Consumers' Counsel v. Pub. Util. Comm. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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Office of Consumers' Counsel, Appellant, v. Public
Utilities Commission of Ohio et al., Appellees.
[Cite as Consumers' Counsel v. Pub. Util. Comm. (1992),
Ohio St.3d .]
Public Utilities Commission -- Natural gas companies --
Rate increase -- Stipulated expenses in staff report --
Commission may take stipulations into consideration,
but must determine what is just and reasonable from
evidence presented at the hearing -- Commission's order
affirmed, when.
(No. 91-823 -- Submitted April 7, 1992 -- Decided July 1,
1992.)
Appeal from the Public Utilities Commission of Ohio, No.
90-390-GA-AIR.
Cincinnati Gas & Electric Company ("CG&E"), intervening
appellee, an Ohio corporation supplying gas and electric
service in Ohio, applied to the Public Utilities Commission of
Ohio, appellee, for a permanent gas rate increase on April 2,
1990. The commission staff conducted an investigation into the
application and submitted its report. All parties except the
Office of Consumers' Counsel ("OCC"), appellant, stipulated
that the rate recommendations contained in the staff report be
adopted by the commission. The commission adopted these
recommendations over OCC's objection and incorporated them into
its order.
OCC contests the commission's refusal to account for an
alleged shortfall in revenue from two of CG&E's customers,
Oxford Natural Gas Company and Union Light, Heat & Power
Company, and the commission's inclusion of some expenses in the
rate case.
CG&E transports gas for Oxford, an independent natural gas
company. According to the commission's May 14, 1986 order
approving CG&E's contract with Oxford, CG&E agreed to transport
Oxford's gas in CG&E's pipeline for $50,208 annually and $.0363
per Mcf. Under the agreement, the parties may renegotiate the
transportation charge once every two years, but the commission
must approve any modifications. The parties and the commission
term this arrangement as "firm" transportation; firm
transportation customers receive gas delivered to the system on

their behalf without interruption.
According to staff witness Eggleton, this transportation
charge reflects CG&E's cost of service based on a study
conducted by CG&E for, and approved by, the commission in the
1986 order. However, this charge is less than the tariff
charge approved by the commission in the instant case for
other, normally industrial, customers, of $1.4877 per Mcf.
Nevertheless, the commission, per the stipulation, included in
CG&E's revenue the revenue calculated on the actual
transportation charge to Oxford.
CG&E also transports gas, interstate, for Union, CG&E's
affiliated natural gas company. Union operates in Kentucky.
Consequently, the Federal Energy Regulatory Commission ("FERC")
set the rate for this service. Under FERC's order, CG&E
collects the same amount it collects from Oxford, $.0363 per
Mcf, but does not receive any additional fee because this
service is interruptible; that is, CG&E may curtail deliveries
during peak periods of pipeline usage.
The staff recommended that the amount received from Union
be increased by a $202,000 credit and, as increased, included
in rate-case revenue. This credit accounts for the larger rate
that Union charges CG&E for reciprocal transportation services.
OCC, on the other hand, maintains that additional revenue
credits, equaling what these two customers would pay if CG&E
had charged them at the tariff rate, should also be included in
revenue. OCC would increase the total revenue credit for Union
from $171,063 to $3,107,000 and for Oxford from $89,248 to
$940,494; this increase in revenue would lower general rates.
The commission concluded that the staff's recommendations
reasonably treated the actual revenue received from these two
customers. It also found that OCC's proposals were not
supported by any evidence such as a cost of service study or a
consideration of the impact on CG&E's business if it were to
raise its rates. In support of this conclusion, the commission
noted that Oxford had once threatened to bypass CG&E's pipeline
and build its own pipeline, which would reduce CG&E's revenue,
and that FERC regulates the rate that CG&E receives from Union,
over which CG&E has no control.
OCC also objected to the inclusion of some expenses, to
which the other parties had stipulated. OCC challenges
employee service awards paid to employees based on length of
service with CG&E; chamber of commerce dues; advertising
expenses to promote CG&E's Heatshare program, and other
expenses allegedly related to nondeductible advertising
expenses; and the calculation of pension, advertising, and
injuries and damages expenses.
This matter is before the court upon an appeal as of right.

