AK Steel Corp. v. Pub. Util. Comm. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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[Cite as AK Steel Corp. v. Pub. Util. Comm., 95 Ohio St.3d 81, 2002-Ohio-1735.]

AK STEEL CORPORATION, APPELLANT, v. PUBLIC UTILITIES COMMISSION OF
OHIO ET AL., APPELLEES.
[Cite as AK Steel Corp. v. Pub. Util. Comm. (2002), 95 Ohio St.3d 81.]
Public Utilities Commission -- Electric utilities -- Competition in retail electric
market as required by 1999 Am.Sub.S.B. No. 3 -- R.C. 4928.31 --
Commission's order approving stipulations among parties relating to
CG&E's transition plan and the plan itself affirmed, when.
(No. 00-2092 -- Submitted November 14, 2001 -- Decided April 17, 2002.)
APPEAL from the Public Utilities Commission of Ohio, Nos. 99-1658-EL-ETP,
99-1659-EL-ATA, 99-1660-EL-ATA, 99-1661-EL-AAM, 99-1662-EL-AAM,
and 99-1663-EL-UNC.
__________________

MOYER, C.J. In 1999 Am.Sub.S.B. No. 3, the General Assembly adopted
a comprehensive statutory scheme to facilitate and encourage development of
competition in the retail electric market. Most of the provisions of the Act
became effective on October 5, 1999. Enacted as part of S.B. 3, R.C. 4928.31
requires each electric utility to file with the Public Utilities Commission of Ohio a
transition plan for the company's provision of competitive electric service in
Ohio. Transition plans are required to contain plans for rate unbundling,
corporate separation, operational support, employee assistance, and consumer
education. On December 28, 1999, CG&E filed its proposed transition plan,
together with attachments, supporting testimony, and other information. After
CG&E's filing, numerous parties intervened, including appellant AK Steel
Corporation. AK Steel is a large industrial customer of CG&E that had purchased
electric service under a commission-approved contract that expired December 31,
2000. Some of the parties filed objections to the proposed plan. CG&E and other

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parties, including AK Steel, filed written testimony. Evidentiary hearings were
held, and briefs were filed by various parties.

In May 2000, a stipulation and recommendation on CG&E's proposed
transition plan was filed. The stipulation represented an agreement among the
many parties to the stipulation of all issues relating to CG&E's transition plan.
Those parties include residential, commercial, and industrial consumers of
CG&E's retail electric service or their representatives, energy marketers,
organized labor, business and institutional associations, and local government.
AK Steel did not sign the stipulation. In fact, in the proceedings before the
commission, it presented testimony and filed briefs in opposition to some of the
provisions of the stipulation. The commission's August 31, 2000 opinion and
order approved the stipulation. After its application for rehearing was denied by
the commission, AK Steel filed this appeal as of right.

The court allowed intervention by CG&E and OCC, and both have
participated in this appeal as appellees.
I
Adoption of the Stipulation

In its order approving the stipulation, the commission observed that Ohio
Adm.Code 4901-1-30 authorizes parties to commission proceedings to enter into
stipulations. The commission further observed, "Although not binding on the
Commission, the terms of such agreements are accorded substantial weight. See,
Consumer[s'] Counsel v. Pub. Util. Comm. (1992), 64 Ohio St.3d 123, at 125
[592 N.E.2d 1370], citing Akron v. Pub. Util. Comm. (1978), 55 Ohio St.2d 155
[9 O.O.3d 122, 378 N.E.2d 480]."

The commission determined that the ultimate issue for its consideration
was whether the stipulation was reasonable and, thus, should be approved. The
commission applied the following criteria in its determination of reasonableness:
"(1) Is the settlement a product of serious bargaining among capable,
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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 noted that this court has
endorsed the commission's analysis of reasonableness using these three criteria.
See Consumers' Counsel v. Pub. Util. Comm. (1992), 64 Ohio St.3d 123, 126,
592 N.E.2d 1370, 1373.

Based on its conclusion that all three criteria were met, the commission
approved the stipulation and the transition plan as modified by the stipulation.
AK Steel challenges that approval, asserting that the third criterion was not met,
because of errors committed by the commission. The commission argues to the
contrary that it committed no such errors and underscores the fact that it made an
explicit finding in its order that the third criterion had been met.

