Sunoco Inc. (r & M) v. Toledo Edison Co.

Decision Date09 June 2011
Docket NumberNo. 2009–0880.,2009–0880.
Citation2011 -Ohio- 2720,953 N.E.2d 285,129 Ohio St.3d 397
PartiesSUNOCO, INC. (R & M), Appellant,v.TOLEDO EDISON COMPANY et al., Appellees.
CourtOhio Supreme Court

OPINION TEXT STARTS HERE

Boehm, Kurtz & Lowry and David F. Boehm, Cincinnati, for appellant.Michael DeWine, Attorney General, and John H. Jones, William L. Wright, and Thomas W. McNamee, Assistant Attorneys General, for appellee Public Utilities Commission of Ohio.Calfee, Halter & Griswold, James F. Lang, Cleveland, and N. Trevor Alexander, Columbus,; and Mark A. Hayden, Akron, for intervening appellee Toledo Edison Company.MCGEE BROWN, J.

[Ohio St.3d 397] Introduction

{¶ 1} Sunoco, Inc. (R & M) owns and operates petroleum-refining facilities in several states, including Oregon, Ohio. Sunoco purchases electric service for its Oregon facility from the Toledo Edison Company, intervening appellee.

{¶ 2} This case involves a contract between Sunoco and Toledo Edison for the sale of electricity. The contract is a “special contract,” approved by appellee Public Utilities Commission of Ohio (“PUCO” or “commission”) pursuant to R.C. 4905.31, which permits “reasonable arrangement[s] between public utilities and their customers. Generally, such contracts include arrangements that differ from the standard rate schedules and are often tailored to a specific customer's service.

{¶ 3} The case also concerns a contract between BP Oil Company and Toledo Edison for the sale of electricity. BP owns and operates a competing refinery located adjacent to Sunoco's refinery. Both the Sunoco and BP contracts contain clauses generally called “most favored nation” clauses. These clauses—titled “Comparable Facility Price Protection”—allow Sunoco and BP to utilize any “arrangement, rates or charges” for their facilities that Toledo Edison has given to the other.

{¶ 4} The sole issue in this case is whether Sunoco could invoke the most-favored-nation clause to extend the duration of its contract with Toledo Edison to match the duration of BP's contract with Toledo Edison. If the clause can be used to extend the contract, then Sunoco would pay the same rate that BP paid for electric service from February 2008 until December 31, 2008. If the contract [Ohio St.3d 398] is not extended, Sunoco would be obligated to pay Toledo Edison over $13 million in higher electric bills.

{¶ 5} The commission found that the plain language of the most-favored-nation clause did not allow Sunoco to extend the duration of its contract to match the duration of BP's contract. We find that the commission committed several errors in construing the language of the most-favored-nation clause. As a result, we reverse the decision of the commission and render judgment in favor of Sunoco.

Facts

{¶ 6} Sunoco, Inc. (R & M) filed a complaint in 2007 against Toledo Edison in the Public Utilities Commission of Ohio. In proceedings before the commission, the parties filed joint stipulations of facts, which include the following information.

{¶ 7} In 1996, Toledo Edison entered into an electric-service contract with Sunoco. Also in 1996, Toledo Edison entered into a similar contract with BP, hereinafter referred to as “the BP Agreement” or “the 1996 Agreement.” The BP Agreement provided that it would remain in effect until June 2006.

{¶ 8} On May 17, 1999, Sunoco and Toledo Edison entered into an electric-service agreement (the “Sunoco Agreement” or “the 1999 Agreement”), which replaced the 1996 Sunoco–Toledo Edison contract. The Sunoco Agreement is a special contract authorized by the PUCO pursuant to R.C. 4905.31. Under the terms of the special contract, Sunoco was entitled to pricing for electric service that was below standard tariff rates. The Sunoco Agreement provided that it would remain in effect through June 2006—the same date as the BP Agreement.

{¶ 9} The Sunoco Agreement and the BP Agreement contained identical most-favored-nation clauses. Generally, Sunoco and BP could utilize the clause to obtain a benefit—in the form of an “arrangement, rates or charges”—that Toledo Edison had given the other. In each of these agreements, the clause was titled “Comparable Facility Price Protection.” No one disputes that Sunoco and BP are comparable facilities as that term is defined in the most-favored-nation clause.

