Cleveland Electric Illuminating Co. v. Cleveland
| Decision Date | 21 December 2021 |
| Docket Number | 2020-0277 |
| Citation | 167 Ohio St.3d 153,190 N.E.3d 571 |
| Parties | The CLEVELAND ELECTRIC ILLUMINATING CO., Appellant and Cross-Appellee, v. The City of CLEVELAND et al., Appellees and Cross-Appellants. |
| Court | Ohio Supreme Court |
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., Cleveland, for appellant and cross-appellee.
Carpenter, Lipps & Leland, L.L.P., Kimberly W. Bojko, Angela Paul Whitfield, and Stephen E. Dutton, for appellees and cross-appellants the city of Cleveland and Cleveland Public Power.
Bricker & Eckler, L.L.P., Drew H. Campbell, and Elyse Akhbari, Columbus, for appellee and cross-appellant Cuyahoga County.
Kevin M. Butler, Brooklyn Law Director, for appellee and cross-appellant city of Brooklyn.
Thompson Hine, L.L.P., and Stephanie M. Chmiel ; Columbus, and Kurt Helfrich and Lija Kaleps-Clark, urging reversal for amici curiae Buckeye Power, Inc., and Ohio Rural Electric Cooperatives, Inc.
Steven T. Nourse, Columbus, urging reversal for amicus curiae Ohio Power Company.
James E. McLean, urging reversal for amicus curiae Duke Energy Ohio, Inc.
Michael J. Schuler, urging reversal for amicus curiae the Dayton Power and Light Company.
Lisa G. McAlister and Gerit F. Hull, for amicus curiae American Municipal Power, Inc., in support of appellees and cross-appellants.
Lisa G. McAlister, for amicus curiae Ohio Municipal Electric Association, in support of appellees and cross-appellants.
Garry E. Hunter ; Athens, and Paul W. Flowers Co., L.P.A., Paul W. Flowers, and Louis E. Grube, Cleveland, for amicus curiae Ohio Municipal League, in support of appellees and cross-appellants.
Stewart, J., announcing the judgment of the court.
{¶ 1} Article XVIII, Section 6 of the Ohio Constitution allows a municipality that operates a public utility for the purpose of supplying the utility's product to the municipality or its inhabitants to generate or purchase electricity and sell outside the municipality's boundaries up to 50 percent of the "surplus product." The Ohio Constitution, however, "necessarily precludes a municipality from purchasing electricity solely for the purpose of reselling the entire amount of the purchased electricity to an entity outside the municipality's geographic limits." Toledo Edison Co. v. Bryan , 90 Ohio St.3d 288, 293, 737 N.E.2d 529 (2000). In this appeal, we consider the concept of an "artificial surplus" of electricity and whether a municipality violates Article XVIII, Section 6 by selling such a surplus to customers outside the municipality's boundaries.
{¶ 2} In 2001, Ohio deregulated the electricity industry. See Migden-Ostrander v. Pub. Util. Comm. , 102 Ohio St.3d 451, 2004-Ohio-3924, 812 N.E.2d 955, ¶ 2. Deregulation led to the rise of wholesale markets through which electricity distributers may purchase electricity on demand based on the current power needs of its customers. See generally In re Ohio Power Co. , 155 Ohio St.3d 320, 2018-Ohio-4697, 121 N.E.3d 315. Appellee and cross-appellant the city of Cleveland, through its electricity-distribution company, appellee and cross-appellant Cleveland Public Power ("CPP") (collectively, "the city"), sells surplus electricity outside its boundaries in an amount representing approximately 4 percent of the electricity that the city sells inside its boundaries. Appellant and cross-appellee, the Cleveland Electric Illuminating Company ("CEI"), argues that because the city may purchase the precise amount of electricity required to satisfy the current demands of its territorial customers, the electricity that the city sells extraterritorially as surplus is necessarily acquired solely to sell it beyond the city's boundaries, in violation of this court's decision in Toledo Edison Co. and the Ohio Constitution.
{¶ 3} The Eighth District Court of Appeals determined that Article XVIII, Section 6 of the Ohio Constitution does not require a municipality to buy "the exact amount" of electricity required by its inhabitants at any given time and that there may be other reasons justifying the purchase of electricity beyond a municipality's immediate needs. 2020-Ohio-33, 139 N.E.3d 996, ¶ 36. We agree. Neither Article XVIII, Section 6 nor this court's decision in Toledo Edison Co. requires a municipality to purchase the exact amount of electricity required to satisfy the current needs of its territorial customers. Although a municipal utility may not acquire surplus product for the sole purpose of selling it extraterritorially, it may acquire excess capacity for purposes other than reselling it as surplus beyond the municipality's boundaries without violating the Ohio Constitution. We also agree with the court of appeals that questions of material fact exist as to whether the city obtained surplus electricity for the sole purpose of selling it to a neighboring city. We therefore affirm the judgment of the Eighth District.
