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Court Affirms PUCO-Approved Rider to Pay for Natural Gas Company Improvements

Image of several rings of blue gas flames.

Court approves Dominion Energy’s rate increase to cover past infrastructure costs.

Image of several rings of blue gas flames.

Court approves Dominion Energy’s rate increase to cover past infrastructure costs.

A portion of a PUCO order allowing Dominion Energy to collect approximately $73 million from its Northeast Ohio customers to pay for past capital improvements to its natural gas distribution infrastructure is not unreasonable or unlawful, the Supreme Court of Ohio ruled today.

The Supreme Court rejected the arguments of the Ohio Consumers Counsel and the Northeast Ohio Public Energy Council that the Public Utilities Commission of Ohio (PUCO) had approved an excessive rate. Central to their argument was that the PUCO allowed Dominion to base its rate request on calculations used in its last full rate case, which was in 2008, rather than current market conditions.

Writing for the Court majority, Justice Melody Stewart stated the Court found that nothing in state law provided a basis on which to conclude that the settlement approved by the PUCO was unreasonable or unlawful, as the consumer advocates argued.

Chief Justice Sharon L. Kennedy and Justices Patrick F. Fischer and Jennifer Brunner joined Justice Stewart’s opinion. Second District Court of Appeals Judge Chris Epley, sitting for Justice Joseph T. Deters, also joined Justice Stewart’s opinion.

Justice R. Patrick DeWine issued an opinion concurring in part and concurring in judgment only in part. He wrote that he was concerned the majority opinion would create confusion by implying that public utilities did not have to consider current market conditions in determining a utility’s costs of obtaining capital — costs that are ultimately passed on to consumers. In Justice DeWine’s view, the law did require the PUCO to consider current market conditions, but the PUCO had considered current market conditions by ordering Dominion to advance the filing of its next base rate case.

Chief Justice Kennedy and Justice Michael P. Donnelly joined Justice DeWine’s opinion.

Gas Company Seeks to Recoup Upkeep Costs
East Ohio Gas Company, which does business as Dominion, filed a request with the PUCO to implement a capital expenditure program rider (CEP rider) in 2019. Since 2012, the PUCO issued a series of orders authorizing Dominion to implement a capital improvement program to maintain its infrastructure. It allowed the company to defer collecting charges from customers for the expenses.

The 2019 CEP rider request was filed with the PUCO as an alternative rate plan to pay for past expenditures for infrastructure and technology upgrades. Under Ohio law, an alternative rate plan is a more streamlined process than a traditional rate plan.

Dominion proposed a 9.91% rate of return for the CEP rider. The figure was based on the rate of return that the PUCO approved in its last full traditional rate case, which was decided in 2008. The PUCO staff issued a report recommending that the commission approve the application, then Dominion joined the PUCO staff in asking the commission to adopt a stipulation that retained the 9.91% rate.

The consumer groups objected. An expert on the consumers’ counsel staff testified that the 9.91% rate was too high based on the interest rates and earnings of other utilities in 2019 and 2020. If the PUCO used data from current market conditions, a 7.2% rate of return would be appropriate. The consumer groups argued that using the outdated 2008 rate of return as a baseline was unreasonable and would lead to consumers being overcharged for gas service.

The commission modified the stipulation between its staff and Dominion. To assure Dominion’s future rates were in line with current market conditions, the PUCO ordered Dominion to file a traditional rate case in October 2023 rather than October 2024 as the company originally planned.

The consumer advocates appealed the decision to the Supreme Court, which was required to hear the case.

Supreme Court Analyzed Rate Plan Law
Justice Stewart explained that under R.C. 4903.13, the Court will only overrule a PUCO decision if it finds its orders are “unlawful or unreasonable.” To determine whether the commission ruling was reasonable, the commission maintained it met the requirements of a three-part test established in a 2006 Supreme Court case. The test considers whether the parties in a settlement engaged in serious bargaining, whether the package benefits ratepayers and the public interest, and whether the settlement “violates any important regulatory principles or practices.”

The consumer groups contended the PUCO violated important regulatory principles by adopting a rate of return based on a 2008 rate rather than current market conditions. The commission asserted that it has a long-standing practice of using the last approved rate of return to apply to a company’s newly-filed alternative rate plan or a rider request. The PUCO argued that its starting point on the rate of return with Dominion was consistent with its treatment of other utilities.

The Court reviewed several provisions of regulatory law governing the submission of alternative rate plans and found nothing requires the use of current market conditions to determine a suitable rate.

“Nothing in this opinion should be read as prohibiting the commission from considering current market conditions in an alternative-rate-plan proceeding,” the opinion stated.

The Court wrote that the rate of return was just one component of the CEP rider and the commission’s settlement package. The Court noted that the PUCO found that the settlement benefits ratepayers and the public interest because it promotes safe and reliable service through the replacement of aging facilities, institutes a rate cap on customer bills, reduces some expenses used to calculate Dominion’s base rates, and contributes $750,000 to a fund to provide home heating assistance.

Market Conditions Should Be Considered, Concurring Justices Maintain
Justice DeWine wrote that the majority opinion took too simplistic of an approach by reviewing the governing statutes and noting that none have the phrase “current market conditions” explicitly written into any of them. This amounted to something like “a game of word search,” he wrote. He stated that such an approach “infers that PUCO need not consider current market conditions in the approval of an alternative rate plan.”

The concurring opinion stated that the law requires an alternative plan to be “just and reasonable,” and this “necessarily implicates the current market conditions.” It argued that because the rate of return is a critical element of the amount a customer will pay for natural gas, the current costs of what a company must pay to obtain money are relevant to determining whether its proposed rates are just and reasonable, the concurring opinion stated.

“Few people would think that an item is ‘reasonably priced’ if it is priced at a level so high as to allow its producer to receive profits that are disproportionate to what others earn in the same market,” Justice DeWine stated.

The concurring opinion found that the PUCO did consider current market conditions by adhering to its long-standing practice of deferring rate of return calculations to base rate cases, but at the same time ordering  Dominion to move up the filing of its next base-rate case to 2023. In that case, an updated rate of return based on current market conditions will be established, which makes the overall settlement approved by the PUCO reasonable, the concurring opinion concluded.

2022-0458. In re Application of E. Ohio Gas Co., Slip Opinion No. 2023-Ohio-3289.

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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.

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