State regulators properly approved a rate plan for Ohio Power Company that allows the company to charge consumers to pay for power generated by the Ohio Valley Electric Corporation (OVEC), the Ohio Supreme Court ruled today.

The Supreme Court affirmed the Public Utilities Commission of Ohio’s (PUCO) decision to allow Ohio Power, an AEP company, to add a Power Purchase Agreement (PPA) rider to its most recent rate plan. The Ohio Office of the Consumers’ Counsel (OCC) and the Ohio Manufacturers’ Association Energy Group (OMA) had challenged the plan, claiming the rider allowed the company to collect revenue from customers as a subsidy to maintain operations of non-competitive power plants in a competitive retail electric service market.

In an opinion written by Chief Justice Maureen O’Connor, the Court found that the appellants had failed to demonstrate that the commission erred in approving the rate plan and the PPA rider.

Justices Judith L .French, Patrick F. Fischer, R. Patrick DeWine, and Mary DeGenaro joined the chief justice’s opinion. Justices Terrence O’Donnell and Sharon L. Kennedy concurred in judgment only.

Regulators Approve Rate Plan and Rider Over Time
As part of Ohio’s deregulated electricity service market, distribution utilities must offer electric service to customers through either a “market rate offer” or an “electric security plan” (ESP). An ESP can contain a number of provisions, and the PUCO can only approve a plan if, as a whole, it provides a more favorable result to customers in its service territory than a market rate offer.

OVEC originally constructed power plants in the 1950s to supply electricity to federal uranium enrichment facilities near Portsmouth. When the facilities closed, the power from the OVEC plants became available to Ohio Power, as a partial owner of OVEC.

OCC and OMA objected to Ohio Power’s proposal for the rider, which provides either a charge or a credit to customers depending on whether the price of generating power from OVEC was above or below the market rate for power in a 13-state market that includes Ohio. OCC and OMA argued the cost to produce electricity from OVEC would always be more than the market rate and Ohio Power customers would be paying a surcharge to cover the cost. The company argued that while open market prices for electricity fluctuate, OVEC’s costs are relatively stable and would protect consumers against price spikes.

The PUCO approved Ohio Power’s three-year rate plan in February 2015, but did not set a rate to allow a charge for the PPA rider. Instead, the PUCO approved the rider only as a placeholder, with a rate of zero, and required the company to participate in a separate proceeding to demonstrate an entitlement to recover costs through the rider.

The PUCO subsequently permitted the recovery of charges and the issuance of credits through the rider for six years. The rider then became effective in January 2017.

OCC and OMA appealed the decision approving the ESP with a placeholder PPA rider and the decision approving the six-year PPA rider to the Supreme Court, which is required to hear the cases.

Court Examines Opponent’s Objections
The Court considered several of OCC and OMA’s objections to the rate plan. The Court first determined that neither residential consumers nor manufacturers were harmed by the PUCO’s decision approving the rate plan that contained the zero-rate placeholder PPA rider. The Court unanimously dismissed that challenge today.

The Court also rejected OCC and OMA’s challenge to the decision approving the recovery of costs through the six-year PPA rider. The organizations claimed the rider allowed Ohio Power to recover “transition revenues,” which were designed to allow electric utilities like Ohio Power to recover their stranded costs for generating electricity during the transition from a regulated rate structure market to a competitive electric generation market.

OCC alleged the rider allowed the payments for years after the deadline state lawmakers set for the recovery of transition revenue. The opinion noted that R.C. 4928.143(B) contains an exception that permits the recovery of transition revenue if other criteria in the ESP statute are met. One of the criteria permits inclusion in an ESP of a charge that relates to “limitations on customer shopping.” The opinion held that the PPA rider could be approved under that provision as a financial limitation on customer shopping.

OMA also maintained the rider would not bring rate stability to customers, but will instead increase rate volatility. The opinion rejected this argument, noting that the PUCO found the rider would provide a net credit to customers of $110 million over the life of the rider and would offset prices the power company would have to pass on to customers in times of severe price spikes during extreme weather.

2017-0752 and 2017-0749. In re Application of Ohio Power Co., Slip Opinion No. 2018-Ohio-4697 and Slip Opinion No. 2018-Ohio-4698.

View oral argument video of this case.

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.