Vectren Energy Delivery v. Pub. Util. Comm.

Decision Date11 April 2007
Docket NumberNo. 2006-0367.,2006-0367.
Citation113 Ohio St.3d 180,2006 Ohio 1386,863 N.E.2d 599
CourtOhio Supreme Court

Ann M. Hotz, Assistant Consumers' Counsel, for appellee Ohio Consumers' Counsel.



{¶ 1} This is an appeal as of right by appellant, Vectren Energy Delivery of Ohio, Inc. ("Vectren"), from orders of the Public Utilities Commission of Ohio ("commission" or "PUCO"). The Office of Consumers' Counsel ("OCC") is an intervening appellee in this appeal.

{¶ 2} Vectren is a natural gas company as defined by R.C. 4905.03(A)(6). Pursuant to R.C. 4905.302, a natural gas company may recover costs incurred in obtaining the gas it sells to customers by adjusting the rates it charges under the gas-cost-recovery clause in the company's rate schedules. The commission has authority to review a company's gas-procurement policies and practices. R.C. 4905.302(C). The PUCO reviewed the gas costs reflected in Vectren's gas-cost-recovery rates and ordered Vectren to refund some costs to the company's customers, as described below.

{¶ 3} Vectren began business as a natural gas company when it acquired the natural gas assets of the Dayton Power & Light Company ("DP & L").1 Vectren took control of DP & L's assets and assumed DP & L's obligations as a local distributor of natural gas services on November 1, 2000, the day the 2000-2001 winter heating season began.

{¶ 4} Pursuant to R.C. 4905.302 and Ohio Adm.Code 4901:1-14-07(A), the commission ordered an audit to investigate Vectren's gas-cost-recovery rates for the audit period covering November 1, 2000, through October 31, 2002. Liberty Consulting Group ("Liberty") conducted the audit of Vectren and filed a report with the commission on August 15, 2003.

{¶ 5} OCC was permitted to intervene in the proceeding on behalf of Vectren's residential customers. Written testimony was submitted, and an evidentiary hearing was held in November and December 2003. Vectren, the commission's staff, and OCC filed posthearing briefs.

{¶ 6} On June 14, 2005, the commission issued its opinion and order in Vectren's gas-cost-recovery proceeding. The commission found that in certain instances, Vectren had acted unreasonably, imprudently, or inappropriately in procuring gas during the audit period. Specifically, the commission took issue with three winter-delivery service contracts that Vectren had entered into that resulted in unused, excess natural gas capacity during the audit period. The commission also found that the terms of Vectren's asset-management agreement with its affiliate, ProLiance Energy L.L.C. ("ProLiance"), were not prudent, reasonable, or appropriate. The commission concluded that Vectren's customers should not be responsible for the inappropriate excess-capacity costs of the winter-delivery service contracts and that Vectren's customers had been harmed as a result of the ProLiance contract. Accordingly, the commission determined that six adjustments to Vectren's gas-cost-recovery rates were warranted, and it ordered Vectren to refund, by those adjustments, over $9.5 million in gas supply costs that Vectren had previously collected from customers.

{¶ 7} Vectren filed a timely application for rehearing. On August 10, 2005, the commission granted the application in part, finding that Vectren had set forth sufficient reasons to warrant reconsideration of the adjustment related to the ProLiance contract and the calculation of interest of all adjustments in the June 14, 2005 order. The commission reduced the refund owed by Vectren to its customers in connection with the ProLiance contract from $3.83 million to $1.98 million. The commission also changed the date when interest would begin to accrue on the ordered refund.

{¶ 8} Vectren's appeal as of right is now before this court. Based on the following reasons, we affirm the PUCO's orders.

Standard of Review

{¶ 9} R.C. 4903.13 provides that we may reverse, vacate, or modify a PUCO order only when, upon consideration of the record, we find the order to be unlawful or unreasonable. We will not reverse or modify a PUCO decision as to questions of fact where the record contains sufficient probative evidence to show that the commission's decision was not manifestly against the weight of the evidence and was not so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Monongahela Power Co. v. Pub. Util. Comm., 104 Ohio St.3d 571, 2004-Ohio-6896, 820 N.E.2d 921, at ¶ 29. The appellant bears the burden of demonstrating that the PUCO's decision is against the manifest weight of the evidence or is clearly unsupported by the record. Id. Although we have "complete and independent power of review as to all questions of law" in appeals from the PUCO, Ohio Edison Co. v. Pub. Util. Comm. (1997), 78 Ohio St.3d 466, 469, 678 N.E.2d 922, we may rely on the expertise of a state agency in interpreting a law where "highly specialized issues" are involved and "where agency expertise would, therefore, be of assistance in discerning the presumed intent of our General Assembly." Consumers' Counsel v. Pub. Util. Comm. (1979), 58 Ohio St.2d 108, 110, 12 O.O.3d 115, 388 N.E.2d 1370.

