144 v. Cross (In re Ohio Power Co.)

• Decision Date: 02 June 2015
• Docket Number: No. 2012–2008.,2012–2008.
• Citation: 2015 Ohio 2056,40 N.E.3d 1060,144 Ohio St.3d 1
• Parties: In re APPLICATION OF OHIO POWER COMPANY for Approval of a Mechanism to Recover Deferred Fuel Costs Ordered Under R.C. 4928.144; Ohio Power Company, Appellant and Cross–Appellee; Industrial Energy Users–Ohio, Appellee and Cross–Appellant; Public Utilities Commission, Appellee and Cross–Appellee.
• Court: Ohio Supreme Court

144 Ohio St.3d 1

40 N.E.3d 1060

2015 Ohio 2056

In re APPLICATION OF OHIO POWER COMPANY for Approval of a Mechanism to Recover Deferred Fuel Costs Ordered Under R.C. 4928.144; Ohio Power Company, Appellant and Cross–Appellee; Industrial Energy Users–Ohio, Appellee and Cross–Appellant; Public Utilities Commission, Appellee and Cross–Appellee.

No. 2012–2008.

Supreme Court of Ohio.

Submitted Feb. 3, 2015.

Decided June 2, 2015.

I. SUMMARY

{¶ 1} In the orders on appeal, appellee and cross-appellee, Public Utilities Commission of Ohio ("PUCO" or "the commission"), approved a mechanism called a phase-in recovery rider ("PIRR") for appellant and cross-appellee, Ohio Power Company, to recover fuel costs that were incurred under the company's first electric-security plan ("ESP") but were deferred for future collection. See In re Application of Columbus S. Power Co. & Ohio Power Co. for Approval of a Mechanism to Recover Deferred Fuel Costs Ordered Under R.C. 4928.144, Pub. Util. Comm. Nos. 11–4920–EL–RDR and 11–4921–EL–RDR (Aug. 1, 2012) (the "PIRR Order"), available at http://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=c3ec26df–e5b8–4e2a–9e8c–f1825680fef8 (last accessed March 25, 2015). In the order approving Ohio Power's first ESP, the commission (1) authorized the recovery of "carrying charges"—a type of finance charge—on the deferred fuel costs until the costs were fully recovered, (2) set the rate to calculate carrying charges on the deferred fuel costs, and (3) authorized Ohio Power to recover the deferred fuel costs plus carrying charges from 2012 to 2018. See In re Application of Columbus S. Power Co. & Ohio Power Co. for Approval of an Elec. Sec. Plan, Pub. Util. Comm. Nos. 08–917–EL–SSO and 08–918–EL–SSO, at 20–23 (Mar. 18, 2009) (the "ESP Order"), available at http://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=b125aec6–ded7–4f5c–b908–6520f2e0cb3f last accessed Mar. 25, 2015); PIRR Order at 17–20.

{¶ 2} The commission's PIRR Order modified the carrying-charge rate established in the ESP Order, cutting it by more than half. This reduced Ohio Power's recovery of carrying charges by over $130 million. PIRR Order at 17–19; April 3, 2012 Revised Staff Comments and Recommendations ("Revised Staff Report") at 5–6, available at http://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=9203c7aa–348b–4d94–a961–efd24a568bb4 (last accessed Mar. 25, 2015).

{¶ 3} On appeal, Ohio Power challenges the commission's decision to reduce its carrying-charge recovery. Ohio Power's appeal raises one argument that has merit: the commission's order violates R.C. 4928.143(C)(2)(a) by depriving the company of its right to withdraw the modified ESP. Therefore, we reverse the commission's order insofar as it reduces the carrying-charge rate.

{¶ 4} Appellee and cross-appellant, Industrial Energy Users–Ohio ("IEU"), filed a cross-appeal,¹ raising one issue for our consideration: the commission erred when it refused to reduce the PIRR to account for Ohio Power's accumulated deferred income taxes.² We hold that IEU's cross-appeal is barred by collateral estoppel.

II. FACTS AND PROCEDURAL BACKGROUND

{¶ 5} On March 18, 2009, the commission issued an opinion and order approving Ohio Power's first ESP, to be in effect from 2009 to 2011. The ESP Order established caps on how much Ohio Power could increase rates during each year of the plan in order to ensure rate stability and to mitigate the effect of rate increases on customers. ESP Order at 22. It did so under R.C. 4928.144, which authorizes "any just and reasonable phase-in of any electric distribution utility rate * * * as the commission considers necessary to ensure rate or price stability for consumers." To ensure that Ohio Power stayed under the rate caps, the commission directed it to phase in the rate increases approved in the ESP by deferring for future collection the portion of the fuel costs that exceeded the rate caps.

{¶ 6} R.C. 4928.144 also authorized the commission to allow Ohio Power to recover carrying charges on the fuel costs earned but not collected in each year of the ESP. In its ESP application, Ohio Power proposed that carrying charges be calculated using the company's Weighted Average Cost of Capital ("WACC"). IEU did not object to using the WACC for the calculation during the ESP proceedings, but other parties did. Despite the objections, the commission accepted Ohio Power's proposal and set the carrying-charge rate at the WACC. ESP Order at 20–21, 23.

