[Cite as In re Application of Columbus S. Power Co., 134 Ohio St.3d 392, 2012-Ohio-5690.]




     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.
   [Cite as In re Application of Columbus S. Power Co., 134 Ohio St.3d 392,
                                   2012-Ohio-5690.]
Public utilities—Electric distribution companies operating under electric security
        plans—R.C. 4128.143(F)—Standard of “significantly excessive earnings”
        not void for vagueness—Treatment of off-system sales and associated
        assets.
   (No. 2011-0751—Submitted March 21, 2012—Decided December 6, 2012.)
   APPEALS and CROSS-APPEAL from the Public Utilities Commission of Ohio,
                                 No. 10-1261-EL-UNC.
                                   _______________
        CUPP, J.
        {¶ 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
                             SUPREME COURT OF OHIO




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
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




                                          2
                                January Term, 2012




       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 requirements of 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.
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.



                                          3
                             SUPREME COURT OF OHIO




                                    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.




                                         4
                               January Term, 2012




       {¶ 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 (“economic
regulation is subject to a less strict vagueness test * * *”). That is, a “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



                                         5
                            SUPREME COURT OF OHIO




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 where there is a mere general
liability * * * and where the challenge seeks to invalidate the statute rather than
merely seeking compensation for an otherwise proper taking”).
       {¶ 18} We did not address that question in Norwood, but we did address
whether heightened scrutiny applied to civil penalties, and the answer was no:
“[R]egulations that are directed to economic matters and impose only civil
penalties are subject to a ‘less strict vagueness test.’ ” Id., 110 Ohio St.3d 353,
2006-Ohio-3799, 853 N.E.2d 1115, at ¶ 85, quoting Hoffman Estates, 455 U.S. at
498, 102 S.Ct. 1186, 71 L.Ed.2d 362. This language describes R.C. 4928.143(F),
so Norwood does not require stricter scrutiny here.
             II. R.C. 4928.143(F) is not unconstitutionally vague
       {¶ 19} Having established that a more lenient standard of review applies,
we now address the merits of CSP’s vagueness challenge.
       {¶ 20} The void-for-vagueness doctrine is a component of the right to due
process and is rooted in concerns that laws provide fair notice and prevent
arbitrary enforcement. Skilling v. United States, ___ U.S. ___, 130 S.Ct. 2896,
2933, 177 L.Ed.2d 619 (2010). To prevail, a challenging party “must show that
the statute is vague ‘not in the sense that it requires a person to conform his
conduct to an imprecise but comprehensible normative standard, but rather in the
sense that no standard of conduct is specified at all.’ ” State v. Anderson, 57 Ohio
St.3d 168, 171, 566 N.E.2d 1224 (1991), quoting Coates v. Cincinnati, 402 U.S.
611, 614, 91 S.Ct. 1686, 29 L.Ed.2d 214 (1971). “Many statutes * * * require
administrative and judicial construction to clarify specific language. Such statutes
are not unconstitutionally vague.” Minnesota ex rel. Alexander v. Block, 660 F.2d
1240, 1255 (8th Cir.1981), fn. 35.




