[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as In
re Application of Columbus S. Power Co., Slip Opinion No. 2016-Ohio-1608.]




                                         NOTICE
     This slip opinion is subject to formal revision before it is published in
     an advance sheet of the Ohio Official Reports. Readers are requested
     to promptly notify the Reporter of Decisions, Supreme Court of Ohio,
     65 South Front Street, Columbus, Ohio 43215, of any typographical or
     other formal errors in the opinion, in order that corrections may be
     made before the opinion is published.



                          SLIP OPINION NO. 2016-OHIO-1608
  IN RE APPLICATION OF COLUMBUS SOUTHERN POWER COMPANY AND OHIO
    POWER COMPANY FOR AUTHORITY TO ESTABLISH A STANDARD SERVICE
 OFFER UNDER R.C. 4928.143 IN THE FORM OF AN ELECTRIC SECURITY PLAN;
  THE KROGER COMPANY ET AL., APPELLANTS AND CROSS-APPELLEES; OHIO
   POWER COMPANY, D.B.A. AEP OHIO, APPELLEE AND CROSS-APPELLANT;
       PUBLIC UTILITIES COMMISSION, APPELLEE AND CROSS-APPELLEE.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
  may be cited as In re Application of Columbus S. Power Co., Slip Opinion
                                  No. 2016-Ohio-1608.]
Public    utilities―Electric-security       plan―Commission’s          orders     approving
         modified      electric-security      plan―Retail         stability     rider―R.C.
         4928.143(B)(2)(d)―Commission erred in approving RSR―RSR allows
         collection of unlawful transition revenue―Orders reversed in part and
         cause remanded.
      (No. 2013-0521—Submitted May 19, 2015—Decided April 21, 2016.)
                                 SUPREME COURT OF OHIO




    APPEAL and CROSS-APPEAL from the Public Utilities Commission, Nos. 11-346-
         EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-EL-AAM.
                                        ____________
         KENNEDY, J.
                                          SUMMARY
         {¶ 1} This cause arises from the Public Utilities Commission’s
modification and approval of the second electric-security plan of the American
Electric Power operating companies, Ohio Power Company and Columbus
Southern Power Company.1 The case below was a major proceeding in which the
commission authorized new generation rates for the companies (collectively,
“AEP”). Five parties appealed.2 AEP also filed a cross-appeal. In total, the
remaining parties have raised eight propositions of law that challenge various
elements of the commission’s orders (the original order and two entries on
rehearing) approving the modified electric-security plan.
         {¶ 2} After review, we conclude that the parties have demonstrated two
errors: one on appeal and one on cross-appeal. Therefore, for the reasons that
follow, we affirm the commission’s orders in part and reverse them in part and
remand the cause for further consideration.
                       FACTS AND PROCEDURAL BACKGROUND
         {¶ 3} R.C. 4928.141(A) requires electric-distribution utilities to make a
“standard service offer” of generation service to consumers in one of two ways:
1
   According to a document filed with the Securities and Exchange Commission on January 6,
2012, Columbus Southern Power Company and Ohio Power Company merged on December 31,
2011,     with    Ohio     Power       Company       as       the  surviving   entity.   See
https://www.aep.com/investors/financialfilingsandreports/filings/HTMLView.aspx?ipage=798810
6. The merger was approved by the Ohio Public Utilities Commission in In re Application of
Ohio Power Co. for Auth. to Merge, Pub. Util. Comm. No. 10-2376-EL-UNC, *56-57 (Dec. 14,
2011).

2
  FirstEnergy Solutions and Industrial Energy Users-Ohio dismissed their appeals, leaving three
appellants. See 139 Ohio St.3d 1475, 2014-Ohio-3028, 11 N.E.3d 1196; 144 Ohio St.3d 1436,
2015-Ohio-5451, 42 N.E.3d 770.




                                                2
                               January Term, 2016




through a “market-rate offer” (under R.C. 4928.142) or an “electric security plan”
(under R.C. 4928.143). The market-rate offer, as the name implies, sets rates
using a competitive-bidding process to harness market forces.
        {¶ 4} On January 27, 2011, AEP filed an application with the commission,
seeking approval of an electric-security plan (“ESP”). R.C. 4928.143 does not
provide a detailed mechanism for establishing rates under an ESP. Plans may
contain any number of provisions in 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 law does contain certain limits, some of which are
at issue in this case.
                     The Commission’s “Capacity Case” Order
        {¶ 5} The ESP case proceeded along a parallel—and for a time a
consolidated—path with Pub. Util. Comm. No. 10-2929-EL-UNC (the “Capacity
Case”). The Capacity Case was argued before the court on December 15, 2015
(case Nos. 2012-2098 and 2011-0228). On December 30, 2015, the court issued
an order holding this case for a joint release with the Capacity Case. See 144
Ohio St.3d 1438, 2015-Ohio-5468, 43 N.E.3d 450.
                          The Commission’s ESP Order
        {¶ 6} In the order under review in this appeal, the commission approved
AEP’s modified ESP. Pub. Util. Comm. Nos. 11-346-EL-SSO, 11-348-EL-SSO,
11-349-EL-AAM, and 11-350-EL-AAM (Aug. 8, 2012) (the “ESP Order”). As
part of the ESP, the commission approved a mechanism called the “Retail
Stability Rider” (“RSR”). The RSR is “nonbypassable,” meaning that it is paid
by both shopping and nonshopping customers in AEP’s service territory.
        {¶ 7} The RSR serves two purposes. First, the commission determined
that the RSR would be used as the mechanism for AEP to recover its deferred
capacity costs from the Capacity Case. The commission authorized AEP to
recover a portion of those deferred costs during the ESP period. The commission




                                        3
                            SUPREME COURT OF OHIO




further instructed AEP to file an application after the ESP ends that, if approved,
would allow the company to recover any remaining deferred capacity costs,
starting on June 1, 2015, and continuing over the following 32 months.
       {¶ 8} Second, in addition to serving as the mechanism to recover deferred
capacity costs, the RSR was intended to provide AEP with sufficient revenue to
maintain its financial integrity and ability to attract capital during the ESP.
According to the commission, the RSR was authorized under R.C.
4928.143(B)(2)(d) as a charge that promotes stable retail-electric-service prices
and ensures customer certainty regarding retail electric service. ESP Order at 31-
38.
       {¶ 9} Appeals of the ESP Order were filed by the Kroger Company, the
Office of the Ohio Consumers’ Counsel (“OCC”), and the Ohio Energy Group.
AEP filed a cross-appeal. The appellants primarily challenge the commission’s
authorization of the RSR. In AEP’s cross-appeal, the company contends that the
commission erred in setting the threshold for the significantly-excessive-earnings
test and also violated the company’s statutory right to withdraw the modified
ESP.
                             STANDARD OF REVIEW
       {¶ 10} “R.C. 4903.13 provides that a PUCO order shall be reversed,
vacated, or modified by this court only when, upon consideration of the record,
the court finds the order to be unlawful or unreasonable.”           Constellation
NewEnergy, Inc. v. Pub. Util. Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, 820
N.E.2d 885, ¶ 50. We will not reverse or modify a PUCO decision as to questions
of fact when 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, ¶ 29.               The




