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Court News Ohio

Regulators Lack Authority to Impose Cost-Recovery Cap on Utilities’ Energy Efficiency Plan

State law does not give the Public Utilities Commission of Ohio (PUCO) authority to preemptively cap the costs FirstEnergy can recover in its plan for energy efficiency and energy demand reduction programs, the Ohio Supreme Court ruled today.

A Supreme Court majority found that modifying the utility’s proposed plan by imposing a preemptive “cost cap” on the amount FirstEnergy could recover was not authorized under the law. The Court rejected the commission’s claim that it could do so under R.C. Chapter 49, as part of its broad authority to regulate electricity utilities.

Writing for the Court, Chief Justice Maureen O’Connor stated the justices found no “express or implied authorization in the language” of the statute (R.C. 4928.66) for the commission’s action.

The commission capped the amount FirstEnergy could recover on its efficiency and demand-reduction programs at 4 percent of its annual revenues. The PUCO staff had proposed a 3-percent cap, while the company, supported by several environmental groups, maintained the caps were not lawful or necessary because other PUCO orders protected consumers against cost increases.

Justices Sharon L. Kennedy, Judith L. French, Patrick F. Fischer, and R. Patrick DeWine joined the opinion.

Justice Michael P. Donnelly concurred in part and dissented in part. He stated that the PUCO has the authority to impose a cap. He agreed with the majority that a 4-percent cap was not authorized by law, but maintained the commission provided enough evidence  to impose a lower 3-percent cap. Justice Melody J. Stewart joined Justice Donnelly’s opinion.

Company Files Required Plan
Since 2009, Ohio law required electric utilities to implement programs to increase energy efficiency and reduce energy demand. Those programs must meet annual targets, or benchmarks, and the state can impose a forfeiture to penalize utilities if they fail to meet the standards.

In 2016, the FirstEnergy companies (Ohio Edison, Cleveland Electric Illuminating, and Toledo Edison), which serves mainly northern Ohio, and a part of western Ohio, submitted their portfolio plan to the commission, outlining how they would meet the benchmarks for 2017 through 2019. A portfolio plan includes programs in a wide variety of markets designed to increase energy efficiency, such as distributing LED lightbulbs to customers or discounting the price of “smart” thermostats.

In November 2017, the commission approved the plan, but modified it to impose a 4-percent cost-recovery cap. The PUCO noted it had capped other electric utilities in the state with a 4-percent cost cap for their program costs.

FirstEnergy, joined by the Environmental Law & Policy Center, Environmental Defense Fund, Natural Resources Defense Council, and the Ohio Environmental Council, appealed the cost cap imposition to the Ohio Supreme Court, arguing that the cap was unlawful and the plan included other means to protect consumers. The PUCO and the Ohio Consumers’ Counsel argued for maintaining the cap, stating it was necessary to ensure consumers were not overcharged for the utilities’ energy-reduction programs.

Court Examines Commission’s Power to Regulate Efficiency Programs
FirstEnergy and the environmental groups argued that the cap would not allow the utility to fully implement the programs and that the dollars spent on efficiency were proving to lead to greater overall savings on consumer electric bills. The groups explained that other safeguards to prevent FirstEnergy from overcharging ratepayers existed.

The majority opinion stated that R.C. 4928.66 did not contain language authorizing the commission to preemptively impose a cost-recovery cap on FirstEnergy’s plan to meet its required benchmarks.

The majority opinion noted that another provision of R.C. Chapter 49, R.C. 4928.64, set requirements for the amount of renewable energy Ohio utility companies must purchase to sell to customers. R.C. 4928.64 includes a cap on the cost of complying with the renewable-energy resource requirements. R.C. 4928.64 was passed into law the same time as R.C. 4928.66, the law overseeing the energy efficiency plans.

The majority found that the General Assembly’s decision to include “cost cap language in R.C. 4928.64(C)(2) and (3) further undermines the commission’s determination that it had authority to impose a cost cap under R.C. 4928.66.”

The Court reversed the commission’s orders and remanded the case to the PUCO to approve the portfolio plan without the cost cap.

Concurring and Dissenting Opinion Finds Agency Acted without Explanation
In his concurring and dissenting opinion, Justice Donnelly wrote that the PUCO was authorized to cap FirstEnergy’s cost, but acted unlawfully in this case by not explaining adequately why it selected a 4-percent cap.

The opinion noted that in prior cases, the Court has concluded that when a statute does not prescribe a formula or method for the PUCO to use to determine a charge by a utility, the commission has broad discretion about how to achieve the law’s objective. Because R.C. 4928.66 does not impose any restrictions on how the PUCO is to ensure that companies meet their energy efficiency goals, the PUCO does have authority to establish a funding formula and cap it.

The PUCO staff recommended a 3-percent cap. The staff noted the FirstEnergy rider had resulted in residential customers paying from $1.98 to $2.90 per month for the programs, which was one of the most expensive riders on customers’ bills.

Justice Donnelly wrote that the PUCO’s decision to impose a cap was “reasonable and supported by the record.”

The only reason the commission gave for raising the cap to 4 percent, however, is because that is the cap it imposed on other companies, which is not a sufficient explanation. R.C. 4903.09 requires that when approving orders, the PUCO must issue written opinions stating the commission’s reasoning based on its findings of fact.

“In short, evidence was needed; none was provided,” the opinion stated.

2018-0379. In re Application of Ohio Edison Co., Slip Opinion No. 2019-Ohio-4196.

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