                                         6
                                January Term, 2012




        A. We consider CSP’s constitutional challenge as applied to the facts of
        this case
        {¶ 21} Litigants may challenge the constitutionality of a statute on its face
or as applied. CSP claims that R.C. 4928.143(F) cannot withstand scrutiny, either
on its face or as applied. Yet CSP does not make clear which type of challenge it
brings. We need not determine, however, whether the challenge is facial or as
applied, because the only challenge available to CSP in this case is an as-applied
challenge.
        {¶ 22} Generally, a court examining a facial-vagueness challenge to a
statute that implicates no constitutionally protected conduct will uphold that
challenge only if the statute is impermissibly vague in all of its applications.
Columbia Gas Transm. Corp., 117 Ohio St.3d 122, 2008-Ohio-511, 882 N.E.2d
400, ¶ 43, citing Hoffman Estates, 455 U.S. at 494-495, 102 S.Ct. 1186, 71
L.Ed.2d 362. CSP has not presented the arguments necessary to support a facial
challenge. It does not argue that R.C. 4928.143(F) is “impermissibly vague in all
of its applications.” Nor does CSP offer any argument that the statute implicates
any constitutionally protected conduct.       Moreover, where, as in this case, a
vagueness challenge does not involve the First Amendment, the analysis must be
examined in the light of the facts of the case at hand. United States v. Mazurie,
419 U.S. 544, 550, 95 S.Ct. 710, 42 L.Ed.2d 706 (1975); United States v.
Wayerski, 624 F.3d 1342, 1347 (11th Cir.2010) (“Where * * * a vagueness
challenge does not involve the First Amendment, the analysis must be as applied
to the facts of the case”).
        {¶ 23} That being the case, we “consider whether [the] statute is vague as
applied to the particular facts at issue.” Holder v. Humanitarian Law Project,
___ U.S. ___, 130 S.Ct. 2705, 2718–2719, 177 L.Ed.2d 355 (2010); see also
Hoffman Estates at 495 (a party “who engages in some conduct that is clearly
proscribed cannot complain of the vagueness of the law as applied to the conduct



                                          7
                             SUPREME COURT OF OHIO




of others”); Broadrick v. Oklahoma, 413 U.S. 601, 608, 93 S.Ct. 2908, 37 L.Ed.2d
830 (1973) (“even if the outermost boundaries of [a statute are] imprecise, any
such uncertainty has little relevance * * * where appellants’ conduct falls squarely
within the ‘hard core’ of the statute’s proscriptions and appellants concede as
much”).
       B. CSP has not shown that R.C. 4928.143(F) is vague as applied to the
       facts of this case
       {¶ 24} CSP has not shown that the “statute is vague as applied to the
particular facts at issue.” Holder, ___ U.S. ___, 130 S.Ct. at 2718–2719, 177
L.Ed.2d 355.     The company has not challenged any of the commission’s
determinations under R.C. 4928.143(F): not the calculation of CSP’s return on
equity, not the selection of the peer group, and not whether its return significantly
exceeded that of the peer group. The commission in fact adopted CSP’s proposed
return on equity and proposed peer group. And CSP does not even assert, much
less demonstrate, that the commission erred in finding that CSP’s return on equity
significantly exceeded that of comparable companies. CSP’s silence on these
points is significant. CSP cannot prevail on an as-applied challenge when it does
not argue that the statute was erroneously applied to it.
       C. R.C. 4928.143(F) provides substantial guidance to the commission
       {¶ 25} And even leaving aside the lack of an as-applied argument, we find
that the statute provides considerable guidance to the commission. The company
asserts that R.C. 4928.143(F) gives “no notice or guidance as to what is meant by
‘significantly excessive earning’ and how that determination is to be made.” We
disagree.
       {¶ 26} Whether a plan “resulted in excessive earnings” must be
“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




                                          8
                               January Term, 2012




utilities, that face comparable business and financial risk, with such adjustments
for capital structure as may be appropriate.” R.C. 4928.143(F). These are not
meaningless words, and they provide a substantial amount of guidance on how to
determine significantly excessive earnings.      The commission must calculate
CSP’s “earned return on common equity,” determine a comparable group of
publicly traded companies (which itself would require numerous other analyses),
and then compare their earned returns on equity over the same period of time. Id.
       {¶ 27} Having done all that, it must then determine whether CSP’s
earnings are “significantly excessive.” Id. The term “significantly” also provides
guidance. In context, “significant” denotes “weighty” or “notable,” which tells
the commission to look for more than a mere arithmetical excess before returning
funds to customers. Webster’s Third New International Dictionary 2116 (2002).
       {¶ 28} Despite fixing its argument on the term “significantly,” CSP cites
no case law evaluating its use. But many courts have upheld the term against
vagueness challenges. E.g., VIP of Berlin, L.L.C. v. Berlin, 593 F.3d 179, 186–
191 (2d Cir.2010) (rejecting claim that “significant portion” is unconstitutionally
vague); Williams v. Astrue, D.Kansas No. 09-1341-SAC, 2010 WL 4291918, at
*4 (Oct. 26, 2010) (holding in review of benefits order that “the word ‘significant’
is not unduly vague”); PrimeCo Personal Communications, L.P. v. Illinois
Commerce Comm., Ill.Cir.Ct., Cook Cty. No. 98 CH 05500, 2000 WL 34016430,
at *17 (Jan. 11, 2000) (the phrase “no significant impact on the net income” is not
vague); Pennsylvania v. Fahy, 512 Pa. 298, 315, 516 A.2d 689 (1986) (rejecting
claim that the term “significant history” is vague and overbroad); F. Ronci Co.,
Inc. v. Narragansett Bay Water Quality Mgt. Dist. Comm., R.I. Sup.Ct. No. C.A.
NO. 87-0428, 1988 WL 1016804, at *4 (Feb. 9, 1988) (“The Court concludes that
the use of the term ‘significant quantities’ does not render the statutory language
unconstitutionally vague”); but see, e.g., Knoxville v. Entertainment Resources,
L.L.C., 166 S.W.3d 650, 652, 658 (Tenn.2005) (holding in case involving First