                                        4
                                January Term, 2016




appellant bears the burden of demonstrating that the commission’s decision is
against the manifest weight of the evidence or is clearly unsupported by the
record. Id.
        {¶ 11} Although 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 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., 58 Ohio St.2d 108, 110, 388 N.E.2d
1370 (1979).
                                    DISCUSSION
       The Appeals of Appellants: OCC, Kroger, and Ohio Energy Group
        {¶ 12} The appellants, taken together, raise five propositions of law, each
containing several supporting arguments. The issues involving the RSR are the
most prominent and generally relate to each other, so we will discuss them first.
          I.       Challenges to the commission’s approval of the RSR
        {¶ 13} The appellants raise several challenges to the commission’s
approval of the RSR. After review, we find that one argument has merit.
  A.      OCC Proposition of Law No. 2: Whether the commission’s order is
          unlawful or unreasonable because it allows the company to collect
               unlawful transition revenue or its equivalent through the RSR
        {¶ 14} OCC argues that the commission erred in approving the RSR
because it permits AEP to recover unlawful “transition revenues” in the form of
nonfuel generation revenues, including capacity revenues, that it will lose under
its ESP. OCC claims that because the statutory time period to recover transition
revenue has ended, the commission lacked authority to approve the RSR, since it




                                         5
                              SUPREME COURT OF OHIO




allowed the company to recover costs that are otherwise unrecoverable in the
competitive generation market. We find this argument well taken.
  1.            What is transition revenue, and when was its recovery barred?
           {¶ 15} Transition costs (also referred to as stranded costs) are costs
incurred by the utility before retail competition began that will not be recoverable
through market-based rates. See FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio
St.3d 401, 2002-Ohio-2430, 768 N.E.2d 648, ¶ 14; R.C. 4928.37 and 4928.39. In
general, these are generation costs that the utility incurred to serve its customers
that would have been recovered through regulated rates before competition began,
but that are no longer recoverable from customers who have switched to another
generation provider. See Toledo v. Toledo Edison Co., 118 Ohio Misc.2d 131,
2000-Ohio-2696, 770 N.E.2d 132, ¶ 18-19, citing Transm. Access Policy Study
Group v. Fed. Energy Regulatory Comm., 225 F.3d 667, 683, 699-700
(D.C.Cir.2000). When such customers leave the utility’s generation service, they
may not have paid their share of costs that the utility incurred on their behalf. The
idea behind transition revenue is to allow the utility to avoid having to either
absorb these costs or shift the burden of recovery onto remaining customers. Id.
at ¶ 22.
           {¶ 16} In 1999, the General Assembly enacted Am.Sub.S.B. No. 3 (“S.B.
3”), 148 Ohio Laws, Part IV, 7962, “to facilitate and encourage development of
competition in the retail electric market.” AK Steel Corp. v. Pub. Util. Comm., 95
Ohio St.3d 81, 765 N.E.2d 862 (2002). Enacted as part of S.B. 3, R.C. 4928.37
provided each electric utility with a limited opportunity “to receive transition
revenues that may assist it in making the transition to a fully competitive retail
electric generation market.” Utilities had until December 31, 2005 (the end of the
market-development period, see R.C. 4928.01(A)(26)) to receive generation
transition revenue. R.C. 4928.38 and 4928.40(A). Utilities were also permitted to
receive transition revenue associated with regulatory assets (i.e., deferred charges,




                                         6
                                  January Term, 2016




see R.C. 4928.01(A)(26)) until December 31, 2010. R.C. 4928.40(A). After that
date, R.C. 4928.38 prohibits the commission from “authoriz[ing] the receipt of
transition revenues or any equivalent revenues by an electric utility,” with certain
exceptions not applicable here.
           {¶ 17} R.C. 4928.141(A), enacted as part of Am.Sub.S.B. No. 221,
expressly prohibits the recovery of transition costs by providing that a standard
service offer made through an ESP “shall exclude any previously authorized
allowances for transition costs, with such exclusion being effective on and after
the date that the allowance is scheduled to end under the utility’s rate plan.”
      2.          The commission’s order on the subject of transition costs is
                                   unlawful and unreasonable
           {¶ 18} As noted, R.C. 4928.38 bars the commission from authorizing the
“receipt of transition revenues or any equivalent revenues” after December 31,
2010.      OCC maintains that the commission violated this provision when it
guaranteed that AEP will receive $826 million in nonfuel generation revenues
through the RSR in each year of the ESP. OCC argues that the RSR cannot be
upheld because it allows the company to receive transition revenue or
“equivalent” revenues that are no longer authorized in the competitive generation
market after the deadlines in R.C. 4928.38 and 4928.40.
           {¶ 19} In the orders below, the commission found that AEP was not
receiving unlawful transition revenue through the RSR. The commission offered
two reasons to support its finding. After review, we find that neither one is well
taken.
 a.         The fact that AEP did not expressly seek transition revenues in this
            case does not defeat a claim that it is recovering transition revenues
           {¶ 20} The commission first found that AEP was not receiving unlawful
transition revenue because the company did not seek transition revenues in its
modified ESP application. ESP Order at 32; First Rehearing Entry at 21 (Jan. 30,




                                          7
                             SUPREME COURT OF OHIO




2013). According to the commission, AEP is not receiving transition revenues or
recovering stranded costs through the RSR, since AEP did not argue that the
revenues received under its prior electric-transition plan were insufficient to cover
costs. ESP Order at 32.
       {¶ 21} But the fact that AEP did not explicitly seek transition revenues
does not foreclose a finding that the company is receiving the equivalent of
transition revenue under the guise of the RSR. The commission’s overly narrow
definition of transition revenue overlooks that R.C. 4928.38 bars “the receipt of
transition revenues or any equivalent revenues by an electric utility” after 2010.
(Emphasis added.)       By inserting the phrase “any equivalent revenues,” the
General Assembly has demonstrated its intention to bar not only transition
revenue associated with costs that were stranded during the transition to market
following S.B. 3 but also any revenue that amounts to transition revenue by
another name. Therefore, we find that the commission erred in focusing solely on
whether AEP had sought to receive transition revenues that are now barred.
       {¶ 22} Further, after looking at the nature of the revenue recovered under
the RSR, we find that the record supports a finding that AEP is receiving the
equivalent of transition revenues through that rider. As noted above, S.B. 3
allowed electric utilities to receive transition revenues to aid them in making the
transition to a fully competitive generation market. R.C. 4928.37(A)(1). See
FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio St.3d 401, 2002-Ohio-2430, 768
N.E.2d 648, ¶ 14 (transition revenues represent regulatory assets and other
generation costs that were incurred by the utility under regulation that would not
be recovered in a competitive environment); Toledo v. Toledo Edison Co., 118
Ohio Misc.2d 131, 2000-Ohio-2696, 770 N.E.2d 132, ¶ 19 (C.P.) (“stranded costs
consist predominately of costs of building generation capacity that utilities
incurred with the expectation that they would use the additional capacity to serve
existing customers”).




                                         8
                                 January Term, 2016




        {¶ 23} AEP proposed the RSR as a means to ensure that the company was
not financially harmed during its transition to a fully competitive generation
market over the three-year ESP period. To be more specific, the RSR was
intended to guarantee recovery of lost revenue resulting from certain discounted
capacity prices offered to CRES providers and from expected increases in
customer shopping during the ESP. According to the company’s witnesses, the
RSR was designed to generate enough revenue for the company to achieve a
certain rate of return on its generation assets as it transitions to full auction pricing
for energy and capacity by June 2015. ESP Order at 31-32.
        {¶ 24} In determining how much revenue would be needed to reach the
$826 million revenue target for each year, the commission focused on three
categories of revenue: retail nonfuel generation revenues, CRES capacity
revenues, and credit for shopped load. In calculating these revenue amounts, the
commission relied on shopping projections for AEP’s service territory during the
three-year ESP period. That is, the shopping projections would determine a
combined amount of revenue that AEP would earn for each category listed above,
and the RSR would be set at the amount necessary to boost the total to the
revenue target of $826 million. Importantly, the commission’s calculations show
that RSR revenues were tied in large part to CRES capacity revenues that AEP
would expect to lose based on the projected shopping and the below-cost price of
capacity charged to CRES providers during the ESP period. ESP Order at 34-35.
        {¶ 25} In sum, we find that the commission erred in focusing solely on
whether AEP had expressly sought to receive transition revenues rather than
looking at the nature of the costs recovered through the RSR. R.C. 4928.38 bars
the “the receipt of transition revenues or any equivalent revenues by an electric
utility.” Based on the record before us, we find that the RSR in this case recovers
the equivalent of transition revenue and the commission erred when it found
otherwise.