Factual and procedural background
{¶ 4} CEI is an investor-owned utility company regulated by the Public Utilities Commission of Ohio ("PUCO"). See R.C. 4905.04 (). Article XVIII, Section 4 of the Ohio Constitution and Cleveland City Charter Chapter 523 authorize the city to operate CPP. Both CEI and CPP distribute electricity and directly compete with each other to provide distribution services in Cleveland.
{¶ 5} Both CEI and CPP purchase electricity through the wholesale electricity market. PJM Interconnection, L.L.C. ("PJM"), a regional transmission organization ("RTO"), runs the wholesale electricity market in Ohio. PJM's mission is to ensure nondiscriminatory access to the electricity-transmission grid. PJM manages the generation, transmission, and distribution of electricity within its assigned area by establishing pricing at auction, with market administrators using algorithms to match the least expensive generation-supply resource with customer demand. PJM's customers may buy electricity one day in advance of its expected use based on expected customer demand or on a real-time basis to account for differences between expected and actual customer demand.
{¶ 6} Along with wholesale electricity bought through PJM, CPP has an interest in several electricity-generation plants through its membership in American Municipal Power ("AMP"), a nonprofit wholesale-power supplier representing municipalities in Ohio and other states. Through AMP, the city has a portfolio of power-generation interests, including hydroelectric, wind, natural gas, and coal. Some of those interests require long-term purchases that CPP uses to mitigate the risk of volatility in the PJM energy markets. CPP's commitments for long-term purchases from AMP projects and generation assets will result in CPP's cost of electricity dropping dramatically when it pays off the bonds used to finance construction relating to the projects.
{¶ 7} In 2017, the city agreed to buy all the electricity generated by a solar-energy project in the city of Brooklyn. The city planned to use the electricity generated by the project to supply power to buildings owned by Cuyahoga County. The city also signed a ten-year agreement to be the exclusive electricity provider to several municipal buildings in Brooklyn.
{¶ 8} CEI filed in the Cuyahoga County Court of Common Pleas a declaratory-judgment action against Cleveland and CPP, alleging that the city had unlawfully signed an agreement to sell electricity to Brooklyn at a rate 5 percent below CEI's statutorily mandated tariff. CEI claimed that the city extended distribution lines from the solar-energy project solely to poach CEI's customers. It alleged that the city did not need the electricity generated by the solar project to serve its own citizens, because it could satisfy its territorial demands solely with wholesale electricity purchases, so "any and all sales of electricity to Brooklyn, the inhabitants of Brooklyn, and other customers outside Cleveland's municipal boundaries will derive from an artificial surplus intentionally sustained and increased by CPP, acting as a de facto extraterritorial broker."
{¶ 9} The parties submitted cross-motions for summary judgment. The trial court determined that electricity from the solar project would be used to serve 12 Cuyahoga County properties and customers in Brooklyn. It also determined that the city had sold as surplus outside its boundaries "a very small percentage" of the total electricity that it had sold to customers within its boundaries and that the amount was "nowhere near" the 50 percent limitation for selling surplus product under Article XVIII, Section 6 of the Ohio Constitution. Finding that the electricity that the city had sold outside its boundaries did not exceed the constitutional limitation, the trial court granted the city's motion for summary judgment on that claim.
{¶ 10} CEI appealed the trial court's judgment to the Eighth District Court of Appeals, arguing that the trial court erred by not granting summary judgment in its favor and by granting summary judgment to the city. The Eighth District reversed the grant of summary judgment in favor of the city. Although the court of appeals agreed with CEI that the trial court erred in granting summary judgment to the city because the record did not demonstrate that all the city's electricity purchases are for the purpose of providing service to customers within the city's boundaries, the court refused to conclude that any surplus electricity CPP possesses is an artificial surplus acquired only for the purpose of selling it outside the city's boundaries. 2020-Ohio-33, 139 N.E.3d 996, at ¶ 35-39. The court determined that a municipality may, consistent with the Ohio Constitution, "acquire a surplus of electricity for reasons other than ‘solely for the purpose of reselling’...
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