                                         9
                            SUPREME COURT OF OHIO




Amendment concerns that “the phrase ‘substantial or significant portion of its
stock and [sic] trade’ is impermissibly vague”).
       {¶ 29} All of these required determinations limit the scope of the
commission’s analysis.    Further, they provide numerous points that may be
litigated below and challenged on appeal to provide a check on arbitrary
enforcement by the commission. See Skilling, ___ U.S. ___, 130 S.Ct. at 2933,
177 L.Ed.2d 619. In making its argument, CSP repeatedly quotes only two or
three words of the statute (“significantly excessive earnings”) as though it
provided none of the foregoing guidance. But the statute says much more, and we
cannot say that “ ‘no standard of conduct is specified at all.’ ” Anderson, 57 Ohio
St.3d at 171, 566 N.E.2d 1224, quoting Coates, 402 U.S. at 614, 91 S.Ct. 1686, 29
L.Ed.2d 214.
       D. There are no “fair notice” concerns in this case
       {¶ 30} We also hold that this case presents no concerns about fair notice.
A primary concern underpinning the vagueness doctrine is that “ ‘[v]ague laws
may trap the innocent by not providing fair warning.’ ” Hoffman Estates, 455
U.S. at 498, 102 S.Ct.1186, 71 L.Ed.2d 362, quoting Grayned v. Rockford, 408
U.S. 104, 108, 92 S.Ct. 2294, 33 L.E.2d 222 (1972).          CSP cannot credibly
complain that it lacked notice; it not only had notice of R.C. 4928.143(F), but
chose to be subject to it. Under R.C. 4928.141, CSP was required to provide a
standard service offer “in accordance with section 4928.142 or 4928.143 of the
Revised Code.” Only the latter section requires excessive-earnings review; the
former establishes market-based rates. The law has contained the earnings-review
provision from the beginning, so CSP was on notice that it faced such review if it
opted for an ESP. Presumably, the potential reward outweighed the risk. Thus,
CSP’s choice to subject itself to earnings review undermines any argument that it
lacked fair notice.




                                        10
                                January Term, 2012




                            III. CSP’s counterarguments
       {¶ 31} CSP raises several counterarguments, but we find them
unpersuasive. First, it cites no cases reviewing public-utility-regulatory statutes,
but depends entirely on cases that involved relatively strict scrutiny and thus are
not on point.    Most of the cited cases reviewed statutes imposing criminal
penalties, and all required a stricter standard of review than applicable here. See
Cline v. Frink Dairy Co., 274 U.S. 445, 453–454, 47 S.Ct. 681, 71 L.Ed. 1146
(1927); Belle Maer Harbor v. Charter Twp. of Harrison, 170 F.3d 553, 557 (6th
Cir.1999); Carter v. Welles-Bowen Realty, Inc., 719 F.Supp.2d 846, 852
(N.D.Ohio, 2010); Norwood v. Horney, 110 Ohio St.3d 353, 2006-Ohio-3799,
853 N.E.2d 1115, ¶ 88.
       {¶ 32} CSP also argues that the administrative process employed by the
commission is evidence of the vagueness of the statute.          But this point is
unavailing. Courts have often recognized that a “process of interpretation” should
be allowed to flesh out statutory standards. E.g., Bauer v. Shepard, 620 F.3d 704,
717 (7th Cir.2010) (the Supreme Court is “chary of holding laws unconstitutional
‘on their face’ precisely because they have recognized that vagueness will be
reduced through a process of interpretation”); Minnesota ex rel. Alexander v.
Block, 660 F.2d at 1254, fn. 35 (“Many statutes * * * require administrative and
judicial construction to clarify specific language.        Such statutes are not
unconstitutionally vague”).
       {¶ 33} Finally, CSP concludes its argument by asserting that several
features of R.C. 4928.143(F) compound the vagueness of the statute. But CSP
provides no legal authority or argument suggesting that any of these features are
unlawful or otherwise relevant to the void-for-vagueness analysis.
       {¶ 34} In sum, we reject CSP’s argument that R.C. 4928.143(F) is
unconstitutionally vague.