                                           9
                             SUPREME COURT OF OHIO




    b.       The commission erred when it found that anything above PJM
             auction capacity prices cannot be labeled as transition costs or
                                      stranded costs
         {¶ 26} The commission found that the revenues recovered through the
RSR were lawful because AEP was entitled to recover its “actual costs of
capacity.” AEP’s capacity charge is higher than the auction price of capacity in
the PJM region. According to the commission, because AEP is the sole provider
of capacity service in its territory, “anything over” PJM auction capacity prices
“cannot be labeled as transition costs or stranded costs.” ESP Order at 32. We
disagree.
   1.       The commission’s rejection of AEP’s two-tiered capacity-pricing
          mechanism and its determination of an appropriate capacity charge
         {¶ 27} At the outset, it is important to understand that AEP had proposed
two separate capacity-pricing plans to the commission: one in the Capacity Case
and a completely different plan in the ESP Case. The following background is
therefore provided to place this issue in proper context.
         {¶ 28} Before the commission issued its order in the ESP Case, the
commission found in the Capacity Case that AEP was allowed to recover its
actual costs to provide capacity to CRES providers. Pub. Util. Comm. No. 10-
2929-EL-UNC, at 33 (July 12, 2012). In the Capacity Case, AEP had claimed
that a capacity charge of $355.72 per megawatt-day would enable it to fully
recover its costs and earn a reasonable return on its investments. Id. at 24. The
commission rejected that assertion, finding instead that a charge of $188.88 per
megawatt-day was sufficient to fairly compensate the company for providing
capacity. Id. at 33.
         {¶ 29} The commission, however, was concerned that AEP’s cost-based
capacity charge would have a negative impact on retail competition in the
company’s service territory. As a result, the commission ordered AEP to charge




                                         10
                               January Term, 2016




CRES providers at the PJM auction price during the ESP period, a discount from
the commission-ordered cost-based capacity charge of $188.88 per megawatt-day.
The commission further ordered in the Capacity Case that AEP defer its recovery
of the difference between the discounted capacity charge and the cost-based
capacity charge until after the ESP ends. Id. at 33-35, 23.
       {¶ 30} While the Capacity Case was still pending before the commission,
AEP offered a capacity-pricing plan in the ESP Case that was different from the
company’s litigated position in the Capacity Case.            In its modified ESP
application, the company proposed to sell capacity to CRES providers at a
discount from the $355.72 per megawatt-day price, which is the rate that AEP
claimed represented its costs to provide capacity. Under this proposal, AEP
would provide capacity to CRES providers under a two-tiered pricing plan, with
the tier-one rate set at $145.79 per megawatt-day and the tier-two rate at $255 per
megawatt-day. As part of this two-tiered pricing plan, AEP asked the commission
to approve the RSR as the mechanism that would enable the company to recover
the difference between the discounted capacity sold to CRES providers under the
two tiers and what it claimed was its fully embedded costs of capacity (the
$355.72 per megawatt-day rate). ESP Order at 50.
       {¶ 31} After the commission rejected AEP’s capacity charge of $355.72
per megawatt-day in the Capacity Case, it issued the order in the ESP Case.
Having found that a capacity charge of $188.88 per megawatt-day would enable
AEP to fully recover its capacity costs, the commission rejected the two-tiered
pricing mechanism that AEP had proposed in its modified ESP application. The
commission, however, approved the RSR in the ESP Case, even though it had
been proposed as a component of the now-rejected two-tiered capacity plan. As
noted above, with the approval of the RSR, AEP was able to recover an additional
$508 million in revenue during the ESP period. See ESP Order at 31-32, 35-36.




                                         11
                            SUPREME COURT OF OHIO




  2.        The commission has allowed AEP to recover more than its actual
               capacity costs through the nondeferral portion of the RSR
       {¶ 32} We do not agree with the commission’s finding that “anything
over” PJM auction capacity prices “cannot be labeled as transition costs or
stranded costs.” According to the commission, AEP is not receiving unlawful
transition revenue through the RSR because AEP is entitled to recover its actual
capacity costs based on its status as the sole provider of capacity in its service
territory. ESP Order at 21. But the commission ignores that it has allowed AEP
to recover more than its actual capacity costs through the nondeferral part of the
RSR.
       {¶ 33} As we note in the preceding section, AEP will recover its actual
capacity costs (based on a charge of $188.88 per megawatt-day). AEP will
recover its costs in the following manner: (1) charging CRES providers during the
ESP period at the PJM auction price (a discount from AEP’s cost-based capacity
charge of $188.88 per megawatt-day), (2) deferring for later recovery the
difference between the discounted charge and AEP’s cost-based capacity charge,
(3) collecting a portion of the deferred capacity costs during the ESP through the
RSR, and (4) collecting any remaining balance of the deferred costs (plus carrying
charges) after the ESP period ends. Capacity Case Order at 33-35, 23; ESP Order
at 31-38.
       {¶ 34} Yet despite the fact that the commission authorized AEP to recover
its actual capacity costs, the commission also allowed AEP to recover $508
million in additional revenue through the RSR during the ESP period, the amount
of which appears to be tied in large part to AEP’s recovery of CRES capacity
charges. ESP Order at 34-35. Again, the commission calculated the RSR amount
in part based on expected decreases in CRES capacity revenues during the ESP
due to (1) the projected level of shopping in AEP’s territory and (2) the
discounted capacity price (well below AEP’s costs) charged to CRES providers.




                                       12
                                January Term, 2016




Thus, the commission awarded AEP additional capacity revenues through the
nondeferral portion of the RSR, even though it had found that AEP would fully
recover its incurred CRES capacity costs at a rate of $188.88 per megawatt-day.
Accordingly, we find that the company is being overcompensated for providing
capacity service through the nondeferral part of the RSR.
       {¶ 35} Although the commission cited various reasons for approving the
RSR, none justifies the additional capacity revenue recovery associated with the
RSR. The commission first implied that the RSR was necessary to “ensure [that]
AEP-Ohio has sufficient funds to maintain its operations efficiently and revise its
corporate structure, as opposed to a deferral only mechanism.” ESP Order at 36-
37. But the commission found in the Capacity Case that “a capacity charge of
$188.88/MW-day, in conjunction with the authorized deferral of the Company’s
incurred capacity costs,” would “reasonably and fairly compensate the Company
and should not significantly undermine the Company’s ability to earn an adequate
return on its investment.” 10-2929-EL-UNC, at 36. The ESP Order was issued
five weeks after the commission made this finding in the Capacity Case. Yet the
commission fails to explain in the ESP Order why, only five weeks later, the cost-
based capacity charge and “deferral only mechanism” authorized in the Capacity
Case were no longer adequate.
       {¶ 36} Second, according to the commission, “no party disputes that the
approval of the RSR will provide AEP-Ohio with sufficient revenue to ensure it
maintains its financial integrity as well as its ability to attract capital.” ESP Order
at 31. While no party may have disputed that this was the intended purpose of the
RSR, several parties challenged whether the RSR was necessary to achieve that
purpose. To be sure, after the commission had determined an appropriate cost-
based capacity charge for AEP in the Capacity Case, several parties argued in the
ESP Case that the additional revenue generated from the proposed RSR was no
longer necessary.