{¶ 7} As required by R.C. 4928.144, the ESP Order also provided that the deferred fuel costs would be collected through an unavoidable surcharge, meaning a charge imposed on both shopping and nonshopping customers. And the commission established a recovery period of 2012 through 2018 for Ohio Power to recover the deferred fuel costs and carrying charges by increasing its rates. ESP Order at 22–23.

{¶ 8} Various parties appealed from the ESP Order. Yet no party challenged the commission's decision to calculate carrying charges using the WACC. In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655.

{¶ 9} This case began when Ohio Power filed an application with the commission to approve a mechanism to recover the accumulated deferred fuel costs from the first ESP period and the carrying charges. As noted earlier, consistent with the ESP Order, Ohio Power sought to implement a mechanism in the form of a nonbypassable PIRR to be in effect from January 2012 through December 2018. PIRR Order at 2; Application for Approval of Recovery Mechanism (Sept. 1, 2011) at ¶ 3–4, available at http://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=fd450fd8–c987–4d1b–b56e–3efddb0c14d1 (last accessed Mar. 25, 2015).

{¶ 10} The commission approved, in part, Ohio Power's PIRR application. The commission, however, deemed it necessary to modify the part of the ESP Order that established the WACC as the carrying-charge rate. Specifically, the commission determined that the WACC rate would apply only during the ESP period (2009 to 2011). But once Ohio Power began to recover deferred fuel costs from customers in 2012, the commission ordered, the company was to calculate carrying charges at the company's long-term-cost-of-debt rate. PIRR Order at 17–19. The commission's decision to apply the long-term-cost-of-debt rate of 5.34 percent, which was less than half the commission-approved WACC rate of 11.15 percent, reduced Ohio Power's recovery of carrying charges during the recovery period by over $130 million. Id . at 7, 17; Revised Staff Report at 4–6. The commission also rejected IEU's request to reduce the deferred-fuel-cost balance to account for savings to Ohio Power from accumulated deferred income taxes ("ADIT") during the ESP period. PIRR Order at 19–20, 9–10.

{¶ 11} Ohio Power and IEU filed timely applications for rehearing at the commission. Each was denied. Fifth Entry on Rehearing (Oct. 3, 2012), available at http://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=b100f2d4–6cc5–421c–ae9d–9075cc786a45 (last accessed Mar. 25, 2015).

{¶ 12} Ohio Power then filed a notice of appeal, challenging the commission's modification of the carrying-charge rate. IEU filed a notice of cross-appeal, arguing that the commission erred when it refused to reduce the deferred-fuel-cost balance to account for ADIT. As will be discussed in detail below, Ohio Power has demonstrated one instance of reversible error in the commission's order. The issue raised by IEU's cross-appeal, however, is barred by collateral estoppel.

III. STANDARD OF REVIEW

{¶ 13} " R.C. 4903.13 provides that a PUCO order shall be reversed, vacated, or modified by this court only when, upon consideration of the record, the court finds the order to be unlawful or unreasonable." Constellation NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820 N.E.2d 885, ¶ 50. We will not reverse or modify a PUCO decision as to questions of fact when the record contains sufficient probative evidence to show that the commission's decision was not manifestly against the weight of the evidence and was not so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Monongahela Power Co. v. Pub. Util. Comm., 104 Ohio St.3d 571, 2004-Ohio-6896, 820 N.E.2d 921, ¶ 29. The appellant bears the burden of demonstrating that the commission's decision is against the manifest weight of the evidence or is clearly unsupported by the record. Id.

{¶ 14} Although this court has "complete and independent power of review as to all questions of law" in appeals from the PUCO, Ohio Edison Co. v. Pub. Util. Comm., 78 Ohio St.3d 466, 469, 678 N.E.2d 922 (1997), we may rely on the expertise of a state agency in interpreting a law where "highly specialized issues" are involved and "where agency expertise would, therefore, be of assistance in discerning the presumed intent of our General Assembly," Consumers' Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108, 110, 388 N.E.2d 1370 (1979).

IV. DISCUSSION

A. Ohio Power's Appeal

{¶ 15} Ohio Power's appeal challenges the commission's authority to modify the ESP Order issued in 2009. According to Ohio Power, the commission has only limited authority to modify its prior orders and was prohibited from changing the carrying-charge rate established in the ESP Order in this case. Ohio Power attacks the commission's order on five grounds, but only two were properly preserved by being set forth in the notice of appeal: (1) res judicata barred the commission from modifying the ESP Order in this case and (2) the commission modified the ESP Order after the plan had expired, depriving the company of its right to withdraw a modified ESP in violation of R.C. 4928.143(C)(2)(a). We hold that Ohio Power's res judicata argument lacks merit, but we agree with its argument that the commission's order violates R.C. 4928.143(C)(2)(a).

1. The commission is entitled to modify a prior order, provided that it explains the change...