Ohio Court Rejects PUC-Approved "Rate-Stabilization Plan" as Violating the State Restructuring Statute
The Ohio Supreme Court recently rejected a "rate-stabilization plan" proposed by an Ohio utility and approved by the Ohio Public Utilities Commission (the "Commission") as part of the state’s transition to a competitive electricity market on the ground that it violated the state restructuring statute. Ohio Consumers’ Counsel v. Pub. Util. Comm., 2006 Ohio 2110 (2006) ("Ohio Consumers’ Counsel").
Under Ohio’s restructuring statute, upon completion of a transition period called the "market-development period," electric distribution utilities are required to provide (1) a "market-based standard service offer" for electric generation service, and (2) "an option to purchase competitive retail electric service the price of which is determined through a competitive bidding process." Ohio Rev. Code Ann. § 4928.14 (the "Statute"). With respect to the competitive bidding option, however, the statute authorizes the Commission to determine "that a competitive bidding process is not required, if other means to accomplish generally the same option for customers is readily available in the market and a reasonable means for customer participation is developed." Id.
In preparation for the end of its market-development period on December 31, 2005, FirstEnergy Corporation proposed what it called a "rate-stabilization plan" (the "Plan"). See Ohio Consumers’ Counsel at ¶¶ 3-20. The Commission approved the Plan with some modifications. Id. As approved, the Plan established standard service offer pricing and a competitive-bid process. Id. The competitive-bid process, however, was established solely for the purpose of periodically testing the rate established under the Plan to ensure that it did "not exceed long-term market prices that result from" competitive bidding. Id.
In implementing the plan, the Commission had already evaluated one such competitive-bid process and rejected all bids on the ground that they were lower than the Plan rate. Id. Plan opponents pointed out, however, that the competitive-bid rate, while higher, was fixed for a three-year period, whereas the Plan rate was subject to change. Id. Opponents argued that some customers would prefer a stable fixed rate to the changeable Plan rate. Id. They claimed the Statute entitled consumers to a choice between a market-based standard service offer and a rate determined through a competitive-bid process, and the Plan violated the Statute in that it failed to provide the competitive-bid rate alternative. Id.
In response, the Commission invoked its statutory authority to dispense with competitive bidding where there are other means to accomplish the same objective. Id. The court rejected this argument on the ground that the "very narrow" statutory exception to the competitive bidding requirement also requires the Commission to develop "a reasonable means for customer participation." Id. The court found that, under the Plan, the Commission acted unilaterally to eliminate the competitive-bid in violation of the Statute. The court contrasted the Plan with a similar pricing plan it had approved in Constellation NewEnergy, Inc. v. Pub. Util. Comm., 820 N.E.2d 885 (2004). In that case, parties representing all classes of customers had stipulated to the pricing plan, whereas the customer groups in the case before the court had not agreed to the Plan and most customer groups actively opposed it.
The court remanded the case to the Commission for further proceedings consistent with its opinion.