William A. Spratley, Consumers' Counsel, Evelyn R.
Robinson-McGriff, Richard W. Pace, Sr., and Thomas C. Kawalec,
for appellant.
Lee I. Fisher, Attorney General, James B. Gainer and Anne
L. Hammerstein, for appellee.
Squire, Sanders & Dempsey, Alan P. Buchmann, David H.
Wallace and Debra J. Horn, for intervening appellee.

Per Curiam.

A
Stipulation
OCC contends that the evidence does not support the
stipulation and that any stipulation not supported by
substantial evidence is unlawful. The commission and CG&E
maintain that sufficient evidence supports the stipulation and,
consequently, the commission's order.
In Akron v. Pub. Util. Comm. (1978), 55 Ohio St.2d 155,
157, 9 O.O.3d 122, 123, 378 N.E.2d 480, 483, in which the
city-appellants had stipulated to the staff-determined rate
base but not the cost of capital or the rate of return, we
stated:
"The commission, of course, is not bound to the terms of
any stipulation; however, such terms are properly accorded
substantial weight. Likewise, the commission is not bound by
the findings of its staff. Nevertheless, those findings are
the result of detailed investigations and are entitled to
careful consideration."
In Duff v. Pub. Util. Comm. (1978), 56 Ohio St.2d 367, 379,
10 O.O.3d 493, 499, 384 N.E.2d 264, 273, in which several of
the appellants challenged the correctness of a stipulation, we
stated:
"A stipulation entered into by the parties present at a
commission hearing is merely a recommendation made to the
commission and is in no sense legally binding upon the
commission. The commission may take the stipulation into
consideration, but must determine what is just and reasonable
from the evidence presented at the hearing. * * *"
Thus, the commission may place substantial weight on the
terms of a stipulation, even though the stipulation does not
bind the commission. In any event, the commission must
determine, from the evidence, what is just and reasonable, and
an appellant, to succeed, must show that the commission's order
was against the manifest weight of the evidence. Consequently,
we will review the evidence and the commission's treatment of
it in light of the stipulation.
Moreover, the commission, here, determined that the
stipulation did not violate its previously adopted criteria
regarding settlements:
1. Is the settlement a product of serious bargaining among
capable, knowledgeable parties?
2. Does the settlement, as a package, benefit ratepayers
and the public interest?
3. Does the settlement package violate any important
regulatory principle or practice?
The commission found that (1) the signatories had proven
their ability to grasp and resolve complex utilities issues;
(2) CG&E will earn, in a time and money saving process, a fair
return within the commission's target range while residential
ratepayers will pay rates below the jurisdictional average; and
(3) the settlement does not violate any important regulatory
principle or practice, despite OCC's objections. We endorse
the commission's effort utilizing these criteria to resolve its
cases in a method economical to ratepayers and public
utilities.
B
Oxford and Union Transportation Charges

