In re Columbus S. Power Co.

• Decision Date: 06 December 2012
• Docket Number: No. 2011–0751.,2011–0751.
• Citation: 134 Ohio St.3d 392,983 N.E.2d 276
• Parties: In re Application of COLUMBUS SOUTHERN POWER COMPANY for Administration of the Significantly Excessive Earnings Test; Ohio Energy Group et al., Appellants and Cross–Appellees; Columbus Southern Power Company, Appellee and Cross–Appellant; Public Utilities Commission of Ohio, Appellee.
• Court: Ohio Supreme Court

134 Ohio St.3d 392

983 N.E.2d 276

In re Application of COLUMBUS SOUTHERN POWER COMPANY for Administration of the Significantly Excessive Earnings Test; Ohio Energy Group et al., Appellants and Cross–Appellees; Columbus Southern Power Company, Appellee and Cross–Appellant; Public Utilities Commission of Ohio, Appellee.

No. 2011–0751.

Supreme Court of Ohio.

Submitted March 21, 2012.

Decided Dec. 6, 2012.

McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr, and Joseph E. Oliker, Columbus, for appellant and cross-appellee Industrial Energy Users–Ohio.

Boehm, Kurtz & Lowry, David F. Boehm, and Michael L. Kurtz, Cincinnati, for appellant and cross-appellee Ohio Energy Group.

Bruce J. Weston, Ohio Consumers' Counsel, Maureen R. Grady, Columbus, Melissa R. Yost, and Kyle L. Verrett, for appellant and cross-appellee Ohio Consumers' Counsel.

Steven T. Nourse and Matthew J. Satterwhite; Porter, Wright, Morris & Arthur, L.L.P., Kathleen M. Trafford, and Daniel R. Conway, Columbus, for appellee and cross-appellant Columbus Southern Power Company.

Michael DeWine, Attorney General, William L. Wright, Section Chief, and Thomas W. McNamee, Assistant Attorney General, for appellee Public Utilities Commission of Ohio.

Arthur E. Korkosz, Akron, and Carrie M. Dunn, for amici curiae Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company.

Colleen L. Mooney, for amicus curiae Ohio Partners for Affordable Energy.

CUPP, J.

[Ohio St.3d 392]{¶ 1} Electric distribution utilities that opt to provide service under an electric security plan (“ESP”) must undergo an annual earnings review. If their plan resulted in “significantly excessive earnings” compared to similar companies, the utility must return the excess to its customers. R.C. 4928.143(F). In the case below, the Public Utilities Commission found that Columbus Southern Power's 2009 earnings were significantly excessive by over $42 million.

{¶ 2} There are three appeals from the order. Columbus Southern Power (“CSP”) asserts that R.C. 4928.143(F) is unconstitutionally vague, and the Ohio Energy Group and the Office of the Ohio Consumers' Counsel (collectively, “OEG”) and Industrial Energy Users–Ohio (“IEU”) raise different arguments that the commission erred in applying the statute. After careful review of these appeals, we find merit in none of the arguments, and we affirm.

Factual and Procedural Background

{¶ 3} Ohio requires electric distribution utilities to provide consumers with “a standard service offer of all competitive retail electric services necessary to maintain essential electric service to consumers, including a firm supply of electric generation service.” R.C. 4928.141(A). “The utility may provide the offer in one of two ways: through a ‘market rate offer’ under R.C. 4928.142 or [Ohio St.3d 393]through an ‘electric security plan’ under R.C. 4928.143.” In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 5. The American Electric Power operating companies, CSP and Ohio Power, chose to provide service under an ESP.

{¶ 4} The statute does not provide a detailed mechanism for establishing rates under an ESP. Plans may contain any number of provisions within a variety of categories so long as the plan is “more favorable in the aggregate” than the expected results of a market-rate offer. R.C. 4928.143(C)(1). But the statute does contain some limits, one of which is at issue in this case.

{¶ 5} R.C. 4928.143(F) requires the commission annually to consider whether the ESP resulted in “significantly excessive earnings” compared to companies facing “comparable” risk:

With regard to the provisions that are included in an electric security plan under this section, the commission shall consider, following the end of each annual period of the plan, if any such adjustments resulted in excessive earnings as measured by whether the earned return on common equity of the electric distribution utility is significantly in excess of the return on common equity that was earned during the same period by publicly traded companies, including utilities, that face comparable business and financial risk, with such adjustments for capital structure as may be appropriate. Consideration also shall be given to the capital requirementsof future committed investments in this state.

{¶ 6} The utility bears the “burden of proof for demonstrating that significantly excessive earnings did not occur.” Id. If the commission “finds that such adjustments, in the aggregate, did result in significantly excessive earnings, it shall require the electric distribution utility to return to consumers the amount of the excess by prospective adjustments.” Id.

