On July 31, 2008, Amended Substitute Senate Bill 221 took effect, thereby creating the hybrid system of electric ratemaking that is in place in Ohio today. Under Ohio law, the default electric pricing structure, or standard service offer, is set by the Public Utilities Commission of Ohio (PUCO) in one of two ways: through an electric security plan (ESP), which is neither cost of service nor market-based, but is simply an administratively established rate; or through a market-rate offer, which is a market-based approach that uses a competitive bidding process. In July 2008, the Ohio Power Company and Columbus Southern Power Company (CSP), known collectively as AEP-Ohio, filed its first ESP. As part of its proposal, AEP-Ohio requested approval of either: 1) the authority to sell or transfer two electric generation facilities; or 2) the right to recover $51 million per year from Ohio ratepayers to operate those two facilities.
In March 2009, the PUCO denied the transfer request, but granted CSP the alternative relief of cost recovery--an expensive proposition for Ohio ratepayers. Satisfied with this decision, AEP-Ohio did not file an application for rehearing. Instead, one of the intervening parties objected to the PUCO's approval of cost recovery by filing an application for rehearing. The PUCO granted this application for rehearing, concluding that CSP did not prove that its "current revenue is inadequate to cover the costs associated with the generating facilities." As a result, the PUCO denied both AEP-Ohio's transfer request and its proposed recovery of $51 million each year. It was at this point that CSP sought rehearing--a request that was denied. It is from that ruling that CSP filed its appeal with the Ohio Supreme Court.
On appeal, the Court initially rejected a number of procedural and jurisdictional claims raised by the PUCO and Office of the Ohio Consumers' Counsel (e.g., failure to exhaust administrative remedies and failure to file a timely application for rehearing). See In re Application of Columbus Southern Power Co., Slip Opinion No. 2011-Ohio-958. The Court then reasoned that the PUCO's order was not unreasonable or unlawful. First, the Court explained that R.C. 4928.17(E) simply requires PUCO approval of a request to sell or transfer generating assets.
Noting that AEP-Ohio testified that it had no plans to sell or transfer the generating assets at the current time, the Court concluded that the PUCO reasonably labeled AEP-Ohio's request premature. "Requiring CSP to reapply when it had [information regarding the sale price, terms, conditions or public impact--or even whether there would be a sale] was a reasonable application of R.C. 4928.17(E)." Second, the Court explained that R.C. 4928.17(E) does not support AEP-Ohio's argument that the PUCO must grant cost recovery (and a corresponding rate increase) if it denies a transfer request. All the statute does is give the PUCO authority to approve or deny the sale of generation assets. In reaching this decision, the Court noted that CSP produced no evidence that its existing rates were inadequate to cover the costs of operating its generation facilities. A copy of the opinion can be found here.