Ohio Supreme Court Rules PUCO Erred In Approving FirstEnergy EDCs' Distribution Modernization Rider, Orders Termination

The Supreme Court of Ohio has ruled that the Public Utilities Commission of Ohio erred in approving the FirstEnergy Ohio EDCs' Distribution Modernization Rider (Rider DMR)

Rider DMR was part of the FirstEnergy Ohio EDCs' electric security plan, governing terms of default service rate setting and supply procurement (among other things)

PUCO had previously ruled that the FirstEnergy Ohio EDCs may elect to withdraw an electric security plan in response to an adverse court ruling

The Supreme Court declined to address this issue on appeal. OCC had argued that PUCO erred when it found that the companies could withdraw the ESP in response to an adverse mandate from the court

The Supreme Court remanded the case to PUCO and instructed the commission to immediately remove the DMR from the ESP.

Despite the Court's finding that the DMR is unlawful, no refund is available to ratepayers for money already recovered under the rider. R.C. 4905.32 bars any refund of recovered rates unless the tariff applicable to those rates sets forth a refund mechanism (which DMR did not)

Rider DMR had been intended to infuse cash at the EDCs (see details here)

The Court struck approval of Rider DMR on two grounds.

First, the Court agreed with appellants that the DMR does not qualify as a proper incentive under R.C. 4928.143(B)(2)(h) because it does not require the companies to take any action in exchange for receiving the DMR funds.

"The commission relied solely on rehearing testimony demonstrating that its staff intends for the DMR to jump-start the companies’ grid modernization efforts. But the PUCO staff’s intent does not explain how the DMR will encourage the companies to invest in distribution modernization," the Court said, noting that no specific conditions or milestones related to grid modernization were attached

The Court also said that the conditions placed on the recovery of DMR revenue were not sufficient to protect ratepayers

The Commission had conditioned recovery of DMR revenue on (1) FirstEnergy Corporation keeping its corporate headquarters and nexus of operations in Akron, (2) no change in the 'control' of the companies as that term is defined in R.C. 4905.402(A)(1), and (3) a demonstration of sufficient progress in implementing and deploying grid-modernization programs approved by the commission.

"We agree with appellants that there are no discernable consequences or repercussions if FirstEnergy fails to comply with the conditions imposed for receiving DMR funds," the Court said

Slip Opinion No. 2019-OHIO-2401