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Ohio Supreme Court Rules PUCO Order Requiring Refund Of Bypassable FirstEnergy Utility Charges Unlawful

Order May Have Broader Impacts On Generation Rates, Could Cause Default Service To Lag Market

Court Also Addresses Ability Of Companies To Receive Trade Secret Status For Info Filed With PUCO

January 23, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Supreme Court of Ohio ruled that the Public Utilities Commission of Ohio acted unlawfully when it ordered the FirstEnergy Ohio utilities to refund some $43 million collected under bypassable Rider AER (renewable energy compliance) because such refunds violated statutory prohibitions against retroactive ratemaking

The at-issue refunds related to the FirstEnergy EDCs' REC purchases from 2009 through 2011. Following an audit, PUCO found that the EDCs failed to act prudently in purchasing certain in-state, non-solar RECs in August 2010 to meet the EDCs' renewable energy benchmarks for 2011. As a result, the Commission ordered FirstEnergy to credit customers’ bills in the amount of $43 million

The EDCs appealed the decision.

In a majority opinion, Ohio Supreme Court Justice William O'Neill wrote that, "In this case, the tariff language of Rider AER required FirstEnergy to request quarterly approval from the commission of the charges collected through the rider."

"As indicated by the tariff sheets here, the requested rates were to go into effect one month after the stated filing dates 'unless otherwise ordered by' the commission," the Court found

"Under R.C. 4905.32, a public utility must charge its consumers consistently with the rate set forth in the schedule 'filed with the public utilities commission which is in effect at the time,'" the Court noted

"Because FirstEnergy recovered REC costs under a 'filed' rate schedule, the commission was prohibited from later ordering a disallowance or refund of those costs," the Court found

"Notwithstanding that FirstEnergy was entitled to recover only 'prudently incurred costs,' there can be no remedy in this case because the costs were already recovered. We have recognized that application of the no-refund rule has been perceived as unfair and has even sometimes resulted in a windfall for a utility company. But we have also recognized that it is the statutory scheme that requires this result, and therefore, it is a matter for the General Assembly to remedy, not this court," O'Neill wrote for the majority

"FirstEnergy also asserts that the plain language of R.C. 4905.32 bars any refund in this case because Rider AER did not specify a refund process. We agree," the Court found

The Court noted that R.C. 4905.32 provides that, "[n]o public utility shall refund or remit directly or indirectly, any rate * * * or charge * * * except such as are specified in [its filed] schedule * * *."

A dissenting opinion from Justice Judith L. French noted that under the terms of an electric security plan for the EDCs, the FirstEnergy EDCs agreed that the EDCs would be able to recover "the prudently incurred costs" of their REC purchases under Rider AER.

"That is, the commission allowed FirstEnergy to automatically recover its REC costs, on the condition that a later review would be conducted to determine whether those costs were prudently incurred. So while it is true that we have prohibited refunds of money collected under final commission-approved rates, it is not true that the rates charged under Rider AER were final, approved rates. To conclude that they were, we must disregard the clear terms of the ESP order, which expressly limited FirstEnergy’s recovery to only those REC costs that were prudently incurred. Nothing before us supports the lead opinion’s finding that the rates charged under Rider AER were fixed and thus not subject to refund," French wrote

"Disregarding the commission’s expertise on this issue, a majority of the court renders the prudence review process in this case -- a review that FirstEnergy agreed to undergo in its ESP case -- meaningless," French wrote

French's dissent notes how the majority's opinion could upend current practice with regards to implementing new rates at the EDCs -- especially for bypassable rates not the result of a distribution rate case.

As noted above, the EDCs updated Rider AER rates on a quarterly basis, with tariffs filed at PUCO. Similar bypassable rate components, including base generation rates, are updated in a similar manner (although perhaps annually rather than quarterly in some cases). These rates were not subject to audit immediately, but are allowed to be implemented after 30 days, subject to further review

However, the majority opinion finds that once such rates are filed (barring specific language regarding refunds to the contrary in the tariff itself), PUCO cannot later revisit those rates.

That could cause PUCO to revise its process such that rates are not immediately (after 30 days) put into effect, and instead, may cause PUCO to delay implementation to conduct a prudence review before the rates are adopted, since the majority has ruled refunds are not permissible after the rates have been filed and charged

This process could introduce lag in implementing new rates, which is particularly problematic for bypassable rate components which serve as a Price to Compare and are intended to reflect market conditions, so that customers may accurately compare default service to competitive supply rates

While not discussing this potential issue specifically, French noted in her dissent that, under the current filing process, where rates are implemented one month after the stated filing dates unless otherwise ordered by PUCO, "Utilities often benefit from this process, as it allows them to implement new rates without regulatory lag."

French further noted, "the commission observed that if the process used in this case is found to be retroactive ratemaking, then that process, which has been used in numerous other situations, will no longer be available."

The Court also remanded to PUCO the issue of whether confidential trade secret status should have been granted to certain data concerning the EDCs' REC purchases, such as supplier and pricing information submitted during the competitive-bid REC auctions. The Court found PUCO's grant of trade secret status was unsupported by evidence; however, PUCO may on remand continue to grant such status if such decision is supported by evidence. While the Court said that reasoned analysis and evidence is required for PUCO to grant trade secret status, the Court itself did not opine on what does, or does not, qualify as such evidence or what information should be entitled to such status. Accordingly, while this issue will be of import for retail suppliers going forward concerning any confidential information filed by PUCO, the Court, itself, did not set a new bar regarding what is entitled to trade secret status.

"While trade secrets may continue to be protected if the information retains some measure of value, the commission failed to show that to be the case here. Therefore, we reverse the commission’s decision to grant trade-secret protection. On remand, the commission must either cite evidence and explain its order or publicly disclose the information that has been protected," the Court said

PUCO Chairman Asim Z. Haque issued the following statement regarding the Court's opinion, "While the PUCO is reviewing the court’s decision, we are concerned that today’s ruling will have negative impacts on the agency’s ability to protect Ohio’s utility customers. Our ability to effectively audit utility expenses is one of our most important regulatory responsibilities."

Slip Opinion No. 2018-OHIO-229

PUCO Case 11-5201-EL-RDR

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