                                          13
                                    SUPREME COURT OF OHIO




           {¶ 37} Beyond the lack of reasoning, we have carefully reviewed the ESP
Order and find that it contains no evidence that would support approval of the
additional capacity revenue recovered through the RSR under the circumstances
presented in this case. See In re Application of Columbus S. Power Co., 128 Ohio
St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 24-25 (lack of record support for
portion of order justifies reversal). The critical problem is that the evidence relied
on by the commission to approve the RSR was evidence that AEP had submitted
to support the RSR under the two-tiered capacity-pricing plan. But the foundation
for the RSR was eliminated when the commission rejected the two-tiered plan and
found instead that AEP would be fully compensated for providing capacity under
the cost-based charge approved in the Capacity Case. And no evidence was
submitted in the ESP Case after the commission issued its decision in the
Capacity Case. In short, none of the evidence cited in the ESP Order is relevant
to whether it was necessary for AEP to recover additional revenue through the
RSR beyond the costs that the company incurred to provide capacity service.
                       3. Conclusion as to transition-revenue issue
           {¶ 38} Based on the foregoing, we find that the commission erred when it
found that AEP was not recovering transition revenue or its equivalent through
the RSR.3 The commission’s finding that the RSR does not recover unlawful



3
    R.C. 4928.143(B) provides:

                     “Notwithstanding any other provision of Title XLIX of the Revised Code to
           the contrary except division (D) of this section, divisions (I), (J), and (K) of section
           4928.20, division (E) of section 4928.64, and section 4928.69 of the Revised Code:
                     ***
                     (2) The [electric security] plan may provide for or include, without
           limitation, any of the following [listing nine categories of permissible terms].” The
           “[n]otwithstanding” provision can be read as creating an exception to the prohibition
           against transition revenue. But because the commission did not rely on this language
           in the case below, and no party appears to have raised the issue, we decline to
           consider it on appeal.




                                                   14
                               January Term, 2016




transition revenue lacks sound reasoning and record support. Therefore, it cannot
be upheld.
       {¶ 39} As to the question of remedy, we note that AEP is currently
collecting the deferred capacity costs with carrying charges through the RSR. In
re Application of Ohio Power Co. to Adopt a Final Implementation Plan for the
Retail Stability Rider, Pub. Util. Comm. No. 14-1186-EL-RDR, at 11-12 (Apr. 2,
2015). In addition, in the Capacity Case appeals, we affirmed the commission’s
decision that AEP is entitled to charge a cost-based state compensation
mechanism and that the $188.88 per megawatt-day rate is reasonable.
       {¶ 40} Because AEP is entitled to recover only its actual capacity costs,
we order the commission to adjust the balance of its deferred capacity costs to
eliminate the overcompensation of capacity revenue recovered through the
nondeferral part of the RSR during the ESP. However, because of the method
employed by the commission to calculate the RSR, we are unable to determine
exactly how much of the revenue recovered through the nondeferral part of the
RSR is allocable to CRES capacity revenues. We therefore remand this matter to
the commission to determine that amount and offset the balance of deferred
capacity costs by the amount determined.
      B.     Ohio Energy Group Proposition of Law No. 1: Whether the
       commission erred in incorporating deferred capacity costs in the RSR
                    and deferring those costs under R.C. 4928.144
       {¶ 41} Ohio Energy Group next argues that the commission’s order
violated R.C. 4928.144 by deferring capacity costs that were approved in the
Capacity Case and not as part of the ESP. R.C. 4928.144 provides that the
commission “may authorize any just and reasonable phase-in of any electric
distribution utility rate or price established under sections 4928.141 to 4928.143
of the Revised Code.” According to Ohio Energy Group, because the capacity
charges were not established under R.C. Chapter 4928, the commission erred




                                       15
                              SUPREME COURT OF OHIO




when it deferred those costs through the RSR for later recovery. We find that this
argument lacks merit.
        {¶ 42} Ohio Energy Group challenges only the $144 million in revenue
that was collected through the RSR to pay down the balance of the deferred
capacity costs. But these costs were not deferred; they were collected during the
ESP. Therefore, Ohio Energy Group’s challenge under R.C. 4928.144 in this
context is misplaced.
   C.      Challenges to the commission’s determination that the RSR was
                    authorized under R.C. 4928.143(B)(2)(d)
        {¶ 43} In its modified ESP application, AEP sought approval of the
nonbypassable RSR under R.C. 4928.143(B)(2)(d). This section states that an
ESP may include


        [t]erms, conditions, or charges relating to limitations on customer
        shopping for retail electric generation service, bypassability,
        standby, back-up, or supplemental power service, default service,
        carrying costs, amortization periods, and accounting or deferrals,
        including future recovery of such deferrals, as would have the
        effect of stabilizing or providing certainty regarding retail electric
        service.


Thus, a proposed item in an ESP is authorized if it meets three criteria: (1) it is a
term, condition, or charge, (2) it relates to one of the listed items (e.g., limitations
on customer shopping, bypassability, carrying costs), and (3) it has the effect of
stabilizing or providing certainty regarding retail electric service.              The
commission found that the RSR was authorized under this section as a charge that
relates to default service, promotes stable retail-electric-service prices, and
ensures customer certainty regarding retail electric service. ESP Order at 31-32;




                                          16
                                 January Term, 2016




First Rehearing Entry at 15.         Appellants raise several challenges to the
commission’s determination. None have merit.
 1.      OCC’s Proposition of Law No. 3 (Sections A.1 and A.2): Whether the
        commission failed to apply the statutory definition of “default service”
                           when construing R.C. 4928.143(B)(2)(d)
        {¶ 44} OCC first argues that the commission misconstrued the term
“default service” in R.C. 4928.143(B)(2)(d) when it approved the RSR.
According to OCC, the commission erred when it failed to apply the statutory
definition of “default service” set forth in R.C. 4928.14. We find that OCC has
forfeited this argument.
        {¶ 45} In its First Rehearing Entry on January 30, 2013, the commission
decided for the first time that the RSR was authorized under R.C.
4928.143(B)(2)(d) as a charge that relates to default service. OCC filed a second
application for rehearing, but it never alleged in its second application that the
commission erred when it failed to apply the statutory definition of default
service. Instead, it argued that the commission’s finding that the RSR related to
default service was unsupported by the record and not based on specific findings
of fact, thereby violating R.C. 4903.09 and 4903.13.
        {¶ 46} R.C. 4903.10 requires the commission’s ruling on any particular
issue to be challenged through an application for rehearing before that issue can
be appealed.    OCC may not argue for the first time in this court that the
commission’s entry violated R.C. 4928.14. It must first raise the issue with the
commission, giving the commission an opportunity to correct the alleged error.
Because OCC did not give the commission the opportunity to first address this
argument, we lack jurisdiction to consider the argument now. Discount Cellular,
Inc. v. Pub. Util. Comm., 112 Ohio St.3d 360, 2007-Ohio-53, 859 N.E.2d 957,
¶ 66.