OCC argues that the commission failed to augment revenue
based on a charge commensurate with CG&E's costs to provide
transportation services to Oxford and Union and that,
consequently, the ratepayers bear the burden of the lower
revenue produced by these lower charges via higher rates.
Instead, OCC argues, CG&E's shareholders should bear this
burden. The commission and CG&E contend that CG&E has no
control over the amounts received from Oxford and Union and
that revenue calculated on the actual rates charged, with a
minor credit to account for the noted rate imbalance in the
Union transaction, should be included in revenue. According to
them, the commission based its finding on sufficient, probative
evidence.
The agreement between CG&E and Oxford, which established
the transportation rate between them, is authorized under R.C.
4905.31. It is a special, negotiated agreement and does not
fall within the rate-setting procedure of R.C. 4909.15.
Industrial Energy Consumers v. Pub. Util. Comm. (1991), 62 Ohio
St.3d 440, 584 N.E.2d 653.
In Canton v. Pub. Util. Comm. (1980), 63 Ohio St.2d 76, 17
O.O.3d 46, 407 N.E.3d 9, we faced a situation similar to the
one at hand. There, Ohio Power Company had previously sought
to cancel special contracts it had with the Kaiser Aluminum &
Chemical Corporation and the Ormet Corporation. Ohio Power had
maintained that the Kaiser and Ormet contracts created an undue
burden on other customers and were discriminatory. However,
the commission, in this earlier case, decided the contracts
assigned expenses to Kaiser and Ormet based on cost causation,
and, since the contractual costs to those customers increased
on a periodic basis, the agreements did not unduly burden the
tariff customers. The commission had further concluded that
the special needs of Kaiser and Ormet served as a basis for the
provisions of the contracts between them and Ohio Power and
that this provided reasons to differentiate them from tariff
customers. After the commission dismissed that complaint, Ohio
Power filed an application for a rate increase for
jurisdictional customers, which was the subject of Canton.
Appellants in Canton challenged the allocation of property
and expenses used by Ohio Power in serving Kaiser and Ormet.
The commission was required to allocate to remove property and
expenses not employed in serving the jurisdictional ratepayers
from Ohio Power's rate base. Appellants challenged this
allocation, charging that it shifted the cost of service
attributable to Kaiser and Ormet to Ohio Power's remaining
ratepayers. After reviewing the competing evidence, we
concluded that the allocation procedure did not violate the
applicable statutes. We considered the question to be an
evidentiary one and refused to review a finding of the
commission de novo. We cited Masury Water Co. v. Pub. Util.
Comm. (1979), 58 Ohio St.2d 147, 148-149, 12 O.O.3d 163, 164,
389 N.E.2d 478, 480-481, which stated:
"Where conflicting evidence is presented to the commission
with regard to a matter at issue, the commission's
determination will not be disturbed unless the party who
challenges that finding demonstrates that it is manifestly
against the weight of the evidence and so clearly unsupported
by the record in the cause as to demonstrate misapprehension,

mistake, or willful disregard of duty."
OCC fails in this burden because it did not effectively
controvert the commission's reasoning. The commission
concluded that the revenue realizable from Oxford equaled the
negotiated amount. The record supports this. The commission
approved the negotiated rate after it studied CG&E's cost to
serve Oxford. Thus, the rate has a cost basis. Moreover,
Oxford, an independent utility, could, as it threatened, build
its own pipeline and transport its own gas, eliminating this
revenue source. Consequently, the commission's decision on
this revenue has record support.
As to Union, FERC set the rate that CG&E could charge
Union. Under Nantahala Power & Light Co. v. Thornburg (1986),
476 U.S. 953, 106 S.Ct. 2349, 90 L.Ed.2d 943, such rate
decision preempts the commission's authority. While under New
Orleans Public Service, Inc. v. Council of New Orleans (1989),
491 U.S. 350, 109 S.Ct. 2506, 105 L.Ed.2d 298, and (C.A. 5,
1990), 911 F.2d 993, the commission could question CG&E's
wisdom in continuing in business with Union, the commission did
not. Furthermore, the lower quality, interruptible service
justifies a lower rate. Thus, the record supports the
commission's decision on the Union contract.
Nevertheless, if OCC presents opposing evidence, the
evidence should be "* * * credible, authoritative and
challenging." Akron v. Pub. Util. Comm. (1966), 5 Ohio St.2d
237, 243, 34 O.O.2d 467, 470-471, 215 N.E.2d 366, 371. OCC did
not present a cost of service study or any other evidence to
establish that CG&E's cost to transport Oxford's and Union's
gas was other than that which the commission determined. OCC's
witness speculates that the tariff charged other customers,
which was based on a cost of service study, equals the cost to
transport Oxford's and Union's gas and is the correct charge to
be attributed to CG&E for these transportation services. This
speculation, however, does not sustain OCC's burden.
C
Expenses
OCC's general thesis in objecting to the inclusion of
certain expenses in the rate case is that the commission
departed from its precedent without justification. The
commission and CG&E disagree with OCC.
According to Cleveland Elec. Illum. Co. v. Pub. Util. Comm.
(1975), 42 Ohio St.2d 403, 431, 71 O.O.2d 393, 409, 330 N.E.2d
1, 19-20:
"Although the Commission should be willing to change its
position when the need therefor is clear and it is shown that
prior decisions are in error, it should also respect its own
precedents in its decisions to assure the predictability which
is essential in all areas of the law, including administrative
law."
1. Service awards. CG&E rewarded its employees
financially based on length of service. The commission allowed
this expense, and OCC claims that this action is contrary to
how it treated the same expenses in In re Application of
Ohio-American Water Co. (Dec. 7, 1988), P.U.C.O. Nos.
87-2153-WW-AIR and 88-379-WW-AAM.
As the commission points out, in Ohio American Water the
commission rejected that portion of the expense item relating

