Cleveland Elec. Illuminating Co. v. City of Cleveland

• Decision Date: 09 January 2020
• Docket Number: No. 108560,108560
• Citation: 139 N.E.3d 996,2020 Ohio 33
• Parties: The CLEVELAND ELECTRIC ILLUMINATING CO., Plaintiff/Counterclaim Defendant-Appellant, v. CITY OF CLEVELAND, et al., Defendants/Counterclaim Plaintiffs-Appellees.
• Court: Ohio Court of Appeals

139 N.E.3d 996

2020 Ohio 33

The CLEVELAND ELECTRIC ILLUMINATING CO., Plaintiff/Counterclaim Defendant-Appellant,

v.CITY OF CLEVELAND, et al., Defendants/Counterclaim Plaintiffs-Appellees.

No. 108560

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

RELEASED AND JOURNALIZED: January 9, 2020

Benesch, Friedlander, Coplan & Aronoff L.L.P., Gregory J. Phillips, Michael J. Montgomery, Michael D. Meuti, James E. von der Heydt, and James J. Walsh, Jr., for appellant.

Carpenter Lipps & Leland L.L.P., Kimberly W. Bojko, Angela Paul Whitfield, and Stephen E. Dutton, for appellees city of Cleveland and Cleveland Public Power.

Kevin M. Butler, for appellee city of Brooklyn.

Bricker & Eckler L.L.P., Drew H. Campbell, and Elyse Akhbari, for appellee Cuyahoga County.

JOURNAL ENTRY AND OPINION

EILEEN A. GALLAGHER, J.:

{¶ 1} This case involves a dispute as to whether defendants/counterclaim-plaintiffs-appellees the city of Cleveland and Cleveland Public Power ("CPP") (collectively, "the city") violated Sections 4 and 6, Article XVIII, of the Ohio Constitution by purchasing electricity and reselling it to customers outside Cleveland's municipal boundaries. Plaintiff/counterclaim defendant-appellant The Cleveland Electric Illuminating Co. ("CEI") appeals from the trial court's decision (1) granting the city's motion for summary judgment on CEI's claims for declaratory judgment, tortious interference with contract/business relations and unfair competition and (2) denying its own motion for summary judgment on its claim for declaratory judgment. CEI contends that the Ohio Constitution prohibits a municipality from purchasing more electricity than is needed by its inhabitants and reselling the excess electricity to customers outside the municipality. The city contends that the only constitutional restriction on its ability to sell electricity outside its municipal boundaries is a "fifty percent limitation," i.e., that the city may not sell more than "fifty per cent of the total service or product supplied by such utility within the municipality" to customers outside the municipality (the "50 percent limitation"), and that the trial court properly granted its motion for summary judgment and denied CEI's motion for summary judgment because there is no genuine issue of fact that the city's extraterritorial sales of electricity did not exceed the fifty percent limitation. For the reasons that follow, we reverse the trial court's decision granting summary judgment in favor of the city on CEI's counterclaims and remand for further proceedings.

Factual and Procedural Background

The City's Purchase and Supply of Electricity to Customers

{¶ 2} CPP was established in 1906. CPP, a division of Cleveland's Department of Public Utilities, is a municipally owned electric company that supplies electric energy to its customers, most of whom are located in Cleveland. During the early years of its operation, CPP sold electricity to customers that it had generated from its own power plants. In 1977, CPP shut down most of its generating units and ceased generating any significant amount of electricity.

{¶ 3} CPP's primary competitor is CEI, a public utility regulated by the Ohio Public Utilities Commission ("PUCO") that distributes electric power to customers in northeast Ohio pursuant to the Certified Territory Act. As a regulated public utility, CEI has the exclusive right to provide electric service to customers within its assigned territory, subject to municipalities' "home rule authority" under Sections 4 and 6 of Article XVIII of the Ohio Constitution (" Sections 4 and 6"). See R.C. 4933.83 ; Cleveland Elec. Illum. Co. v. Pub. Util. Comm. , 76 Ohio St.3d 521, 521, 525-526, 668 N.E.2d 889 (1996), fn. 1 ; Toledo Edison Co. v. Bryan , 90 Ohio St.3d 288, 288, 737 N.E.2d 529 (2000). Sections 4 and 6 grant municipalities the right to produce or purchase electricity for their inhabitants and the right to sell limited amounts of surplus electricity to entities outside the geographic boundaries of the municipality. Id.