We conclude that the commission's finding has adequate record support.
Therefore, we affirm the commission's approval of the stipulation and plan.
II
Unbundled Transmission Rate

R.C. 4928.31(A)(1) requires that transition plans for competitive service
contain rate-unbundling plans that separate existing bundled utility rates into their
cost-based functional components (including generation, transmission, and
distribution of electricity) in accordance with R.C. 4928.34(A)(1) to (7) and
commission rules. The parties to the stipulation agreed that the unbundled
transmission component of CG&E's transition plan satisfied the requirements of
R.C. 4928.31(A)(1).

However, AK Steel objects to CG&E's unbundling plan on the basis that
CG&E's functional cost-of-service study that is used to unbundle rates assigns
distribution costs to customers of transmission service (Rate Schedule TS) even
though they receive electricity directly from the high-voltage transmission system
and do not use the lower-voltage distribution system, because the unbundling plan
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is based on the cost-of-service study submitted by CG&E in its most recent rate
case in 1992, commission case No. 92-1464-EL-AIR, in which rates were
bundled.

AK Steel argues that use of this 1992 study without further breakdown of
costs to various functions produces absurd results. For example, AK Steel says
that $473,979 of overhead is attributed to distribution in Rate Schedule TS
(applied to only thirty-four customers) in support of only $15,746 worth of actual
distribution equipment, in the form of meters; that $485,569 of billing expense is
assigned to Rate Schedule TS to serve thirty-four customers, while $370,077 is
assigned to the Secondary Distribution/Small class to support billing for thirty-
one thousand customers; and that just over one-third of a total of $6.2 million in
property taxes is attributed to distribution property for the Rate Schedule TS class,
comprising only the $15,746 of meters.

The commission concedes that the rate-unbundling plan as applied to the
Rate Schedule TS class did not achieve perfection. The commission, however,
argues that it produced acceptable results and equal treatment within the class.
The commission considered all of the arguments made on this appeal and found
that the unbundling plan to which most of the parties agreed was reasonable and
consistent with R.C. 4928.34. It further found that adoption of AK Steel's
recommendations for further refinement of the 1992 rate case cost-of-service
study could cause rates to exceed the cap set forth in R.C. 4928.34(A)(6) and
would shift costs among rate classes "in a manner not intended by the legislature."
The commission also found that in the unbundling process, CG&E was required
by S.B. 3 to use CG&E's 1992 cost-of-service study. Moreover, the commission
stated in the order, "Although certain allocations of costs may appear to be
incongruous, we find that CG&E has followed the statutory scheme in unbundling
its rates."
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January Term, 2002

The order demonstrates that, as to the issue of the unbundled transmission
rate, the commission considered the same arguments and acknowledged the same
evidentiary matters that AK Steel has urged here. As the court said recently in
Cincinnati Bell Tel. Co. v. Pub. Util. Comm. (2001), 92 Ohio St.3d 177, 179-180,
749 N.E.2d 262, 264-265:

"We have consistently refused to substitute our judgment for that of the
commission on evidentiary matters. Cincinnati Gas & Elec. Co. v. Pub. Util.
Comm. (1999), 86 Ohio St.3d 53, 711 N.E.2d 670; Dayton Power & Light Co. v.
Pub. Util. Comm. (1983), 4 Ohio St.3d 91, 4 OBR 341, 447 N.E.2d 733;
Columbus v. Pub. Util. Comm. (1959), 170 Ohio St. 105, 10 O.O.2d 4, 163
N.E.2d 167. Traditionally, we have deferred to the judgment of the commission
in instances involving the commission's special expertise and its exercise of
discretion, when the record supports either of two opposing positions. AT&T
Communications of Ohio, Inc. v. Pub. Util. Comm. (1990), 51 Ohio St.3d 150,
555 N.E.2d 288; Dayton Power & Light Co. v. Pub. Util. Comm. (1962), 174
Ohio St. 160, 21 O.O.2d 427, 187 N.E.2d 150. We have held that we will reverse
a commission order only where it is unreasonable, unlawful, or against the
manifest weight of the evidence or shows misapprehension, mistake, or willful
disregard of duty. Cincinnati Gas & Elec. Co., 86 Ohio St.3d 53, 711 N.E.2d
670; Ohio Edison Co. v. Pub. Util. Comm. (1992), 63 Ohio St.3d 555, 589 N.E.2d
1292; see R.C. 4903.13."