                                        11
                             SUPREME COURT OF OHIO




                          IEU’s and OEG’s Arguments
         {¶ 35} We turn to the remaining two appeals from OEG and IEU. Both
concern the commission’s ability to adjust the utility’s earnings before
considering whether those earnings are significantly excessive. The commission
removed certain revenue from off-system sales from CSP’s earnings. Although
OEG and IEU raise different (and in some ways opposite) arguments, we must
reject both of them.
                   I. We defer to the commission’s reasonable
                        interpretation of R.C. 4928.143(F)
         {¶ 36} While we generally review questions of law de novo, we will defer
to the commission’s interpretation of a statute “where there exists disparate
competence between the respective tribunals in dealing with highly specialized
issues.” Ohio Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108, 110,
388 N.E.2d 1370 (1979). One area in which we have “consistently deferred to the
expertise of the commission” is in determining rate-of-return matters.        Ohio
Edison Co. v. Pub. Util. Comm., 63 Ohio St.3d 555, 561, 589 N.E.2d 1292 (1992),
fn. 3.
         {¶ 37} “Limited judicial review of a rate of return determination is sound”
because “ ‘cost of capital analyses * * * are fraught with judgments and
assumptions.’ ” Ohio Consumers’ Counsel v. Pub. Util. Comm., 64 Ohio St.2d
71, 79, 413 N.E.2d 799 (1980), quoting In re Dayton Power & Light Co., Pub.
Util. Comm. No. 78-92-EL-AIR, at 26, 29 P.U.R.4th 145 (Mar. 9, 1979). Thus, if
a related determination is “fraught with similar judgments and assumptions,” it is
“appropriate to apply a similar limited standard of review.” Id.; see also, e.g.,
Ohio Fuel Gas Co. v. Pub. Util. Comm., 174 Ohio St. 585, 602, 191 N.E.2d 347
(1963) (“In the end, the increase in earnings and rate of return allowed is a
judgment figure established by the Public Utilities Commission in the exercise of
its administrative expertise” [emphasis sic]).




                                         12
                                 January Term, 2012




        {¶ 38} The statute under review is essentially a rate-of-return statute, and
it requires numerous judgments regarding rate-of-return issues, so we review the
commission’s interpretations deferentially. Although R.C. 4928.143(F) does not
require the commission to actually set the utility’s rate of return, it does require
the commission to make numerous related determinations, and the statute as a
whole entrusts the commission with regulating “the increase in earnings and rate
of return [to be] allowed.” Ohio Fuel Gas Co., 174 Ohio St. at 602. Thus, in
accordance with the cases cited above, we will defer to the commission’s
interpretation of R.C. 4928.143(F) if it is reasonable.
        {¶ 39} We hold that it was. The commission explains in its brief that it
understands R.C. 4928.143(F) as requiring it to “do three things.” “First it needs
to determine what level of earnings is ‘excessive.’ ” Second, “it must decide how
high the excessive earnings must be to be considered ‘significantly excessive.’ ”
Finally, it “must eliminate” from earnings any portion that the utility “has shown
not to be tied to the ESP that is being reviewed.”
        {¶ 40} This is a reasonable interpretation of R.C. 4928.143(F).         The
statute expressly requires the first two determinations.      And the third point
(eliminating earnings not shown “to be tied to the ESP”) finds support in the
statutory language. The statute requires the commission to find whether “such
adjustments”—referring to “the provisions that are included in an electric security
plan”—“resulted in excessive earnings.” (Emphasis added.) R.C. 4928.143(F).
This implies that earnings not caused by the plan may be excluded from
consideration. This statutory language supports the commission’s reading, and no
other part of the statute expressly contradicts it.
           II. OEG’s alternative interpretation of R.C. 4928.143(F)
                              does not compel reversal
        {¶ 41} In its appeal, OEG argues that contrary to the commission’s
interpretation, the commission cannot eliminate any earnings before conducting



