Cleveland Elec. Illum. Co. v. Pub. Util. Comm.

• Decision Date: 21 August 1996
• Docket Number: No. 95-2444,95-2444
• Citation: 76 Ohio St.3d 521,668 N.E.2d 889
• Parties: , Util. L. Rep. P 26,563 CLEVELAND ELECTRIC ILLUMINATING COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.
• Court: Ohio Supreme Court

Page 521

76 Ohio St.3d 521

668 N.E.2d 889, Util. L. Rep. P 26,563

CLEVELAND ELECTRIC ILLUMINATING COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.

No. 95-2444.

Supreme Court of Ohio.

Submitted June 5, 1996.

Decided Aug. 21, 1996.

SYLLABUS BY THE COURT

The Public Utilities Commission has jurisdiction to consider a complaint alleging that a sale of electricity was initiated by a utility to a retail user using a straw man to effectuate the deal for the sole purpose of circumventing the Certified Territory Act.

This appeal arose from an order of the Public Utilities Commission of Ohio ("commission") that dismissed a complaint filed by appellant, Cleveland Electric Illuminating Company ("CEI"). In its complaint, CEI alleged that American Electric Power ("AEP"), using its subsidiary, intervening appellee Ohio Power Company ("OPC"), sold electricity through Cleveland Public Power ("CPP"), and that CPP in turn sold the electricity to intervening appellee Medical Center Company ("MCC"), in violation of the Certified Territory Act. ¹ In other words, CEI claims that AEP, through its subsidiary OPC, allegedly sold electricity in CEI's territory.

Originally, MCC purchased power from CEI and redistributed it to some of its member/owners. ² MCC was a retail customer of CEI at that time. MCC requested that CEI convert it from a retail customer to a wholesale customer. CEI apparently denied the change. MCC notified CEI that on September 1, 1996, MCC would terminate service with CEI and acquire its power from CPP.

On May 3, 1995 CEI filed a complaint with the commission against MCC, AEP and its generating subsidiaries, including OPC. ³ In re CEI, case No. 95-458-EL-UNC, 1995 WL 735634.

Count one of the complaint alleged that OPC "has arranged to furnish service to [MCC] by selling 50 MW of capacity and associated energy to [CPP]." CEI further alleged that the OCP/CPP transaction and the CPP/MCC transaction "are two halves of the same transaction." CEI alleges that these two transactions "are sham transactions" and were structured to circumvent the Certified Territory Act. Thus, CEI contends OPC will violate the Certified Territory Act by selling power to MCC.

In count two, CEI alleged that MCC may be an electric light company as defined in R.C. 4905.03(A)(4) because it resells electricity to its member/owners. CEI further supports this claim by alleging that MCC intends to build additional facilities to take power at transmission voltages, to change its billing methodology and to sell electricity to non-member/owners, which will make MCC, if it is not already, an electric light company under Ohio law.

Count three alleged that CEI installed generation and distribution systems in reliance on continued service to MCC and its members, and that CEI will suffer financial loss because of the stranded investment associated with MCC leaving CEI's system.

OPC and MCC filed separate motions to dismiss CEI's complaint, alleging in part that the OPC/CPP power purchase agreement was a wholesale transaction that is exclusively under the jurisdiction of the Federal Energy Regulatory Commission ("FERC"). ⁴ CEI has initiated a FERC action seeking to invalidate the agreement for the sale of electricity from OPC to CPP. Petition of Cleveland Elec. Illum. Co., FERC Docket No. EL 96-9-000. OPC and MCC also argued that the Certified Territory Act does not prevent wholesale transactions such as the sale between OPC and CPP. CEI countered the motions to dismiss, contending that the issue before the commission was not the OPC/CPP wholesale transaction individually or the CPP/MCC exempt municipal agreement individually, but rather the "de facto retail" sale between OPC and MCC.

After reviewing the various arguments by the parties, the commission dismissed CEI's complaint, stating:

"Pursuant to Article XVIII, Section 4, of the Ohio Constitution, municipalities in Ohio may own and operate public utilities and may 'contract with others for any product or service.' Moreover, the certified territory statutes (Sections 4933.81-.84, Revised Code) specifically carve out an exception for municipal utilities regarding application of certified territories. Thus, even construing CEI's allegations in this case as true, the existing constitutional and statutory constraints preclude granting the relief sought by CEI. Based on our assessment of the agreed-upon facts and the law, we do not believe that a hearing is warranted or necessary in this case to resolve the strictly jurisdictional issues raised in CEI's complaint."

Thus, the commission dismissed CEI's complaint because it determined that it did not have jurisdiction over either of the two agreements pertaining to the sale of electricity--the OPC/CPP agreement and the CPP/MCC agreement.