                                         17
                             SUPREME COURT OF OHIO




2.      OCC’s Proposition of Law No. 3 (Section B): Whether the commission
           erred in concluding that the RSR satisfies R.C. 4928.143(B)(2)(d)
           without finding that it “directly” stabilizes or provides certainty
                             regarding retail electric service
       {¶ 47} OCC also contends that the commission erred in finding that the
RSR has “the effect of stabilizing or providing certainty regarding retail electric
service,” as required by R.C. 4928.143(B)(2)(d). According to OCC, under the
plain language of the statute, that effect must be direct. OCC maintains that the
commission misconstrued the statute when it found that the RSR could be
approved even if it had only an indirect effect on retail electric service.
       {¶ 48} Our analysis must begin with the language of the statute. See In re
Application of Ohio Power Co., 140 Ohio St.3d 509, 2014-Ohio-4271, 20 N.E.3d
699, ¶ 20. R.C. 4928.143(B)(2)(d) does not speak to whether the “effect of
stabilizing or providing certainty regarding retail electric service” must be direct
or indirect. While the stated goal is stable or certain retail electric service, the
statute does not tell the commission how to reach it. This gives the commission
discretion to determine how the “[t]erms, conditions, or charges” meet the criteria.
In re Application of Columbus S. Power Co., 128 Ohio St.3d 512, 2011-Ohio-
1788, 947 N.E.2d 655, ¶ 68 (“Any lack of statutory guidance on that point should
be read as a grant of discretion”); Payphone Assn. v. Pub. Util. Comm., 109 Ohio
St.3d 453, 2006-Ohio-2988, 849 N.E.2d 4, ¶ 25 (“When a statute does not
prescribe a particular formula, the [commission] is vested with broad discretion”).
       {¶ 49} OCC      has    not   shown      an   abuse    of   discretion.   R.C.
4928.143(B)(2)(d) does not expressly exclude effects that are indirect; it does not
use the word “direct,” or even some equivalent.             We would have to insert
language into the statute to find in favor of OCC’s preferred construction. But in
construing a statute, we may not add or delete words. State ex rel. Cincinnati Bell




                                          18
                                 January Term, 2016




Tel. Co. v. Pub. Util. Comm., 105 Ohio St.3d 177, 2005-Ohio-1150, 824 N.E.2d
68, ¶ 32.
     3.       Ohio Energy Group’s Proposition of Law No. 1: Whether R.C.
            4928.143(B)(2)(d) allows the commission to order the recovery of
                           wholesale charges through the RSR
          {¶ 50} Ohio Energy Group argues that the commission cannot order the
recovery of deferred wholesale capacity costs from retail customers under R.C.
4928.143(B)(2)(d). According to Ohio Energy, this provision specifically relates
to retail electric service, so wholesale costs that are established outside the scope
of an ESP and deferred for later recovery cannot be recovered under this
provision. But Ohio Energy points to no language in R.C. 4928.143 that prohibits
the commission from allowing the recovery of wholesale costs through retail
rates. See Util. Serv. Partners, Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284,
2009-Ohio-6764, 921 N.E.2d 1038, ¶ 53 (rejecting argument when proponent
failed to provide rationale justifying decision in its favor).
          {¶ 51} Ohio Energy also claims that forcing retail customers to pay
wholesale capacity costs that should be charged to CRES providers does not
provide stability or certainty regarding retail electric service, as required by R.C.
4928.143(B)(2)(d). The underlying premise of this argument is factual, yet Ohio
Energy fails to support its argument with any citations to the record. We reject
the argument on that basis. Allnet Communications Servs., Inc. v. Pub. Util.
Comm., 70 Ohio St.3d 202, 206, 638 N.E.2d 516 (1994) (rejecting argument
where appellant “provided no further reasoning or record citations to support” it).




                                           19
                             SUPREME COURT OF OHIO




                        Remaining challenges to the RSR
 1.       OCC’s Proposition of Law No. 1: Whether the commission’s order is
           unlawful and unreasonable because it requires retail consumers to
                            pay twice for the cost of capacity
         {¶ 52} OCC argues that the commission erred in counting capacity costs
twice.    According to OCC, the company’s generation customers are already
paying the company for capacity through its standard-service-offer rates. And
these same customers will have to pay the RSR, which recovers deferred capacity
costs plus interest. Likewise, OCC contends that shopping customers may also be
required to pay twice for capacity.      These arguments have effectively been
resolved by our discussion of the transition-revenue issue.
2.       Kroger’s Proposition of Law No. 1: Whether the commission’s order
          is unlawful because it mismatched cost allocation and cost recovery
                        for the RSR, in violation of R.C. 4928.02
         {¶ 53} Kroger raises one proposition of law, arguing that the commission
erred when it approved the rate design of the RSR. Kroger claims that although
the commission acted appropriately when it permitted AEP to allocate costs for
the RSR to customer classes on a demand basis, the commission erred when it
then allowed AEP to recover those costs through an energy charge. According to
Kroger, the rate design of the RSR is unlawful and unreasonable because it
discriminates against Kroger, and other high-demand customers whose energy
usage is low relative to their demand due to greater efficiency, by forcing them to
subsidize lower-demand, but less efficient, customers. See R.C. 4928.02(A) (state
policy is to ensure nondiscriminatory and reasonably priced retail electric
service). Kroger raises two arguments. We reject both.
                a. Kroger has forfeited its primary argument on appeal
         {¶ 54} Kroger’s primary argument on appeal is that the commission failed
to cite evidence to support its determination.




                                         20
                                January Term, 2016




         {¶ 55} Although not cited by Kroger, R.C. 4903.09 requires the
commission to set forth the reasons for its decisions and prohibits summary
rulings and conclusions that do not develop the supporting rationale or record.
MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St.3d 306, 312, 513
N.E.2d 337 (1987); Indus. Energy Users-Ohio v. Pub. Util. Comm., 117 Ohio
St.3d 486, 2008-Ohio-990, 885 N.E.2d 195, ¶ 30. Kroger is correct that the
commission’s rehearing entry on this issue contains no citation to the record.
Nevertheless, we lack jurisdiction to address Kroger’s argument.
         {¶ 56} The commission addressed the rate-design issue for the first time in
the January 30, 2013 rehearing entry. But Kroger never filed a second application
for rehearing that alleged error in the commission’s January 30 rehearing entry.
Therefore, we lack jurisdiction to consider the argument on appeal. Discount
Cellular, Inc. v. Pub. Util. Comm., 112 Ohio St.3d 360, 2007-Ohio-53, 859
N.E.2d 957, ¶ 66.
                b. Kroger’s rate-design argument otherwise lacks merit
         {¶ 57} Kroger also argues that the rate design of the RSR violates the
regulatory principle of cost causation, which requires that rates approved by the
regulator reflect the costs actually caused by the customer who pays them. Kroger
maintains that the commission misapplied this principle, resulting in a rate design
that is inherently flawed and that requires one class of customers to subsidize the
other.
         {¶ 58} We have long given great deference to the commission on matters
of rate design. See Ohio Consumers’ Counsel v. Pub. Util. Comm., 127 Ohio
St.3d 524, 2010-Ohio-6239, 941 N.E.2d 757, ¶ 13. Our “ ‘function is not to
weigh the evidence or to choose between alternative, fairly debatable rate
structures. That would be to interfere with the jurisdiction and competence of the
commission and to assume powers which this court is not suited to exercise.’ ” Id.