{¶ 10} In late 1999, the General Assembly enacted legislation that restructured Ohio's electric-utility industry to allow retail customers to buy electricity from someone other than their local electric company. See Am.Sub.S.B. No. 3, 148 Ohio Laws, Part IV, 7962. Codified as R.C. Chapter 4928, the legislation was commonly known as “S.B. 3.” What followed was a series of cases at the PUCO involving Toledo Edison and other electric utilities in which the PUCO attempted to ease the transition from a regulated rate structure to a market-rate structure. See the electric-transition-plan (“ETP”) case, In re Application of Ohio Edison Co. (July 19, 2000), PUCO No. 09–1212–EL–ETP; and the rate-stabilization-plan (“RSP”) case, In re Application of Ohio Edison Co. (Oct. 28, 2003), PUCO No. [Ohio St.3d 399] 03–2144–EL–ATA, in which the PUCO allowed Toledo Edison and its large customers to extend the terms of their pre-S.B. 3 service contracts.

{¶ 11} The first extension was proposed through a joint stipulation filed by Toledo Edison and other parties to Toledo Edison's ETP case. The electric-transition-plan stipulation provided that each electric-service customer that had entered into a special contract with Toledo Edison would be given a one-time opportunity to continue, cancel, or extend the terms of its special contracts, provided that those customers gave Toledo Edison timely notice. As was required by the electric-transition-plan stipulation and the commission's order approving that stipulation, Toledo Edison gave notice to each special-contract customer of the option to extend the duration of its contract. Sunoco elected to extend the terms of its 1999 Agreement with Toledo Edison. Likewise, BP elected to extend the terms of its 1996 Agreement with Toledo Edison.1

{¶ 12} The next opportunity to extend occurred in Toledo Edison's RSP case. In that case, the commission again approved a joint stipulation filed by Toledo Edison and other parties allowing Toledo Edison's customers to extend the term of any special contract “upon the request of the customer, or its agent, received within 30 days of the Commission's order in this case.” However, unlike in the ETP case, the stipulation and the PUCO's order in the RSP case did not require Toledo Edison to notify its contract customers of the opportunity to extend, and Toledo Edison did not directly communicate with Sunoco, BP, or any other contract customer regarding this option. Nevertheless, within that 30–day window, BP requested that Toledo Edison extend the 1996 BP Agreement, which Toledo Edison agreed to do. Sunoco did not submit a request to Toledo Edison to extend the Sunoco Agreement.

{¶ 13} A final stipulated contract extension was approved in Toledo Edison's rate-certainty-plan (“RCP”) case, In re Application of Ohio Edison Co., PUCO No. 05–1125–EL–ETA, a case that is still open. The stipulation in the RCP case provided that the special contracts that were extended under the RSP case—such as the BP Agreement—would continue in effect until December 31, 2008. The stipulation further provided that special contracts extended under the ETP case, but not extended under the RSP case—such as the Sunoco Agreement—would continue in effect only until February 2008. Thus, Sunoco's agreement was scheduled to expire ten months before BP's agreement.

{¶ 14} On or about May 16, 2007, Toledo Edison informed Sunoco that the Sunoco Agreement would terminate in February 2008.

[Ohio St.3d 400] {¶ 15} On November 13, 2007, Sunoco sent a letter to Toledo Edison stating that Sunoco “is exercising its right under the [Sunoco] Agreement to utilize the BP Oil Company arrangement including, in particular, the term of that arrangement which has been extended until December 31, 2008 and disputing Toledo Edison's right to terminate the Sunoco Agreement in February 2008. Sunoco invoked the most-favored-nation clause in its 1999 Agreement with Toledo Edison as evidence that the duration of Sunoco's agreement must match the duration of the BP Agreement.

{¶ 16} On November 16, 2007, Toledo Edison responded with a letter to Sunoco stating that it has “a different interpretation of the impact of the provision of the contract,” disputing that Sunoco had the right to extend the term of the Sunoco Agreement until December 31, 2008.

{¶ 17} On December 6, 2007, Sunoco filed a complaint with the commission against Toledo Edison under R.C. 4905.26. Sunoco challenged Toledo Edison's refusal to extend the duration of the Sunoco Agreement to December 31, 2008. The complaint alleged that if the agreement was terminated in February 2008, as Toledo Edison intended, Sunoco's electric bills would be “millions of dollars higher,” and Sunoco would “operate at a competitive disadvantage to the adjacent BP facility.”

{¶ 18} On February 20, 2008, Sunoco agreed to pay into an escrow account the difference between what Sunoco and Toledo Edison alleged should be the cost of Sunoco's electric service between its February 2008 billing date and December 31, 2008.

{¶ 19} On February 19, 2009, the commission issued its order denying Sunoco's complaint. The commission found that the most-favored-nation clause was a price-protection provision that was limited in its application to rates and charges for electrical service. Accordingly, the commission held that Sunoco had not provided sufficient evidence to show that the most-favored-nation clause allowed Sunoco to extend the duration of its contract to December 31, 2008, to match the termination date of the BP agreement.

{¶ 20} Sunoco filed a timely application for rehearing. The commission denied Sunoco's application.

{¶ 21}...

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