                                           13
                                 SUPREME COURT OF OHIO




the earnings review. As noted above, the commission eliminated from CSP’s
earnings certain revenue from “off-system sales,” that is, wholesale sales by CSP
to nonretail customers. Order at 27-30. According to OEG, this lowered CSP’s
excess earnings by $22.24 million.1 OEG argues that “R.C. 4928.143(F) requires
the [commission] to compare all of a utility’s earnings to all of the earnings of
companies with comparable risk.” (Emphases sic.) In its view, “the statutory
language does not permit the [commission] to selectively exclude certain utility
earnings for purposes of the [excessive-earnings] comparison.”
        {¶ 42} But as just discussed, the statutory language does allow such an
inference and does not definitively prohibit it.             It does not expressly forbid
adjustments for non-ESP earnings, nor does it use the phrase “all earnings” or
some equivalent. OEG’s interpretation is not necessarily unreasonable, but unlike
the commission’s, OEG’s is not entitled to deference.
        {¶ 43} We must reject OEG’s challenge to the order.
                    III. IEU’s counterarguments also lack merit
        {¶ 44} IEU raises two basic arguments, but neither compels reversal.
        A. In its first argument, IEU fails to show prejudice
        {¶ 45} Whereas OEG argues that the commission should not have
excluded any earnings from review, IEU argues that the commission should have
excluded more. As IEU sees it, the commission may consider the companies’
earned return on equity only “from the ESP” and not “for all lines of regulated
and unregulated businesses that reside within [the companies].” Therefore, IEU


1. In agreeing to eliminate the off-system sales, the commission also noted, but did not resolve,
arguments raised by CSP that federal law prohibited the commission from counting the off-system
sales. Order at 27, 30. Such sales are regulated by the Federal Energy Regulatory Commission
under the Federal Power Act, and CSP argued that federal law prohibited Ohio “from interfering
with the Companies’ ability to realize revenue rightfully received from wholesale power sales
pursuant to contracts or rates approved by FERC.” Id. at 27. CSP also argued that counting the
off-system sales would violate the Commerce Clause of the United States Constitution. Id. The
commission did not reach these issues, and under our holding, we need not either.




                                               14
                               January Term, 2012




argues, CSP should have prepared “a comprehensive jurisdictional allocation
study” showing what earnings resulted from the ESP and what did not.
       {¶ 46} IEU has failed to show prejudice, as it must to warrant reversal.
Ohio Consumers’ Counsel v. Pub. Util. Comm., 121 Ohio St.3d 362, 2009-Ohio-
604, 904 N.E.2d 853, ¶ 12 (“this court will not reverse a commission order absent
a showing by the appellant that it has been or will be harmed or prejudiced by the
order”). In this proposition, IEU neither explains nor provides evidence of which
adjustments the commission should have made but did not. This lack of evidence
and explanation makes it impossible to know whether IEU was prejudiced by the
alleged failure to “jurisdictionalize” CSP’s earnings. Consequently, we must
reject IEU’s first argument.
       B.    IEU’s second argument—that the commission should have
       eliminated CSP’s transmission assets from review—also fails to
       demonstrate error
       {¶ 47} IEU’s second argument alleges that the commission should have
excluded transmission assets when it excluded CSP’s revenue from off-system
sales. For any revenue excluded from review, it would be necessary to exclude
the related portion of equity (i.e., the assets that earned the excluded return).
Failing to do so would skew the rate of return too low. The commission did
exclude some of CSP’s equity to reflect the exclusion of off-system sales, order at
30, but IEU asserts that the commission did not remove enough equity—that it did
not “include[] an adjustment to equity to transmission plant.”
       {¶ 48} Because this argument is also speculative, we must reject it. IEU’s
argument turns on two questions of fact, both demanding substantial expertise in
utility operations, accounting, and finance to answer:      Should any of CSP’s
transmission assets have been excluded to reflect the exclusion of earnings from
off-system sales? And if so, how much? Yet IEU does not point to any testimony