{¶ 4} Today, most electricity is generated by large, privately owned facilities and then transmitted to resellers, e.g., electricity utility companies, which pull electricity from the national transmission grid and supply that electricity to end users. Regional transmission organizations ("RTOs") provide access to the transmission grid and enable participants to buy and sell electricity through these wholesale markets, matching demand for electricity with offers to provide it. PJM, the RTO in which CPP's and CEI's service territories are located, manages the transmission grid in 13 states and the District of Columbia. The price of electricity can be negotiated and predetermined by contract or determined by auction in the wholesale energy markets.

{¶ 5} CPP employs a "portfolio approach" to procure the electricity it needs to service its customers. According to Christopher Williams, CPP's manager for energy markets, CPP forecasts its electricity needs on both a monthly and annual basis, i.e., "we typically go about a year in advance in terms of an in-depth kind of look at where we expect our load to be," "analyze and look at our monthly peaks and then we make purchases according to meeting our needs." CPP's current "power supply portfolio" consists of: (1) contracts for energy purchases from certain renewable energy generation projects, including the Brooklyn solar project and a wind project,¹ (2) long-term contractual relationships with several generating facilities through its membership in American Municipal Power, Inc. ("AMP"), a consortium of municipalities that owns and operates power plants, (3) contracts of "various quantities and terms from a variety of wholesale market-based suppliers," including spot, medium and long-term market purchases from the PJM wholesale markets and (4) the energy generated by several combustion turbine generating units and diesel generators.

CPP Provides Electricity to Customers in Brooklyn

{¶ 6} In April 2017, the Brooklyn City Council passed an ordinance consenting to CPP's construction of distribution facilities in Brooklyn, Ohio and granting CPP a "nonexclusive franchise" to provide electricity service to customers in Brooklyn. In March 2018, Cleveland entered into a "customer agreement" with Brooklyn to provide electricity to seven of its municipal buildings located in Brooklyn with an anticipated "maximum demand or capacity of 1,000 kWd." The agreement was for an initial term of ten years "from the date permanent electric service is initially provided" at the rates specified in CPP's "capacity enhancement incentive rate schedule," i.e., the rate schedule "applicable to all new commercial customers who have not received Cleveland Public Power service at their present location in the preceding two years, who enter into a written 10-year contract for service anticipated to commence in 2010, who will be served by distribution capacity created as part of Cleveland Public Power's ‘Capacity Enhancement Program,’ and whose peak demand is equal to or in excess of 150 kilowatts." The agreement stated that it could be extended for an additional five years. The rate in effect during the five-year renewal period would be "the amount Consumer would have paid each year under the then-current standard tariff of the Cleveland Electric Illuminating Company" less "discounts" ranging from one percent to five percent. Under the terms of the agreement, CPP was to be Brooklyn's exclusive supplier, i.e., Brooklyn agreed that it would "not contract with any other electric utility for electric service to be supplied during the term of [the] [a]greement." Brooklyn further agreed that if it were to discontinue its service with the city in violation of the agreement, it would be "liable to repay CPP the savings that resulted from the discount," i.e., "the difference between the amount [Brooklyn] would have paid under the applicable CEI standard tariff and the amount [Brooklyn] paid under [the] Agreement," as well as installation costs and all damages sustained by the city. CPP thereafter began constructing distribution lines through Brooklyn to connect to CPP's lines in Cleveland.

{¶ 7} On May 9, 2018, CEI filed a complaint for a temporary restraining order and preliminary injunction, asserting claims of trespass, negligence/negligence per se and public and private nuisance against the city arising out of CPP's construction of distribution lines to service customers in Brooklyn. CEI alleged that CPP, without notice to CEI, had "begun affixing equipment to CEI's active power lines and placing CPP's new wires on top of — and in physical contact with — CEI's existing energized conductor lines." CEI claimed that this presented an "immediate risk of injury or death" as well as the potential for power losses to customers. CEI requested an injunction "preventing further work by CPP for a reasonable time to ensure that CPP adequately informs and involves CEI in the project to ensure that CPP performs the project safely and avoids injury to persons and damage to CEI's property." On May 15, 2018, the parties reached a settlement relating to CEI's request for a temporary restraining order.

{¶ 8} On July 2, 2018, CEI filed an amended complaint, asserting claims for declaratory judgment, tortious inference with contract/business relations and unfair competition against Cleveland and CPP. CEI alleged that CPP, through its purchases of electricity from the Brooklyn solar project and other sources, was "purchasing an ‘artificial surplus’ of electricity for resale outside its municipal territory at rates that undercut the statutory minimum rates for utilities regulated by [PUCO]" in violation of Sections 4 and 6 of Article XVIII of the Ohio Constitution. CEI further alleged that, by entering into an agreement with Brooklyn for the provision of electricity to Brooklyn municipal buildings to which CEI "had long provided electricity," CPP had...