Regulatory proceedings have big impacts on how much Ohioans pay for their electric service.
How would you decide some of Ohio’s cases on electricity rates?
Eye on Ohio, in a joint project with the Energy News Network, surveyed the biggest changes to the recent legal landscape. Each of the following problems is drawn from a real case decided by the Public Utilities Commission of Ohio or the Ohio Supreme Court.
The PUCO’s five commissioners are appointed by the governor for rotating five-year terms, while the court’s seven justices are elected. As of May, five of the seven justices on the court were registered Republicans, and two were Democrats. (Though each holds a nonpartisan office.)
Decide how you would resolve each problem in the interactive. Or scan through the explanations below for links to the opinions.
1. PROBLEM: No strings attached?
Ohio regulators let a utility add a “Distribution Modernization Rider” to all ratepayers’ bills. However, the PUCO put no conditions on how the utility could spend the money. The utility could funnel the money up to its parent company for general credit support or do almost anything else with no penalty. Challengers appealed, but the court didn’t rule until after customers had paid hundreds of millions of dollars. What happened?
A. The court upheld the charge so the utility could keep all the money it already collected.
B. The court held the charge was unlawful and made the utility give back the money.
C. The court held the charge was unlawful, but the utility got to keep the money anyway.
ANSWER: C. The court held the charge was unlawful, but the utility got to keep the money anyway. The Ohio Supreme Court ruled on June 19 that the PUCO should not have let FirstEnergy’s utilities charge customers for the no-strings-attached credit support rider. “The PUCO staff’s wishful thinking cannot take the place of real requirements, restrictions, or conditions imposed by the commission,” the court’s majority opinion said. But, the court added, “despite our finding that the DMR [rider] is unlawful, no refund is available to ratepayers for money already recovered under the rider.” Challengers had previously asked the PUCO to make the rider refundable if it was found unlawful, but the PUCO declined. The PUCO and the court’s actions “cost Ohio families and businesses an incredible $440 million, when the court allowed FirstEnergy to keep its improper charges because the PUCO did not make those charges subject to refund,” said J.P. Blackwood, spokesperson for Ohio Consumers’ Counsel Bruce Weston. “It’s another travesty of justice.”
A similar question remains in a case involving Dayton Power & Light. In December the PUCO let the utility revert to a prior plan that basically substituted another subsidy, which opponents say is also unlawful. The case will likely be appealed once the decision is final.
2. PROBLEM: Significantly excessive earnings?
Ohio law lets utilities earn a reasonable return on their investments. If a company rakes in “significantly excessive earnings,” however, the law has a mechanism for recovery. One utility company’s return on investment for one year was about 12 percent. But the calculation left out roughly $58 million of the utility’s revenues from a credit support rider. What happened?
A. The utility didn’t have to count the $58 million of revenues.
B. The utility had to go back and count the revenues into its calculations.
ANSWER: A. The utility didn’t have to count the revenues from the credit support rider — at least not for now.
When the PUCO authorized FirstEnergy’s utilities’ credit support rider in 2017, it expressly excluded it from excessive earnings calculations. In June, the Ohio Supreme Court held that no-strings-attached rider unlawful. However, the court declined to say that the revenues should have been counted towards significantly excessive earnings. “[U]tility customers will not be prejudiced by the failure to immediately address the issue,” the court’s opinion said.
3. PROBLEM: Credit on future bills?
The Ohio Supreme Court held that a utility had unlawfully overcharged customers to the tune of hundreds of millions of dollars in standby charges. The excess fees were in case customers who picked a competitive generation supplier returned to the utility to buy electricity through it. Challengers then asked the PUCO to adjust another of the utility’s charges to offset the amount of the overcharge. What happened?
A. Customers wound up getting credit for the overcharge.
B. Customers were out of luck.
ANSWER: B. Customers were out of luck.
The Ohio Supreme Court let American Electric Power’s Columbus Southern Power Company keep $368 million in overcharges. For authority, the court’s 2014 decision cited a 1957 telephone case against “retroactive rulemaking.” The court read that case to say that “rates set by the commission are lawful until such time as this court later finds that the commission erred in setting that particular rate.”
The court’s majority opinion conceded that the result was “a windfall for AEP.” And, it added, “we recognize that this particular outcome is unfair.”
4. PROBLEM: Sweetheart deals?
Under Ohio’s clean energy standards, one utility paid significantly more for renewable energy credits than other utilities did. Challengers argued that the utility had paid inflated prices to its generation affiliate. The utility asserted a confidentiality claim for the price data, so the public didn’t get to learn the information. After reviewing the data, the PUCO held that the utility had overcharged customers about $41 million. What happened on appeal?
A. The court upheld the PUCO and the utility had to credit customers for the overcharges.
B. The court upheld the PUCO, but let the utility keep the overcharges.
C. The court reversed the PUCO, and the company got to keep the overcharges.
ANSWER: B. The court upheld the PUCO, but let the utility keep the overcharges.