                                        15
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or other evidence suggesting that such an exclusion would have been appropriate.
Without this factual support, its argument cannot succeed.
       {¶ 49} In fact, the testimony that IEU does cite cuts against its argument
on both points. As to the first point—whether there should even be any exclusion
of transmission assets—the witness cited by IEU stated on cross-examination,
“[T]here’s no way I could even begin to imagine how I would say that
[transmission] is a component of off-system sales,” and also stated that he
suspected that “transmission costs are * * * netted out of the profits from off-
system sales.”   As to the second point—what specific exclusion would be
appropriate—the same witness suggested that calculating an adjustment would
not be workable: he “could not figure out a way of cleanly * * * utilizing other
aspects of the company’s assets,” such as transmission assets, in excluding the
assets from consideration.
       {¶ 50} IEU also cites the testimony of an American Electric Power
witness who acknowledged that the company had not “exclude[d] the earnings
associated with the transmission business.” This says nothing about whether such
an exclusion should have been made and, if so, the amount. Thus, it provides no
support for IEU’s argument.
       {¶ 51} To overturn the commission on a question of fact, IEU must show
that the order is “so clearly unsupported by the record as to show
misapprehension, mistake, or willful disregard of duty.” AT&T Communications
of Ohio, Inc. v. Pub. Util. Comm., 88 Ohio St.3d 549, 555, 728 N.E.2d 371
(2000). IEU has not shown that the order lacked record support; indeed, the only
evidence IEU cites contradicts its own argument. Therefore, we reject it.
                                   Conclusion
       {¶ 52} For the foregoing reasons, we affirm the order. Contrary to CSP’s
assertion, the statute is not unconstitutionally vague. And neither OEG nor IEU




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                                 January Term, 2012




has shown that the commission unreasonably interpreted or applied R.C.
4928.143(F).
                                                                     Order affirmed.
       O’CONNOR, C.J., and LUNDBERG STRATTON, O’DONNELL, LANZINGER,
and MCGEE BROWN, JJ., concur.
       PFEIFER, J., dissents.
                                   _____________
       PFEIFER, J., dissenting.
       {¶ 53} This case presents this court’s first opportunity to address the
Public Utilities Commission of Ohio’s application of the significantly-excessive-
earnings test (“SEET”) established by R.C. 4928.143(F). Through the SEET, the
commission is to determine how much is too much for electric utilities to charge
Ohio consumers pursuant to an electric security plan (“ESP”).                It is a
determination made after the fact, after consumers have paid their bills, in
seeming adherence to the aphorism “It is better to beg forgiveness than ask
permission.” But the return on investment that the commission allows in this case
is not forgivable. It should not be ratified by this court.
       {¶ 54} This case tests whether the commission’s discretion on SEET
matters is truly susceptible of meaningful judicial review. This court cannot
allow its deference to the commission’s discretion to become an abdication of our
duty to provide appellate review of the commission’s orders. The commission’s
outrageous order in this case indicates that the commission believes that its orders
have no requirement of reasonableness and that it has carte blanche to interpret
statutes as it sees fit. But it is answerable to this court in applying laws passed by
the General Assembly and is ultimately statutorily responsible to consumers to
provide electric service for reasonable rates.
       {¶ 55} Columbus Southern Power (“CSP”) requests that this court
overturn the commission’s order in this case because, it argues, R.C. 4928.143(F)