                                         21
                            SUPREME COURT OF OHIO




at ¶ 13, quoting Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 46 Ohio St.3d
105, 108, 346 N.E.2d 778 (1976).
       {¶ 59} After review, we find that Kroger has failed to demonstrate any
error, let alone reversible error. Kroger cites no authority that the commission is
bound to apply the regulatory principle of cost causation whenever it is deciding
an issue of rate design. Therefore, we can reject this argument on that ground.
See Ohio Consumers’ Counsel v. Pub. Util. Comm., 125 Ohio St.3d 57, 2010-
Ohio-134, 926 N.E.2d 261, ¶ 20.
     II.     Challenges against the ESP based on discriminatory pricing
       {¶ 60} OCC argues that the commission approved capacity prices that
discriminate against standard-service-offer (“SSO”) customers (nonshoppers), in
favor of marketers and shopping customers. We find that OCC has failed to
demonstrate error.
       {¶ 61} Ohio law does “not require uniformity in utility prices and rates.”
Ohio Consumers’ Counsel v. Pub. Util. Comm., 109 Ohio St.3d 328, 2006-Ohio-
2110, 847 N.E.2d 1184, ¶ 24. Rather, the statutes prohibit a utility from charging
different rates only when performing “ ‘a like and contemporaneous service under
substantially the same circumstances and conditions.’ ” Id. at ¶ 23, quoting R.C.
4905.33, and construing R.C. 4905.35 as having “the same effect,” id. OCC,
however, provides no evidence that SSO customers are situated similarly to CRES
providers when it comes to the provision of capacity service.
       {¶ 62} Likewise, OCC offers no evidence or explanation of any similarity
between SSO customers and shopping customers when it comes to capacity
service.   AEP provides capacity to SSO customers as part of its bundled
generation service, but it does not provide capacity directly to shopping
customers. Instead, AEP sells generation capacity wholesale to CRES providers,
who in turn sell generation service directly to shopping customers, with each




                                        22
                                January Term, 2016




CRES provider deciding how much of the wholesale capacity cost to pass on to
retail consumers. First Rehearing Entry at 33.
       {¶ 63} In sum, OCC has not carried its burden, and therefore we reject the
arguments on that ground. See generally In re Application of Duke Energy Ohio,
Inc., 131 Ohio St.3d 487, 2012-Ohio-1509, 967 N.E.2d 201, ¶ 17-18 (appellant
bears the burden on appeal of showing that the order is unlawful or unreasonable).
                               AEP’s Cross-Appeal
 I.      AEP’s Proposition of Law No. V1: Whether the commission erred in
         determining the threshold for the “significantly excessive earnings”
                                              test
       {¶ 64} AEP first argues on cross-appeal that the commission erred when it
imposed a significantly-excessive-earnings test (“SEET”) threshold for the term
of the ESP that was arbitrary and unsupported by the record. Electric-distribution
utilities that opt to provide service under an electric-security plan must undergo an
annual earnings review. R.C. 4928.143(F) requires the commission annually to
consider whether the plan resulted in “significantly excessive earnings” compared
to companies facing “comparable” risk.         If the ESP resulted in significantly
excessive earnings, the utility must return the excess to its customers. Id. In the
order below, the commission set the SEET threshold at 12 percent, meaning that
only a return on investment of more than 12 percent would be considered
significantly excessive. ESP Order at 37; First Rehearing Entry at 41-42.
       {¶ 65} 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 utilities, that face comparable business and




                                         23
                            SUPREME COURT OF OHIO




       financial risk, with such adjustments for capital structure as may be
       appropriate.


R.C. 4928.143(F).      AEP argues that in setting the SEET threshold, the
commission did not compare AEP’s return on common equity with the returns of
comparable publicly traded companies that were earned during the same period.
Moreover, the company asserts that the commission never explained why it failed
to conduct the statutorily required comparison.
       {¶ 66} AEP is correct that the commission failed to explain its decision.
AEP complained on rehearing that the threshold was not based on “estimates 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’ to AEP Ohio, as the SEET statute requires.” The company also complained
about the commission’s lack of explanation for departing from the statutory
process. The commission never offered a response to AEP’s claims and thus
failed to explain its decision. This was error. See In re Fuel Adjustment Clauses
for Columbus S. Power Co. & Ohio Power Co., 140 Ohio St.3d 352, 2014-Ohio-
3764, 18 N.E.3d 1157, ¶ 45. Therefore, we reverse this part of the order and
remand so that the commission can address this issue in the first instance.
II.     AEP’s Proposition of Law No. V1I: Whether the commission’s order
           impaired the company’s right to withdraw the ESP under R.C.
                                    4928.143(C)(2)(a)
       {¶ 67} AEP’s second argument on cross-appeal is that the commission’s
order deprived the company of its right under R.C. 4928.143(C)(2)(a) to withdraw
the ESP. R.C. 4928.143(C)(1) requires the commission to do one of three things
when considering an ESP application: (1) “approve,” (2) “modify and approve,”
or (3) “disapprove” the application.      Under R.C. 4928.143(C)(2)(a), if the
commission issues an order that “modifies and approves an application,” the




                                         24
                                      January Term, 2016




utility “may withdraw the application, thereby terminating it, and may file a new
standard service offer.” AEP asserts that it cannot meaningfully exercise its
statutory right to withdraw the modified ESP because the order directed the
company to accelerate the use of energy auctions, but failed to address auction-
design and related issues, deferring those issues for resolution in another
proceeding. This argument lacks merit.
           {¶ 68} Nothing prevented AEP from withdrawing the ESP once the
commission issued its order modifying the timing of the auctions and informed
the company of its plan to decide auction-design issues in another case. AEP
complains that it cannot exercise its right to withdraw when it does not know and
cannot even anticipate the actual economic effect of the specific design of the
auctions until later. But AEP overlooks the fact that it was the one who had
proposed that the commission decide the details of the competitive-auction
process in a separate proceeding. The company cannot take advantage of an error
that it itself invited or induced the commission to make. State ex rel. Johnson v.
Ohio Adult Parole Auth., 95 Ohio St.3d 463, 2002-Ohio-2481, 768 N.E.2d 1176,
¶ 6; Fostoria v. Ohio Patrolmen’s Benevolent Assn., 106 Ohio St.3d 194, 2005-
Ohio-4558, 833 N.E.2d 720, ¶ 12.
    III.    AEP’s Proposition of Law No. VIII: Whether the commission erred
             when it extended the state compensation mechanism to standard-
                                        service-offer auctions4
           {¶ 69} In its final argument on cross-appeal, AEP contends that the
commission erred when it extended the state compensation mechanism to SSO
auctions and SSO customers. But this argument was not set forth in AEP’s notice
of cross-appeal and is therefore forfeited. R.C. 4903.13 (the procedure for seeking
reversal of a commission order is through a notice of appeal “setting forth the

4
  At page 47 of its second merit brief, AEP misidentifies its final proposition of law as “No. IV,”
instead of No. VIII.