Based on the record below and the commission's findings of fact and
conclusions of law set forth in its order, the commission's decision as to CG&E's
unbundled transmission rate is not unreasonable, unlawful, or against the manifest
weight of the evidence.
III
Transition Costs and Transition Revenues
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AK Steel claims that under the transition plan CG&E's transition revenue
may exceed its transition costs. It argues that R.C. 4928.34(A)(12) requires that
to approve the stipulated transition plan, the commission must find that the
transition revenues equal the transition costs. However, the plain language of
R.C. 4928.34 requires only that a utility be allowed an opportunity to collect the
transition costs allowed by the commission under R.C. 4928.39 through the
transition charges determined by the commission under R.C. 4928.40.

The commission in its order observed that CG&E is entitled only to an
opportunity to collect its transition charges and that there is no guarantee under
R.C. 4928.34(A)(12) that transition revenues will equal transition costs. The
commission also observed that many factors will determine whether CG&E will
recover more or less than its approved transition costs, concluding as follows:
"Consequently, we do not believe that the stipulation is unreasonable or in
violation of Section 4928.34(A)(12), Revised Code, because the stipulation does
not guarantee that the Company will recover no more than the projected transition
costs."

Our reading of R.C. 4928.34 is consistent with the commission's
application of the statute to the stipulation, and, therefore, we reject AK Steel's
argument.
IV
Specific Transition Costs

AK Steel has attacked the commission-approved determination of four of
CG&E's transition costs1: (1) the shopping credit cost, (2) the purchased power
cost, (3) the attorney fees of CG&E and other parties to the stipulation, and (4)

1.
These costs include those deferred and recovered as regulatory assets through a
regulatory transition charge ("RTC"). "Regulatory assets" is defined in R.C. 4928.01(26) as
unamortized expenses that are capitalized or deferred only by virtue of commission action.
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January Term, 2002
costs of transferring its generating units to an affiliated exempt wholesale
generator.

The commission's order contains a thorough discussion of AK Steel's
objections to the determinations of these four transition costs, referring to relevant
testimony and other evidence. In its conclusion of that discussion, the
commission found that the challenged transition costs satisfied the criteria of R.C.
4928.39 and were fully supported by the evidence.

The court will not reverse or modify a decision of the commission as to a
question of fact where there is sufficient probative evidence to show that the
commission's decision is not against the manifest weight of the evidence and is
not so clearly unsupported by the record as to show misapprehension, mistake, or
willful disregard of duty. E.g., AT&T Communications of Ohio, Inc. v. Pub. Util.
Comm. (2000), 88 Ohio St.3d 549, 555, 728 N.E.2d 371, 376. The burden is on
the appellant to show that the commission's decision is against the manifest
weight of the evidence or is clearly unsupported by the evidence. Our review of
the record causes us to conclude that AK Steel has failed to meet this heavy
burden.

Therefore, we affirm the commission's allowance of the transition costs
challenged by AK Steel.
V
Alleged Illegal Discrimination or Preference

The commission acknowledges in its order the following: Shopping
incentives provided in the stipulation in the form of shopping credits are higher in
each customer class for the first twenty percent of the load of that class that
switches to an electric marketer. The regulatory transition charge ("RTC"; see fn.
1) for residential customers will end December 31, 2008, two years earlier than
for other classes of customers. The stipulation guarantees to residential customers
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a five-year market development period ("MDP"), while the MDP for other classes
of customers could end sooner.

AK Steel contends that these differences are unreasonable and in violation
of R.C. 4905.33 and 4905.35. Those statutes prohibit certain discriminatory
practices:

"No public utility shall directly or indirectly, or by any special rate, rebate,
drawback, or other device or method, charge, demand, collect or receive from any
person, firm, or corporation a greater or lesser compensation for any services
rendered, or to be rendered, * * * than it charges, demands, collects, or receives
from any other person, firm, or corporation for doing a like and contemporaneous
service under substantially the same circumstances and conditions." (Emphasis
added.) R.C. 4905.33(A).

