: “an administrative
agency cannot ignore its own rules.” State ex rel. Kroger Co. v. Morehouse
(1995), 74 Ohio St.3d 129, 133, 656 N.E.2d 936. Like its other arguments, IEU’s
last complaint does not support reversal. We reject its fourth proposition of law.
Conclusion
{¶ 36} For the foregoing reasons, we affirm.
Order affirmed.
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, CUPP, and
MCGEE BROWN, JJ., concur.
__________________
McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, and Joseph E.
Oliker, for appellant.
Michael DeWine, Attorney General, William L. Wright, Section Chief,
and Thomas W. McNamee and Steven L. Beeler, Assistant Attorneys General, for
appellee Public Utilities Commission of Ohio.
Matthew J. Satterwhite, Steven T. Nourse, and Anne M. Vogel, for
intervening appellee Columbus Southern Power Company.
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