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"Gavel," a sculpture by Andrew F. Scott, outside the Supreme Court of Ohio.

Loophole could let Ohio utilities evade court review

2016 court ruling should have saved Ohio utility customers about $80 million.

Instead, customers have wound up paying more than that because of a swap-out of rates blessed by Ohio regulators.

On Wednesday, the Supreme Court of Ohio heard oral arguments in a case challenging that move.

At issue is whether utilities can avoid consequences of judicial orders by withdrawing charges found to be unlawful and then substituting other charges that accomplish the same result — all without having to refund any of the unlawful charges.

If so, the court’s authority to review decisions by the Public Utilities Commission of Ohio (PUCO) “will be decimated,” Maureen Willis of the Office of the Ohio Consumers’ Counsel told the court.

The case highlights problems the consumer advocacy agency and other groups want lawmakers to fix with pending House Bill 247. Among other things, that case would end so-called electric security plans and require refunds of rates found to be unlawful.

‘Sleight of hand’

Last year, the Ohio Supreme Court reversed a PUCO decision that had let Dayton Power and Light (DP&L) collect a “financial integrity charge.” During oral arguments in that case, Willis explained that Ohio law no longer allows so-called “transition charges” designed to protect utilities while Ohio’s energy market moved toward competition.

“DP&L’s financial integrity charge is a transition charge by another name,” she said.

The court’s decision should have saved customers about $80 million on their electric bills, but regulators let DP&L withdraw the rate plan with the charge, and on the same day approved a substitute plan. So, customers still paid nearly $10 per month for so-called stability charges.

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“[T]hrough a regulatory sleight of hand, the court’s ruling was undercut by the PUCO, and customers paid, not saved, more than $80 million,” Willis said. “And that was unlawful.”

Ohio law lets utilities withdraw proposed plans if the commission modifies them, Thomas McNamee countered on behalf of the commission. “In this situation, whether the commission was right or wrong simply doesn’t matter now,” he said. In his view, the PUCO “followed the statute.”

But substitute rates don’t make the matter moot, and the situation could happen in other cases, too, Willis warned. Possible examples include cases involving charges by FirstEnergy and American Electric Power, she said.

“Reversing the PUCO is necessary to preserve the court’s authority over the PUCO,” Willis said, citing a provision in Ohio law that authorizes the Ohio Supreme Court to reverse, vacate or modify a commission order found to be unlawful or unreasonable.

No refunds?

Even before the court ruled last year, DP&L had already collected around $250 million for the financial integrity charge. Absent a stay, PUCO decisions approving charges generally take effect pending court appeal. But a stay usually requires posting of a bond for the charges — something the Office of the Ohio Consumers’ Counsel and other appellants generally can’t afford.

Now, even if the PUCO rules against DP&L, customers may be unable to recover the substitute charges imposed since last year.

Relying on a 1958 Ohio case and decisions following it, McNamee defended a “no refund” rule and argued that a utility shouldn’t have to adjust any future charges to compensate customers after rates were found to be unlawful. In response to a question about OCC’s inability to post a bond for millions of dollars, McNamee said that was just the scheme the legislature chose.

McNamee’s view was that any bond should be set “at the rate of harm” a utility might suffer if a charge were to be upheld. Or, McNamee suggested, the court might have set a lower bond. In a Duke Energy case decided this summer, however, the Ohio Supreme Court refused to continue a stay when OCC was unable to post millions of dollars for a bond.

Speaking briefly for DP&L, Thomas Sharkey defended the “no refund rule” as balancing the interests of utilities, who already face significant delays in getting their rates approved. “The utility can’t recover increases in costs it incurs before a commission order authorizing rates,” he said.

Willis distinguished the current DP&L case from the 1958 case. In the current case, “there were unlawful rates from the get-go,” she said. She also noted instances in which the court had used flexibility to adjust future rates. As yet another option, the court could also “outright overrule” the 1950s case, she suggested.

In closing, she asked the court to reverse the PUCO’s decision and to end the “‘heads I win, tails you lose’ ratemaking scheme for utilities.”

Looking ahead

The court isn’t the only place where OCC and others are pushing for refunds and arguing about charges that protect utilities from competition.

“Pending legislation, HB 247, would eliminate electric security plans and would allow for refunds of unlawful charges to consumers,” said OCC spokesperson Molly McGuire. “The Consumers’ Counsel supports the legislation to eliminate electric security plans and enable refunds of unlawful charges to consumers.”

Otherwise, the issues are likely to keep cropping up in Ohio utility cases. DP&L, for example, “has now replaced its rate stabilization charge with subsidies for the ‘distribution modernization rider’ and the OVEC power plant charges,” McGuire explained. Supplemental briefs from the PUCO and DP&L had suggested that the case argued before the court this week should be dismissed because the 2016 substitution charge had ended and new charges are now in place.

“There likely will now be a new appeal of the distribution modernization charge and OVEC charges,” McGuire said. “And the cycle continues.”

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