to appreciation dinners and Christmas gift boxes. It allowed
expenses for awards given to employees for safety achievements
or length of service. Thus, the commission's decision here
does not contradict its precedent. Moreover, the commission
explained that these awards based on length of service are a
cost effective way to motivate and compensate employees. This
explanation satisfies Cleveland Elec. Illum. Co.
2. Chamber of commerce dues. OCC contends that, since
1979, the commission has disallowed these expenses. However,
the commission noted that it had taken irreconcilable positions
on these expenses in earlier cases and decided to resolve this
question in the instant case. It distinguished social/service
club memberships, which provide for charitable functions, from
corporate chamber of commerce membership, which provides for
interaction with the business community and promotes
development within the community. The commission concluded
that this latter expense inures to the benefit of ratepayers
and included it as an ordinary and necessary business expense.
This conclusion is reasonable.
3. Advertising expenses. OCC challenges advertising
expenses to promote CG&E's Heatshare program. In this program,
CG&E matched, one dollar for two dollars to a maximum of
$75,000 per year, its customers' contributions to a fund which
paid for the utility bills of qualified applicants. The
challenged expenses were limited to the advertising expenses
incurred to inform CG&E's customers about the program and how
to participate in it; they were not CG&E's contribution to the
program.
Although OCC charges that the commission departed from
precedent in allowing these expenses, it fails to cite any
persuasive precedent. Essentially it contends that the charges
should be excluded under Cleveland v. Pub. Util. Comm. (1980),
63 Ohio St.2d 62, 17 O.O.3d 37, 406 N.E.2d 1370, syllabus.
Under that case, a utility may not deduct institutional or
promotional advertising but may deduct consumer/informational
or conservational advertising. Here, the commission decided
that the instant expenses were consumer or informational
because they informed the consumer of an available program to
obtain payment of his bills, which also spared other ratepayers
from reimbursing, via rate increases, CG&E for its inability to
collect unpaid bills. Under Cleveland, this decision is
reasonable because the advertising is "'designed to inform the
consumer of rates, charges and conditions of service, of
benefits and savings available to the consumer * * *[.]'" 63
Ohio St.2d at 70, 17 O.O.3d at 43, 406 N.E.2d at 1377.
4. Salaries, equipment, and other expenses. Here, OCC
claims that these expenses are directly related to already
excluded demonstration and selling expenses, customer service
and informational expenses, and administrative and general
expenses. However, the commission, agreeing with its staff and
CG&E, found that these items were fixed costs that CG&E would
incur even if the disapproved activities ceased. Indeed, the
disputed personnel evidently worked throughout several tiers of
management. This conclusion is reasonable; moreover, OCC fails
to present any compelling precedent.
5. Pension, advertising, and injuries and damages
expenses. The commission, adopting the staff's procedure,

calculated these expenses based on three months of actual
expenses and nine months of estimated expenses. On the other
hand, OCC, having been provided with nine months of actual
expenses by CG&E at the time of the hearing, calculated the
expenses on nine months of actual expenses and three months of
estimated expenses. However, OCC selected only one sub-account
of the employee pensions and benefits account. Had OCC updated
the entire account according to its strategy, CG&E's expenses
for the entire account would have actually increased by $4,000.
Furthermore, the commission rejected OCC's contention for
the injuries and damages expenses because their incurrence was
erratic in nature, depending on the timing of the claims
against the company, and because OCC's position was no more
representative.
Finally, as to the advertising expenses, CG&E explained
that the lower actual expenses were caused by CG&E's change in
advertising agencies and a reorganization of CG&E's marketing
department. The commission concluded that this was an
unrepresentative circumstance and did not warrant an expense
deduction based on it. All these explanations are reasonable.
Accordingly, we affirm the commission's order as it is
neither unlawful nor unreasonable.
Order affirmed.
Moyer, C.J., Sweeney, Holmes, Douglas, Wright, H. Brown and
Resnick, JJ., concur.