{¶ 7} In the case below, the commission reviewed the companies' 2009 earnings. The companies had proposed to exclude from review certain revenue from “off-system sales,” that is, wholesale sales by the companies to nonretail customers. Several intervenors opposed the companies' analysis. OEG argued that the statute did not permit the commission to exclude any earnings from review. IEU, in contrast, argued that many more items of revenue should have been excluded. And CSP and Ohio Power argued that the statute requiring earnings review was unconstitutionally vague.

{¶ 8} The commission rejected all of these challenges. On the merits, the commission eliminated the off-system-sales revenue from review. Pub. Util. [Ohio St.3d 394]Comm. No. 10–1261–EL–UNC (Jan. 11, 2011) (the “order”) at 27–30. After making this adjustment, it found that Ohio Power “did not have significantly excessive earnings.” Id. at 35. CSP, on the other hand, was found to have had over $42 million in significantly excessive earnings. Id.

{¶ 9} IEU and OEG appealed, and CSP filed a cross-appeal. The Ohio Partners for Affordable Energy filed an amicus brief, as did the FirstEnergy operating companies.

Discussion

{¶ 10} This case presents three separate appeals. CSP raises a constitutional, void-for-vagueness challenge; OEG and IEU raise different arguments, each asserting that the commission misapplied the statute. We consider CSP's constitutional argument first.

CSP's Argument

{¶ 11} CSP offers a single argument for overturning the order—that the statute requiring earnings review, R.C. 4928.143(F), is unconstitutionally vague. According to CSP, that section “fails to provide electric distribution utilities with fair notice, or the commission with meaningful standards, as to what is meant by ‘significantly excessive earnings.’ ” CSP is incorrect, and we hold that the statute is constitutional.

I. Standard of review

{¶ 12} First, as a general matter, CSP bears a heavy burden of proof in challenging the constitutionality of an Ohio statute. CSP must establish beyond a reasonable doubt that the statute is unconstitutional. Arnold v. Cleveland, 67 Ohio St.3d 35, 38–39, 616 N.E.2d 163 (1993).

{¶ 13} CSP's vagueness challenge faces an uphill climb for another reason. Tolerance for vagueness “depends in part on the nature of the enactment.” Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982). Some statutes trigger relatively strict vagueness review, such as eminent-domain statutes, Norwood v. Horney, 110 Ohio St.3d 353, 2006-Ohio-3799, 853 N.E.2d 1115, ¶ 88, statutes imposing criminal sanctions, Roark & Hardee L.P. v. Austin, 522 F.3d 533, 552 (5th Cir.2008), and statutes implicating constitutionally protected rights, Columbia Gas Transm. Corp. v. Levin, 117 Ohio St.3d 122, 2008-Ohio-511, 882 N.E.2d 400, ¶ 42.

{¶ 14} In contrast, “laws directed to economic matters are subject to a less strict vagueness test than laws interfering with the exercise of constitutionally protected rights.” Id.;see also, e.g.,Hoffman Estates, 455 U.S. at 498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (“economic regulation is subject to a less strict vagueness test * * * ”). That is, a[Ohio St.3d 395]“ greater degree of ambiguity will be tolerated in statutes which * * * merely impose civil, as opposed to criminal penalties” and “when the statute regulates the conduct of businesses.” Big Bear Super Market No. 3 v. Immigration & Naturalization Serv., 913 F.2d 754, 757 (9th Cir.1990). Compare United States v. Dimitrov, 546 F.3d 409, 414 (7th Cir.2008) (upholding a statute imposing criminal sanctions when a defendant “operated his business in a highly regulated industry”).

{¶ 15} R.C. 4928.143(F) is a civil statute directed to economic matters in a highly regulated industry, and it does not implicate any constitutionally protected conduct. Therefore, we apply a less strict vagueness test.

{¶ 16} CSP rejoins that Norwood v. Horney, 110 Ohio St.3d 353, 2006-Ohio-3799, 853 N.E.2d 1115, requires heightened scrutiny here because this case involves “the taking of private property rights.” We did not formulate our holding in Norwood so broadly, however. We held that heightened scrutiny applies “when a court reviews an eminent-domain statute or regulation.” Id. at ¶ 88. CSP makes no express argument that R.C. 4928.143(F) qualifies as “an eminent-domain statute.”

{¶ 17} Norwood does not require heightened scrutiny here. In that case, we analyzed a law providing for the physical appropriation of real estate for public use, not a law (like this one) that imposes a monetary assessment. Whether such a law causes a taking is a difficult question, and CSP does not address it. See, e.g.,McCarthy v. Cleveland, 626 F.3d 280, 285 (6th Cir.2010) (“all circuits that have addressed the issue have uniformly found that a taking does not occur when the statute in question imposes a monetary assessment that does not affect a specific interest in property”); see also Swisher Internatl., Inc. v. Schafer, 550 F.3d 1046, 1057 (11th Cir.2008), citing E. Ents. v. Apfel, 524 U.S. 498, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (“Five Supreme Court Justices have expressed the view that the Takings Clause does not apply...