                                                 25
                              SUPREME COURT OF OHIO




order appealed from and the errors complained of”); Cincinnati Gas & Elec. Co.
v. Pub. Util. Comm., 103 Ohio St.3d 398, 2004-Ohio-5466, 816 N.E.2d 238, ¶ 21;
In re Complaint of Smith v. Ohio Edison Co., 137 Ohio St.3d 7, 2013-Ohio-4070,
996 N.E.2d 927, ¶ 28.
                                    CONCLUSION
          {¶ 70} For the foregoing reasons, we reverse the commission’s orders in
part, affirm them in part, and remand the cause to the commission for further
review.
                                                             Orders affirmed in part
                                                                and reversed in part,
                                                                and cause remanded.
          O’DONNELL and FRENCH, JJ., concur.
          O’CONNOR, C.J., concurs in part and dissents in part with an opinion that
LANZINGER, J., joins.
          PFEIFER, J., concurs in part and dissents in part with an opinion that
O’NEILL, J., joins.
                                 _________________
          O’CONNOR, C.J., concurring in part and dissenting in part.
          {¶ 71} I believe that the majority prematurely reaches its conclusions that
the commission’s order violates R.C. 4928.38 and that AEP is recovering the
equivalent of unlawful transition revenue through the Retail Stability Rider
(“RSR”). I thus dissent in part.
                                      ANALYSIS
          {¶ 72} R.C. Chapter 4928 is a labyrinthian scheme that governs Ohio’s
retail electric service, i.e., “any service involved in supplying or arranging for the
supply of electricity to ultimate consumers in this state, from the point of
generation to the point of consumption.”           R.C. 4928.01(27).      Among its
provisions are those permitting and forbidding the recovery of transition costs.




                                          26
                                 January Term, 2016




FirstEnergy Corp. v. Pub. Util. Comm., 95 Ohio St.3d 401, 2002-Ohio-2430, 768
N.E.2d 648, ¶ 14; R.C. 4928.37; R.C. 4928.39; R.C. 4928.141(A).
           {¶ 73} In the proceedings below, the commission found that R.C.
4928.143(B)(2)(d) permitted American Electric Power (“AEP”) to include the
RSR as part of its electric security plan (“ESP”). Pub. Util. Comm. Nos. 11-346-
EL-SSO, 11-348-EL-SSO, 11-349-EL-AAM, and 11-350-EL-AAM, 31-32 (Aug.
8, 2012) (the “ESP Order”). The practical effect of that decision was that AEP
collected over $500,000,000 in additional revenue through the RSR, which AEP
had designed, in part, to recover lost revenue from competitive retail-electric-
service providers.
           {¶ 74} Appellant the Office of the Ohio Consumers’ Counsel contends
that the commission acted improperly in allowing AEP to collect the revenue
because the statutory period set by the General Assembly for the recovery of
transition costs had ended. See R.C. 4928.37(A)(1), 4928.38, and 4928.40(A).
The majority agrees and reverses the approval of the RSR on the basis that AEP is
recovering the equivalent of unlawful transition revenue through the rider in
violation of R.C. 4928.38. But in doing so, the majority ignores what could be
significant language in the ESP statute, R.C. 4928.143(B), by relegating that
language to a footnote and then ignoring it. Majority Opinion at fn. 3.
           {¶ 75} R.C. 4928.143(B) contains broadly worded language that states
“[n]otwithstanding any other provision” in R.C. Title 49 “to the contrary,” except
the provisions in “division (D) of this section, divisions (I), (J), and (K) of section
4928.20, division (E) of section 4928.64, and section 4928.69 of the Revised
Code,” an electric security plan may provide or include, without limitation, a host
of costs the utility incurs in providing electric service.5



5
    R.C. 4928.143(B) provides:




                                           27
                SUPREME COURT OF OHIO




          Notwithstanding any other provision of Title XLIX of the
Revised Code to the contrary except division (D) of this section,
divisions (I), (J), and (K) of section 4928.20, division (E) of section
4928.64, and section 4928.69 of the Revised Code:
          (1) An electric security plan shall include provisions relating
to the supply and pricing of electric generation service. * * *
          (2) The plan may provide for or include, without limitation,
any of the following:
          (a) Automatic recovery of any of the following costs of the
electric distribution utility, provided the cost is prudently incurred: the
cost of fuel used to generate the electricity supplied under the offer; the
cost of purchased power supplied under the offer, including the cost of
energy and capacity, and including purchased power acquired from an
affiliate; the cost of emission allowances; and the cost of federally
mandated carbon or energy taxes;
          (b) A reasonable allowance for construction work in progress
for any of the electric distribution utility’s cost of constructing an
electric generating facility or for an environmental expenditure for any
electric generating facility of the electric distribution utility, provided
the cost is incurred or the expenditure occurs on or after January 1,
2009. Any such allowance shall be subject to the construction work in
progress allowance limitations of division (A) of section 4909.15 of the
Revised Code, except that the commission may authorize such an
allowance upon the incurrence of the cost or occurrence of the
expenditure. No such allowance for generating facility construction
shall be authorized, however, unless the commission first determines in
the proceeding that there is need for the facility based on resource
planning projections submitted by the electric distribution utility.
Further, no such allowance shall be authorized unless the facility’s
construction was sourced through a competitive bid process, regarding
which process the commission may adopt rules. An allowance
approved under division (B)(2)(b) of this section shall be established as
a nonbypassable surcharge for the life of the facility.
          (c) The establishment of a nonbypassable surcharge for the life
of an electric generating facility that is owned or operated by the
electric distribution utility, was sourced through a competitive bid
process subject to any such rules as the commission adopts under
division (B)(2)(b) of this section, and is newly used and useful on or
after January 1, 2009, which surcharge shall cover all costs of the
utility specified in the application, excluding costs recovered through a
surcharge under division (B)(2)(b) of this section. However, no
surcharge shall be authorized unless the commission first determines in
the proceeding that there is need for the facility based on resource
planning projections submitted by the electric distribution utility.
Additionally, if a surcharge is authorized for a facility pursuant to plan
approval under division (C) of this section and as a condition of the
continuation of the surcharge, the electric distribution utility shall
dedicate to Ohio consumers the capacity and energy and the rate




                               28
                    January Term, 2016




associated with the cost of that facility. Before the commission
authorizes any surcharge pursuant to this division, it may consider, as
applicable, the effects of any decommissioning, deratings, and
retirements.
          (d) Terms, conditions, or charges relating to limitations on
customer shopping for retail electric generation service, bypassability,
standby, back-up, or supplemental power service, default service,
carrying costs, amortization periods, and accounting or deferrals,
including future recovery of such deferrals, as would have the effect of
stabilizing or providing certainty regarding retail electric service;
          (e) Automatic increases or decreases in any component of the
standard service offer price;
          (f) Consistent with sections 4928.23 to 4928.2318 of the
Revised Code, both of the following:
          (i) Provisions for the electric distribution utility to securitize
any phase-in, inclusive of carrying charges, of the utility’s standard
service offer price, which phase-in is authorized in accordance with
section 4928.144 of the Revised Code;
          (ii) Provisions for the recovery of the utility’s cost of
securitization.
          (g) Provisions relating to transmission, ancillary, congestion,
or any related service required for the standard service offer, including
provisions for the recovery of any cost of such service that the electric
distribution utility incurs on or after that date pursuant to the standard
service offer;
          (h) Provisions regarding the utility’s distribution service,
including, without limitation and notwithstanding any provision of
Title XLIX of the Revised Code to the contrary, provisions regarding
single issue ratemaking, a revenue decoupling mechanism or any other
incentive ratemaking, and provisions regarding distribution
infrastructure and modernization incentives for the electric distribution
utility. The latter may include a long-term energy delivery
infrastructure modernization plan for that utility or any plan providing
for the utility’s recovery of costs, including lost revenue, shared
savings, and avoided costs, and a just and reasonable rate of return on
such infrastructure modernization. As part of its determination as to
whether to allow in an electric distribution utility’s electric security
plan inclusion of any provision described in division (B)(2)(h) of this
section, the commission shall examine the reliability of the electric
distribution utility’s distribution system and ensure that customers’ and
the electric distribution utility’s expectations are aligned and that the
electric distribution utility is placing sufficient emphasis on and
dedicating sufficient resources to the reliability of its distribution
system.
          (i) Provisions under which the electric distribution utility may
implement economic development, job retention, and energy efficiency
programs, which provisions may allocate program costs across all