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is unconstitutionally vague. We should overturn the commission’s entire order,
but not for the reason CSP suggests. Instead, we should hold that the commission
abused its discretion in establishing a SEET threshold of 17.6 percent and, further,
misapplied R.C. 4928.143(F) by removing off-system sales from its calculation of
CSP’s income. The commission should start from scratch in this case.
                       The Reasonableness of 17.6 Percent
       {¶ 56} In this case, the commission determined CSP’s SEET threshold to
be 17.6 percent. That is, only a return on investment of more than 17.6 percent in
2009, a year when the United States’ economy was in a recession, would be
considered significantly excessive in comparison to other similarly situated
entities. Only at that number would CSP’s profit be enough to trigger a refund to
consumers.
       {¶ 57} How did the commission get to 17.6 percent? By employing the
highly complex statistical analysis known as “splitting the baby.”          As the
commission points out in its order, AEP-Ohio argued for a SEET threshold of
22.51 percent. The customer parties in the case put forth a proposed SEET
threshold in the range of 11.58 percent to 13.58 percent, an average of 12.58
percent. With those numbers to work with, the commission apparently raced to
the middle: the halfway point between the proposed SEETs of the customer
parties and AEP-Ohio is 17.545 percent. AEP-Ohio got the .055 percent round-
up.
       {¶ 58} This might be all well and good were the numbers reflective of
equally valid methodologies. But the commission’s judgments before and after
the case at issue support the number put forth by the customer parties.
       {¶ 59} After the passage of Am.Sub.S.B. No. 221, the commission sought
input from stakeholders to determine the methodology for determining what
constitutes significantly excessive earnings. After a long process from October
2009 through April 2010 that included a workshop, a comment period, a period to




                                        18
                               January Term, 2012




reply to comments, and a question-and-answer period before the commission, the
commission produced In re Investigation into the Development of the
Significantly Excessive Earnings Test Pursuant to Amended Substitute Senate Bill
for Electric Utilities, Pub. Util. Comm. No. 09-786-EL-UNC, a finding and order
intended to provide guidance on the interpretation and application of R.C.
4928.142(D)(4), 4928.143(E), and 4928.143(F). After reviewing the input from
interested parties, the commission came to the following conclusion regarding
how to determine whether a utility’s earnings are significantly excessive:


       Having fully considered all the comments regarding establishing
       the threshold and in consideration of the discretion afforded the
       Commission in SB 221, the Commission concludes that
       “significantly excessive earnings” should be determined based on
       the reasonable judgment of the Commission on a case-by-case
       basis.


09-786-EL-UNC Finding and Order, 28-29. So much for predictability.
       {¶ 60} Despite leaving the matter up to itself and its own judgment, the
commission did set one important marker:


       [T]he Commission is willing to recognize a “safe harbor” of 200
       basis points above the mean in the comparable group. To that end,
       any electric utility earning less than 200 basis points above the
       mean of the comparable group will be found to not have
       significantly excessive earnings.


Id. at 28-29.




                                           19
                             SUPREME COURT OF OHIO




       {¶ 61} It was that 200 basis points “safe harbor” that the customer parties
based their excessive-earnings conclusion upon. Taking their calculation of a
relevant return on investment of 9.58 percent for a comparable group of
companies, they argued that significantly excessive earnings should run from the
safe-harbor amount of 200 basis points up to 400 basis points. This would mean
that significantly excessive earnings would fall somewhere between 11.58 and
13.58 percent. Instead, the commission established a figure 800 basis points
above the figure that the customer parties determined as the mean of the
comparable group of companies.
       {¶ 62} Even accepting the commission’s return-on-investment figure of
11 percent for comparable companies, the commission’s 17.6 percent figure is
over 600 basis points above the mean in the comparable group. The commission
blew its safe harbor out of the water.
       {¶ 63} And in a case announced in August of this year, In re Columbus S.
Power Co., Pub. Util. Comm. Nos. 11-346-EL-SSO, 11-348-EL-SSO, 11-349-
EL-AAM, and 11-350-EL-AAM, 2012 WL 3542177, *30 (Aug. 8, 2012), the
commission prospectively set a SEET threshold at 12 percent for AEP-Ohio,
finding it “appropriate to establish a significantly excessive earnings test (SEET)
threshold to ensure that the Company does not reap disproportionate benefits from
the ESP. The evidence in the record demonstrates that a 12 percent [return on
equity] would be at the high end of a reasonable range for return on equity * * *.
Accordingly, for purposes of this ESP, the Commission will establish a SEET
threshold for AEP-Ohio of 12 percent.”
       {¶ 64} That lower rate of return is appropriate for an industry with
minimal risk, with built-in methods to recover costs from their customers. In In
re Columbus S. Power Co. (Aug. 8, 2012), for instance, built-in protections for
the utility include an alternative-energy rider, a generation-resource rider, a retail-
stability rider, a distribution-investment rider, a pool-modification rider, a phase-