Proposition of Law No. I
Winter Delivery Service-1 and Winter Delivery Service-3 Contracts

{¶ 10} In its first proposition of law, Vectren challenges the PUCO's finding that it did not act reasonably, prudently, or appropriately when it executed the first winter-delivery service ("WDS-1") contract and the third winter-delivery service ("WDS-3") contract. Vectren argues that its actions in executing these contracts are entitled to a presumption of reasonableness and were based on forecast methods, assumptions, reserves, and resource plans that had been reviewed and approved by the PUCO in proceedings on the company's long-term-forecast reports.

{¶ 11} R.C. 4935.04(C) requires natural gas companies like Vectren to file annually a long-term-forecast report.2 The purpose of the long-term-forecast report is to project customers' future demands for gas and to determine how to acquire sufficient commodity and pipeline resources to meet demand. See In the Matter of the Long-Term Forecast Report of Vectren Energy Delivery of Ohio and Related Matters, PUCO No. 00-120-GA-FOR (Sept. 25, 2001), 2001 WL 1518351, at 3. Among other items, long-term-forecast reports are required to contain a year-by-year ten-year forecast of annual energy demand, peak load, and reserves, and a general description of the resource plan to meet demand. R.C. 4935.04(C)(1). The reports must also contain a projection of anticipated supply, supply prices, and sources of supply over the forecast period. R.C. 4935.04(C)(4).

{¶ 12} R.C. 4935.04(D)(1) requires the PUCO to review and comment on long-term-forecast reports, and subsection (D)(3) requires that a hearing be held at least once every five years. The scope of the hearing is "limited to issues relating to forecasting." R.C. 4935.04(E)(1).

{¶ 13} Under R.C. 4935.04(F), the PUCO shall determine whether the following are true:

{¶ 14} "(2) The load requirements are based on substantially accurate historical information and adequate methodology;

{¶ 15} "(3) The forecasting methods consider the relationship between price and energy consumption;

{¶ 16} "(4) The report identifies and projects reductions in energy demands due to energy conservation measures * * * in the [utility's] service area {¶ 17} "(5) Utility company forecasts of loads and resources are reasonable in relation to population growth estimates * * *;

{¶ 18} "* * *

{¶ 19} "(7) All assumptions made in the forecast are reasonable and adequately documented."

{¶ 20} During the gas-cost-recovery audit period under review in this matter — November 1, 2000, through October 31, 2002 — the PUCO approved the 2000 long-term-forecast report filed by Vectren and determined that no hearings were required on the 2001 and 2002 reports.3

{¶ 21} Vectren claimed that it entered into the WDS-1 and WDS-3 contracts to meet design-day4 forecasting requirements and a reserve margin that were set forth in its 2000 and 2001 long-term-forecast reports. Vectren passed the demand and commodity costs of these contracts through to its customers who were subject to gas-cost recovery. The PUCO found, however, that Vectren's forecasting methodology was too conservative and that its use of a five-percent reserve margin was improper. The PUCO, therefore, concluded that the WDS-1 and WDS-3 contracts resulted in inappropriate excess-capacity costs to Vectren's customers in the amount of $2,387,965.

{¶ 22} Statutory authority. Vectren first argues that in gas-cost-recovery proceedings the PUCO has no statutory authority to conduct a de novo consideration of issues that were open to investigation in long-term-forecast proceedings. Vectren claims that the PUCO erred when it overturned, in this gas-cost-recovery proceeding, its prior findings, in Vectren's long-term-forecast proceedings, that Vectren's forecasting assumptions and methodology were reasonable.

{¶ 23} The PUCO found that Vectren had misinterpreted the intent and purpose of long-term-forecast reports under R.C. 4935.04 and gas-cost-recovery proceedings under R.C. 4905.302. The PUCO held that it was not barred from addressing issues regarding Vectren's forecast assumptions and methodology set forth in its long-term-forecast reports for purposes of reviewing Vectren's gas...

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