                               29
                                SUPREME COURT OF OHIO




        {¶ 76} The provision could be construed to allow an ESP to include
charges that other provisions of R.C. Title 49 prohibit. Here, even assuming that
the majority is correct that R.C. 4928.38 bars the recovery of transition revenue,
R.C. 4928.143(B) nevertheless could be read to create an exception to the
prohibition on transition revenue as long as the revenues are recoverable under the
requirements        of   R.C.   4928.143(B)(2).        Stated     differently,    the    word
“notwithstanding” could render R.C. 4928.38 inapplicable if the revenues are
recoverable under one of the many provisions of R.C. 4928.143(B)(2).
        {¶ 77} I recognize that the            commission did not rely on                 the
“notwithstanding” provision of R.C. 4928.143(B) in the proceedings below. And
although it appears that no party has squarely raised the issue to this court, two
parties, FirstEnergy Solutions and IEU, cited the “notwithstanding” provision of
R.C. 4928.143(B) before the commission in relation to another rider (the
Generation Resource Rider). ESP Order at 21.                In that context, the parties’
interpretation of the provision suggests that the “notwithstanding” clause could be
read broadly as an exception. The commission, however, decided the question on
other grounds and never addressed the “notwithstanding” argument, see ESP
Order at 19-25, and I am unaware of any case in which the commission has
considered or clarified the particular language of R.C. 4928.143(B).
        {¶ 78} We could decide the meaning of the provision in the first instance.
But we can, and should, consider the expertise of a state agency in interpreting a
law where, as here, there are “highly specialized issues” involved and where
“agency expertise” would be “of assistance in discerning the presumed intent of




                classes of customers of the utility and those of electric distribution
                utilities in the same holding company system.

(Emphasis added.)




                                             30
                                January Term, 2016




our General Assembly.” Consumers’ Counsel v. Pub. Util. Comm., 58 Ohio St.2d
108, 110, 388 N.E.2d 1370 (1979).
       {¶ 79} Given that the “notwithstanding” provision could create an
exception to the prohibition against the recovery of transition revenue and that the
commission has offered no guidance on the meaning of that provision, I would
remand the cause to the commission to consider and interpret the statutory
language before rendering a decision on whether AEP is improperly recovering
transition costs. See, e.g., In re Application of Columbus S. Power Co., 128 Ohio
St.3d 512, 2011-Ohio-1788, 947 N.E.2d 655, ¶ 31-35. By doing so, we would not
only respect the role of the General Assembly to create the framework by which
utilities must provide service to the millions of Ohio consumers who rely on safe,
affordable electrical service, but also the collective expertise of the commission in
a complex area of law that implicates important public-health and financial-policy
considerations.
       LANZINGER, J., concurs in the foregoing opinion.
                               _________________
       PFEIFER, J., concurring in part and dissenting in part.
       {¶ 80} I concur in the portion of the majority opinion that concludes that
the Public Utilities Commission (“PUCO”) erred when it allowed Ohio Power to
collect the equivalent of transition revenues.
       {¶ 81} But I dissent from the portion of the majority opinion that allows
the recapture of a discount offered to marketers from retail customers. Pursuant
to the PUCO order before us, Ohio Power is allowed to sell capacity to marketers
at a rate that is less than its retail customers pay. That does not, by itself, offend
any sense of justice or fair play. But requiring the retail customers, who already
pay full cost, to make up the difference between the rate Ohio Power charges the
marketers and the rate it charges the public does. We are not talking about a
small number. The discount that Ohio Power has offered to marketers, some of




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whom might be its own subsidiaries, amounts over a period of years to close to
$650 million. No statutory authority enabled the PUCO to allow Ohio Power to
recoup from its retail customers the discount it grants to marketers. The PUCO
justifies the recapture of the discount by saying that it promotes stable electric
service prices. Perhaps that is true, but it also results in artificially high retail
utility costs.
         {¶ 82} The PUCO has determined that Ohio Power’s cost of providing
capacity is $188.88 per megawatt day. In re Comm. Rev. of Capacity Charges of
Ohio Power Co., Pub. Util. Comm. No. 10-2929-EL-UNC, at 33 (July 2, 2012).
In its brief, the Office of the Ohio Consumers’ Counsel stated that the current
standard-service-offer rate charged to retail customers includes a capacity charge
of approximately $355.72 per megawatt-day. If true, this outrageous overcharge
to Ohio Power’s own nonshopping retail customers is unwarranted and outside
the purview of the rate-setting mechanism. R.C. 4928.144, which ostensibly
justifies the PUCO’s action, allows rates to be phased in, it does not allow the
recapture of a discount offered to marketers from retail customers. In essence, the
PUCO is requiring retail customers, who in the main do not shop for service, to
subsidize customers who do shop. The authority to do this is not found in 2008
Am.Sub.S.B. No. 221 or anywhere else in the Revised Code.
         {¶ 83} In the past, Ohio Power’s capacity charges have been based on
rates established by auctions held by PJM Interconnection, L.L.C. See Pub. Util.
Comm. No. 10-2929-EL-UNC at 14. I would send this case back to the PUCO
with instructions for it to determine the appropriate market price for capacity
generation and to limit the rates it allows Ohio Power to charge to that market
price.
         {¶ 84} The outcome of this case appears to provide another extra-legal gift
from the PUCO to the management and shareholders of AEP, the owner of Ohio
Power, this time of roughly $500 million from the retail stability charge. For




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other examples, see In re Application of Ohio Power Co., 144 Ohio St.3d 1, 2015-
Ohio-2056, 40 N.E.3d 1060, ¶ 48 (Pfeifer, J., dissenting) (Ohio Power received
an unwarranted $130 million); In re Application of Columbus S. Power Co., 138
Ohio St.3d 448, 2014-Ohio-462, 8 N.E.3d 863, ¶ 56 (Pfeifer, J., dissenting) (AEP
allowed to retain $368 million of charges that were unjustified).
       {¶ 85} Based on the foregoing, I concur in part and dissent in part.
       O’NEILL, J., concurs in the foregoing opinion.
                               _________________
       Bruce J. Weston, Consumers’ Counsel, and Maureen R. Grady, Terry L.
Etter, and Joseph P. Serio, Assistant Consumers’ Counsel, for appellant and cross-
appellee Ohio Consumers’ Counsel.
       Boehm, Kurtz & Lowry, Michael Kurtz, David Boehm, and Jody Kyler
Cohn, for appellant and cross-appellee Ohio Energy Group.
       Taft, Stettinius & Hollister, L.L.P., Mark S. Yurick, and Zachary D.
Kravitz, for appellant Kroger Company.
       Michael DeWine, Attorney General, and William L. Wright, Werner L.
Margard III, and Steven L. Beeler, Assistant Attorneys General, for appellee and
cross-appellee, Public Utilities Commission of Ohio.
       Matthew J. Satterwhite and Steven T. Nourse; Porter, Wright, Morris &
Arthur, L.L.P., Kathleen M. Trafford, James B. Hadden, Daniel R. Conway, and
L. Bradfield Hughes; and MoloLamken, L.L.P., Jeffrey A. Lamken, and Martin
V. Totaro, for appellee and cross-appellant, Ohio Power Company.
                               _________________




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