On August 25, 2011, the Ohio Supreme Court issued a unanimous ruling in favor of five large industrial customers [Worthington Industries, Brush Wellman (now Materion Brush), Calphalon, Martin Marietta Magnesia Specialties, and Kraft Foods Global (collectively, “Customers”)]. The Court’s ruling reversed a decision by the Public Utilities Commission of Ohio (“PUCO”) that allowed the Toledo Edison Company (“TE”), a subsidiary of FirstEnergy, to unilaterally terminate the Customers’ special contracts for electricity. Martin Marietta Magnesia Specialties, LLC v. Pub. Util. Comm. (August 25, 2011), Slip Opinion No. 2011-Ohio-4189.

The Court concluded that, by allowing TE to terminate the Customers' special contracts in February 2008, the PUCO failed to apply the clear and unambiguous language terminating those contracts (and the more favorable electric rates) on December 31, 2008. The price difference between the special contract rates and what the Customers had to pay due to the unlawful and premature termination totaled approximately $2.8 million for the 10-month time period from February 2008 to December 31, 2008.

Specifically, the Customers separately entered into PUCO-approved special contracts for the purchase of electricity with TE at various times during the 1990s. In 2001, the PUCO approved a settlement in TE’s electric transition plan (“ETP”) case authorizing TE to provide all special contract customers with the opportunity to extend their special contracts. TE then provided notice of a “one time” opportunity to extend the special contracts, and each of the Customers executed an amendment to their special contract (the “2001 Amendments”). As the Court noted, the 2001 Amendments contained the same termination trigger: the contracts were to terminate when TE stopped collecting “RTC,” which was expressly defined to mean Regulatory Transition Charges.

In TE’s rate stabilization plan (“RSP”) case before the PUCO, TE entered into a settlement that again allowed all of its special contract customers to extend the duration of their contracts. However, neither the settlement nor the PUCO’s order required TE to notify the Customers of the opportunity to extend; and TE did not provide such notice. TE received requests from only nine of the 46 special contract customers eligible for such extensions. None of the Customers requested an extension.

In TE’s subsequent rate certainty plan (“RCP”) case, another settlement was entered into and approved by the PUCO. The RCP settlement allowed the few special contract customers who had requested an extension as part of the RSP case (which did not include the Customers) to again extend their contracts through December 31, 2008. For all other special contracts—including Customers’ contracts—the settlement established a termination date of February 2008. Nonetheless, the RCP settlement also authorized TE to continue to recover RTC through December 31, 2008.

Upon notice from TE that the Customers’ special contracts would terminate on their meter read dates in February 2008, the Customers each filed a complaint with the PUCO. The Customers argued that TE sought to unlawfully terminate their special contracts prior to December 31, 2008, the date on which TE stipulated that it planned to stop collecting RTC. Relying on evidence from the ETP case (and outside the four corners of the Customers’ special contracts), the PUCO dismissed the complaints, and denied rehearing. The Customers appealed to the Ohio Supreme Court.

Writing a unanimous decision for the Court, Justice O’Donnell engaged in a simple analysis focusing on longstanding principles of contract interpretation. Concluding that the termination date in the Customers’ special contracts was clear and unambiguous, the Court recognized that the PUCO was “bound to give effect to the parties’ intent, as expressed in the plain language of the agreements.” Because the 2001 Amendments tied the termination of the special contracts solely to TE’s collection of RTC, the contracts “remained in effect until December 31, 2008, when the utility ceased collecting regulatory-transition charges.”

The Court also rejected arguments raised by TE and the PUCO that: (1) extrinsic evidence should be used to interpret the language in the 2001 Amendments; (2) the PUCO exercised its authority under R.C. 4905.31 to supervise or modify special contracts; and (3) that the equitable defenses of waiver and laches barred the Customers’ claims.