"No public utility shall make or give any undue or unreasonable
preference or advantage to any person, firm, corporation, or locality or subject
any person, firm, corporation, or locality to any undue or unreasonable
prejudice." (Emphasis added.) R.C. 4905.35(A).

As we have held, R.C. 4905.33 "does not prohibit rate discrimination per
se; rather, it prohibits charging different rates when the utility is performing `* * *
a like and contemporaneous service under substantially the same circumstances
and conditions. * * *' R.C. 4905.35 is to the same effect, and prohibits `* * *
unreasonable prejudice or disadvantage * * *.'

"Absolute uniformity in rates or prices is not required by statute or case
law. A reasonable differential or inequality of rates may occur where such
differential is based upon some actual and measurable differences in the
furnishing of services to the consumer." Mahoning Cty. Townships v. Pub. Util.
Comm. (1979), 58 Ohio St.2d 40, 43-44, 12 O.O.3d 45, 47, 388 N.E.2d 739, 742.

The commission specifically found that the structure of the shopping
credits, the MDPs, and the RTC recovery periods do not violate R.C. 4905.33 or
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January Term, 2002
R.C. 4905.35 and concluded as a matter of law that R.C. 4928.37(B) and R.C.
4928.40(A) authorize the commission to approve the shopping incentives set forth
in the stipulation. The commission further found that although customers who
take the early initiative to shop for an alternate supplier of generation will benefit
from their actions, the benefit does not amount to undue preference or
discrimination, because all customers will have an equal opportunity to take
advantage of the shopping incentives. The commission found that it was not
discriminatory to have two different periods for recovery of the RTC, one for
residential and one for nonresidential customers, inasmuch as the rates,
incentives, and shopping credits vary between these groups. Last, the commission
found that R.C. 4928.40 expressly permits the commission to authorize the ending
of the MDP prior to December 1, 2005, based on the switching rate by a particular
class of customer, and that it could do so in advance in its order approving the
plan.

We agree with the commission's findings of fact and conclusion of law
and will not disturb them. We therefore affirm the commission.
VI
Shopping Credits as Switching Incentives

CG&E's commission-approved transition plan includes a shopping
incentive as contemplated by R.C. 4928.40 in the form of shopping credits
(against the RTC) to the first twenty percent of shopped-for residential load. AK
Steel raises several arguments against the shopping credits.

First, AK Steel asserts that the shopping credit device is an improper
discounting of the RTC in violation of R.C. 4928.37(A)(3). R.C. 4928.37(A)(3)
provides, "The transition charge shall not be discounted by any party." However,
the shopping credit is not a discount of the RTC by CG&E. It is what it says it is,
a credit against the RTC as established in the transition plan approved by the
commission.
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AK Steel next argues that the shopping credit bypasses the RTC in
violation of R.C. 4928.37(A)(1)(b). However, there is no bypassing of the RTC.
No shopping customer bypasses the RTC, albeit the first twenty percent of
residential customers (by load) who shop for alternate electric generation will pay
the RTC as reduced by the shopping credit.

Finally, AK Steel complains that the shopping credit results in an RTC of
less than zero in violation of the last sentence of R.C. 4928.40(A). However, the
record reveals no negative transition charges. Moreover, the commission
explicitly stated in its order that it did "not believe that the development of a
shopping incentive should be viewed as creating an RTC of less than zero."

We find that the commission did not err by approving the shopping credits
of the transition plan, and we hereby affirm the commission's approval of them.
Summary and Conclusions

AK Steel has presented to the court a scattershot appeal. As to certain
claimed errors, AK Steel asserted that the commission's determinations or
approvals are unsupported by or contrary to the evidence. Yet those
determinations and approvals were in fact supported by sufficient probative
evidence, and the court will not reweigh the evidence or reverse the commission
in such circumstances.

As to other claimed errors, AK Steel asserted that various statutory
provisions required the commission to consider matters other than those
considered by it or to make findings and reach conclusions otherwise than it did.
AK Steel also asserted that certain of the commission's approvals resulted in
violations of various statutory proscriptions. As to all of its statutory arguments,
AK Steel proved to be unconvincing and, in some instances, in error.