The cause is before this court upon an appeal as of right.

Jones, Day, Reavis & Pogue, Paul T. Ruxin, Cleveland, and Helen L. Liebman, Columbus, for appellant, Cleveland Electric Illuminating Company.

Betty D. Montgomery, Attorney General, Duane W. Luckey and Steven T. Nourse, Assistant Attorneys General, for appellee, Public Utilities Commission.

Bell, Royer & Sanders Co., L.P.A., and Barth E. Royer, Columbus, for intervening appellee Medical Center Company.

Edward J. Brady, Marvin I. Resnik and Kevin F. Duffy, Columbus, for intervening appellee Ohio Power Company.

Chester, Willcox & Saxbe, John W. Bentine and Jeffery L. Small, Columbus, urging affirmance for amicus curiae, American Municipal Power-Ohio, Inc.

Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A., John R. Climaco, Columbus, Anthony J. Garofoli, Glenn S. Krassen, Cleveland and Joseph M. Hegedus, Dublin, urging affirmance for amicus curiae, city of Cleveland.

STRATTON, Justice.

The issue to be decided today is, in determining a motion to dismiss a complaint before the commission alleging a violation of the Certified Territory Act, can the commission look beyond two individual contracts, over which the commission admittedly has no jurisdiction, to determine whether the totality of the evidence alleges a potential violation of the Certified Territory Act?

Our review of this issue is a question of law. Accordingly, we address this issue using a de novo standard of review. Indus. Energy Consumers of Ohio Power Co. v. Pub. Util. Comm. (1994), 68 Ohio St.3d 559, 563, 629 N.E.2d 423, 426.

I Standard for Dismissal for Failure to State a Claim

In a civil case before a court, "it must appear beyond doubt from the complaint that the plaintiff can prove no set of facts entitling him to recovery" before a motion to dismiss can be granted. O'Brien v. University Community Tenants Union, Inc. (1975), 42 Ohio St.2d 242, 71 O.O.2d 223, 327 N.E.2d 753, syllabus. Further, in ruling on the motion to dismiss, all material factual allegations of the complaint must be taken as true. See Vail v. Plain Dealer Publishing Co. (1995), 72 Ohio St.3d 279, 649 N.E.2d 182. The commission has adopted the same standard in reviewing motions to dismiss brought under R.C. 4905.26, i.e., that all of the complainants' factual allegations must be taken as true. In re Toledo Premium Yogurt v. Toledo Edison Co. (Sept. 17, 1992), case No. 91-1528-EL-CSS, at 2.

The present case is brought under R.C. 4933.83 of the Certified Territory Act. Thus, the holding in Toledo Premium Yogurt is not directly on point in this case. However, the commission's order of dismissal in this matter indicated that it had accepted all CEI's allegations as true. Accordingly, the commission must accept all allegations as true in determining whether to dismiss a complaint brought under the Certified Territory Act.

In its complaint, CEI alleged that "AEP negotiated directly with Medical Center, either on its own or in conjunction with Cleveland, regarding the 50 MW sale and purchase." CEI also alleged:

"The 50 MW transaction between AEP and Cleveland, and the 50 MW transaction between Cleveland and Medical Center, are two halves of the same transaction. The purchase is in reality a purchase from AEP, and the service provided by Cleveland, a wheeling service to effectuate the Medical Center purchase."

If the above allegations claimed by CEI are taken as true, as is required by the commission's own standards in evaluating a motion to dismiss, then CEI's complaint must survive a motion to dismiss. While the commission may not have jurisdiction over either the OPC/CPP contract or the CPP/MCC contract individually, the totality of the evidence could indicate that the real intention of the deal was to transfer electricity from OPC to MCC using two independent transactions, which would violate the Certified Territory Act.

In such an instance, the commission must look beyond the surface of the two contracts to see if there was an underlying deal between OPC and MCC, thereby establishing a prima facie case of a violation of the Certified Territory Act.

As previously mentioned, the commission's primary reasoning for dismissing this case was its perceived lack of jurisdiction. Specifically, the commission found that it did not have jurisdiction because the CPP/MCC transaction was exempt from being subject to the Certified Territory Act. The commission apparently made a cursory review of count two of CEI's complaint as to whether MCC was an electrical supplier. There was no analysis of count three of CEI's complaint. Therefore, upon remand, the commission should consider CEI's complaint in its entirety.

It is important to note that we make no determination as to the existence or sufficiency of evidence as to the merits of any of CEI's allegations. Such a determination is for the commission alone to make. However, the fact that at least facially, two discrete transactions were used in this purchase should not prevent the commission from determining whether the purchase comports with the Certified Territory Act when viewed in its entirety.

II FERC's Jurisdiction

The...