                                          20
                               January Term, 2012




in recovery rider, a transmission-cost-recovery rider, an enhanced-service
reliability rider, an energy-efficiency and peak-demand reduction rider, an
economic-development rider, and a storm-damage-recovery mechanism.
       {¶ 65} Most importantly, the lower SEET is consistent with the policy of
this state to “[e]nsure the availability to consumers of adequate, reliable, safe,
efficient, nondiscriminatory, and reasonably priced retail electric service.” R.C.
4928.02(A).
                                Off-System Sales
       {¶ 66} The commission also erred in excluding CSP’s off-system sales
from the calculation of its return on investment, without any statutory authority.
This court has “complete and independent power of review as to all questions of
law” in appeals from the commission. Ohio Edison Co. v. Pub. Util. Comm., 78
Ohio St.3d 466, 469, 678 N.E.2d 922 (1997). We should not forget that. This
court has held that in matters of statutory interpretation, “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.’ ” Ohio Consumers’
Counsel v. Pub. Util. Comm., 111 Ohio St.3d 300, 2006-Ohio-5789, 856 N.E.2d
213, ¶ 12, quoting Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d 108,
110, 388 N.E.2d 1370 (1979).
       {¶ 67} This is not a case in which this court needs to rely on the
commission’s interpretation of a statute. Indeed, we should not simply assume
that any statute involving public utilities concerns “highly specialized issues.”
Here, the General Assembly spells out in plain English what it means by
“excessive earnings.” Excessive earnings are “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




                                        21
                             SUPREME COURT OF OHIO




publicly traded companies, including utilities, that face comparable business and
financial risk, with such adjustments for capital structure as may be appropriate.”
        {¶ 68} I would hold that CSP’s off-system sales should have been
included in the determination of whether CSP’s earnings were significantly
excessive.   They were, after all, earnings.        The statute does not allow for
removing any amount of income—either from the utility at issue or from the
comparable publicly traded companies—from the assessment. The statute seeks
an “apples to apples” comparison; taking a few slices out of the Ohio utility’s
apples skews the evaluation.
        {¶ 69} Our    deference   to—or,      too   often,   our   reliance   on—the
commission’s interpretation of statutes diminishes this court’s role in reviewing
the commission’s determinations and shifts the balance too far in favor of the
executive branch in the separation of powers. Ultimately, Ohio consumers pay
the price for that deference. Judging from Ohio utilities’ status at the top of the
heap in profits nationwide—CSP had the highest equity return of 143 investor-
owned regulated electric utilities in the United States in 2009—that price is steep.
                               ___________________
        McNees, Wallace & Nurick, L.L.C., Samuel C. Randazzo, Frank P. Darr,
and Joseph E. Oliker, for appellant and cross-appellee Industrial Energy Users-
Ohio.
        Boehm, Kurtz & Lowry, David F. Boehm, and Michael L. Kurtz, for
appellant and cross-appellee Ohio Energy Group.
        Bruce J. Weston, Ohio Consumers’ Counsel, Maureen R. Grady, Melissa
R. Yost, and Kyle L. Verrett, for appellant and cross-appellee Ohio Consumers’
Counsel.
        Steven T. Nourse and Matthew J. Satterwhite; and Porter, Wright, Morris
& Arthur, L.L.P., Kathleen M. Trafford, and Daniel R. Conway, for appellee and
cross-appellant Columbus Southern Power Company.




                                         22
                                January Term, 2012




       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 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.
                       ___________________________




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