AK Steel, as appellant, has not carried its burden of demonstrating that the
commission committed reversible error. Moreover, even if AK Steel had
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January Term, 2002
sustained its burden, it failed to demonstrate that it has been or will be prejudiced
by the error.

We therefore affirm the commission in all respects.
Order affirmed.

DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur.

COOK, J., concurs in judgment.

PFEIFER and LUNDBERG STRATTON, JJ., concur in part and dissent in part.
__________________

LUNDBERG STRATTON, J., concurrring in part and dissenting in part. I
concur with the majority opinion, except I dissent to Part II, which is entitled
"Unbundled Transmission Rate." I believe that the majority's approval of
CG&E's unbundling plan is unreasonable with regard to Rate Schedule TS
customers, which includes AK Steel. For example, AK Steel presented evidence
that CG&E's unbundled rate plan unreasonably assigns costs to Rate Schedule TS
customers. Specifically, AK Steel showed that although Rate Schedule TS
customers use only $15,746 worth of distribution equipment, $473,979 was
attributed to their overhead distribution costs. In addition, the commission
assigned over $2,000,000 in property taxes to distribution property associated
with the Rate Schedule TS customers, yet the actual distribution property used by
that class consisted of meters worth only $15,746. Finally, the commission
assigned a billing expense of $485,569 to the Rate Schedule TS customers to
serve thirty-four customers, yet assigned only $370,077 to the Secondary
Distribution/Small class customers to support billing thirty-one thousand
customers. The commission did not dispute these numbers.

As the majority points out, the commission admits that it did not achieve
perfection. Even the commission conceded "certain allocations of costs * * *
appear to be incongruous" but found that to determine a more appropriate
allocation of the costs would violate R.C. 4928.34(A)(6), which required
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unbundling the rate that was in effect the day before the effective date of
deregulation. The commission further defended its position by maintaining that it
provided equal treatment within the class and that further cost shifts among the
classes would cause it to exceed the cap set by R.C. 4928.34(A)(6).

Admittedly, R.C. 4928.34(A)(6) required the unbundling plan to be based
on the 1992 cost-of-service study from commission case No. 92-1464-EL-AIR
because those were the rates in existence the day before the effective date of
deregulation. However, the commission was also under an obligation to fix
reasonable rates. R.C. 4909.15. The numbers on their very face, as extreme as
they are, defeat any claim of reasonableness.

The commission argued that AK Steel's assertion that the unbundled rate
was vastly overinflated when compared to actual costs was flawed because it was
falsely premised on the assumption that rates must be equal to costs. Although
there is no requirement that a rate must be equal to the cost of a service, it is
evident that costs are the major component of a rate. See R.C. 4909.151 and
4928.34. Reading R.C. 4928.34(A)(6) in pari materia with R.C. 4909.15, I would
hold that if an unbundling plan results in an unbundled rate that is exponentially
and unjustifiably more than the underlying cost of the service, the unbundled rates
are unreasonable and the commission must make a reasonable reallocation. To
hold otherwise would create an unreasonable result. Courts should avoid
interpretations that yield unreasonable results. State ex rel. Besser v. Ohio State
Univ. (2000), 87 Ohio St.3d 535, 721 N.E.2d 1044.

I would find that CG&E's unbundling plan resulted in unreasonable rates
for the Rate Schedule TS customers. I would remand the issue to the commission
to re-examine its figures and reallocate the rates in a fair and reasonable manner.
Accordingly, I concur in part and dissent in part.

PFEIFER, J., concurs in the foregoing opinion.
__________________
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January Term, 2002

Boehm, Kurtz & Lowry and David F. Boehm, for appellant.

Betty D. Montgomery, Attorney General, Duane W. Luckey, Steven T.
Nourse and Thomas W. McNamee, Assistant Attorneys General, for appellee
Public Utilities Commission of Ohio.

James B. Gainer and Paul A. Colbert, for intervening appellee Cincinnati
Gas & Electric Company.

Robert S. Tongren, Ohio Consumers' Counsel, and Ann M. Hotz, Assistant
Consumers' Counsel, for intervening appellee Ohio Consumers' Counsel.
__________________
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