In January 2018, the Ohio Supreme Court affirmed the PUCO’s 2014 holding that FirstEnergy had overcharged customers for renewable energy credits for 2011. But the court also ruled that the PUCO erred when it told FirstEnergy to refund about $43 million to customers. So the company’s utilities got to keep the money.
“Today’s disappointing court decision again highlights one of the worst ways that Ohio’s rate-setting process is unfair to utility consumers,” spokesperson Dan Doron at the Office of the Ohio Consumers’ Counsel said at the time. “The law allows FirstEnergy and other utilities to keep unlawful charges instead of giving millions of dollars in refunds to consumers.” A bill to allow refunds languished in the Ohio legislature in 2018.
FirstEnergy’s utilities had also bought renewable energy credits, or RECs, from FirstEnergy Solutions for 2009 and 2010. Because the utilities did not produce their own renewable energy, the credits let them satisfy Ohio’s renewable energy standard. But the prices paid to their affiliate ranged up to 15 times the $45/credit penalty the utilities would have had to pay if they didn’t buy the high-priced RECs. The PUCO let those charges stand.
5. PROBLEM: Rate plan switcheroo
In 2016, the Ohio Supreme Court reversed a 2014 PUCO decision that had let a utility impose a “financial integrity charge” on its customers. The utility responded by withdrawing the rate plan that had the charge. Ohio regulators promptly approved a substitute plan under which the utility still got to collect about $10 per month from its customers for so-called stability charges. Challengers argued that accomplished the same thing and was unlawful. What did the court decide?
A. The PUCO acted lawfully in allowing the substitute charge.
B. The PUCO acted unlawfully in approving the substitute charge.
C. The court dismissed the appeal and let the utility keep the money because the rate plan with the substitute charge had ended.
ANSWER: C. The court dismissed the appeal and let the utility keep the money because the rate plan with the substitute charge had ended. Dayton Power & Light had already collected about a quarter of a million dollars by the time the 2016 court ruling came out. “The court’s ruling should have saved customers from paying $80 million more in stability charges,” attorney Maureen Willis of the Office of the Ohio Consumers’ Counsel said when the second case went to oral argument in December 2017. “But through a regulatory sleight of hand, the court’s ruling was undercut by the PUCO. And customers paid, not saved, more than $80 million. And that was unlawful.” Ten more months passed before the Ohio Supreme Court finally issued a ruling in October 2018. By then, the rate plan had ended, and the court dismissed the case as being moot. The court dismissed a reconsideration request from OCC and others, which protested a “cycle of injustice where customers are effectively denied judicial review and relief from improper charges allowed by the PUCO.” Dayton Power & Light got to keep the money it had collected.
The case is similar to what Dayton Power & Light recently did after the Supreme Court ruled that FirstEnergy’s “Distribution Modernization Rider” was unlawful.
6. PROBLEM: Try, try again
In 2015, the PUCO said a utility couldn’t make customers pay for its share of electricity from two 1950s-era coal plants. The utility then asked regulators to approve a bigger deal for power from those two plants plus additional coal plants owned by its affiliate. When federal regulators raised questions, the utility backed off. It went back to the original deal for power from the two 1950s-era plants. Did the PUCO make customers pay?
ANSWER: A. Yes. The PUCO allowed the guarantee to extend for an even longer period of time than the initial 3-year plan that it rejected. Most challengers had settled by then, including some environmental groups that liked some terms dealing with energy efficiency, electric vehicle charging, smart grid plans, and renewable energy. However, the Ohio Manufacturers’ Association Energy Group and the Office of the Ohio Consumers’ Counsel appealed, saying the charges were unlawful subsidies. The Ohio Supreme Court noted the longer term for the subsidies and referenced a company exhibit suggesting that there would be a net credit after eight years. It’s questionable whether that will be the case because coal plants have continued to struggle in the market. Subsidies for the two plants are part of a proposed bailout bill, House Bill 6, which would also subsidize FirstEnergy’s nuclear power plants.
7. PROBLEM: Cleaning up problems from the past
A utility-owned power plant closed decades ago. Years later, federal authorities said the current utility had to clean up the contamination there. The regulated Ohio utility has limited, unrelated operations on part of the site. But the reason for the contamination had nothing to do with those operations or current utility service. Must current customers pay the cleanup costs?
ANSWER: C. Possibly, if regulators and the courts follow a 2017 decision by the Ohio Supreme Court. In that case, Duke Energy’s gas customers had to pay $55.5 million to clean up contamination from manufactured gas plants that hadn’t run in decades. Like electricity, natural gas generation is deregulated. “The expenses are in no way related to the rendering of gas service to Duke’s customers, because its current customers never received manufactured gas services,” argued attorney Kimberly Bojko, representing the Kroger Company. “This was not a cost of the distribution utility, to provide distribution services to the customers.” “The court’s decision recognizes/confirms that compliance with environmental laws is a necessary cost of providing utility service,” spokesperson Sally Thelen said at the time. The court didn’t limit its ruling to natural gas services, which suggests the PUCO might impose similar charges on electric utility customers.