Ohio Supreme Court upholds PUCO decision in AEP coal plant refund case

The Ohio Supreme Court recently upheld a Public Utilities Commission of Ohio’s decision rejecting the claim that AEP customers were overcharged for electricity in 2018 and 2019.

The Office of the Consumers’ Counsel and the Ohio Manufacturers’ Association Energy Group said that customers overpaid $74.5 million for electricity from a pair of Ohio Valley Electric Corporation-owned plants. However, in the majority opinion, Justice Pat Fischer said that the Supreme Court can overturn PUCO decisions only if they are unlawful or unreasonable.

“The commission recognized that in retrospect, it may have been more prudent in some months to favor an economic strategy over a must-run strategy, but it noted that a prudency inquiry assesses the soundness of a decision as of the time that it was made,” Fischer wrote.

OVEC uses a “must-run strategy” for two 1950s-era coal power plants and keeps the plants in operation even when the costs of generating electricity exceed the market price. Evidence suggested that it may have cost customers more if the plants had not been operated on a must-run strategy, according to an Ohio Court News report on the case.

“Based on the record evidence, we conclude that the commission did not clearly lose its way in reaching its determination,” Fischer wrote. “The commission was presented with conflicting evidence concerning the prudence of the must-run strategy, and it decided to credit the evidence showing that the strategy was prudent when the decision to utilize that strategy was made. That decision does not constitute reversible error.”

In 2015, PUCO authorized AEP to establish a power purchase agreement rider that operates as either a charge or a credit to consumers in the AEP Ohio service territory, depending on whether OVEC produces electricity at a cost below or above the market rate. In 2016, the commission allowed AEP to collect payments from consumers if necessary.

The rider also requires the company to complete an annual audit that proves that OVEC operations are “prudent and in the best interest of retail ratepayers.”

Assistant Attorney General Julian Johnson, who represented PUCO in oral arguments, said that this rider allowed AEP to recover costs from the plants. John Varanese, an attorney for the OCC, said that AEP couldn’t show that running the plants was in the best interest of customers who were paying the subsidies, according to Statehouse News.

“This court and the commission has approved the rider as a mechanism that provides rate stability that benefits customers,” Johnson said. “Under the law as it existed at the time, recovery of the cost for these plants was appropriate.”

AEP is currently a part-owner of OVEC, is entitled to about 20% of the plant’s output, and has one vote on the committee that makes operational decisions.

“When the PUCO passed this and approved this power purchase agreement rider, in no uncertain terms and directly it said that recovery of costs by AEP will be disallowed if AEP cannot demonstrate that bidding behavior is prudent and in the best interest of ratepayers,” Varanese said. “They didn’t do that here.”

The two OVEC coal plants, partly owned by AEP, were also involved in the FirstEnergy bailout under House Bill 6 in 2019.

FirstEnergy was ordered to pay $249 million in restitution to customers as part of a settlement earlier this year, after PUCO found the company violated Ohio law by paying more than $60 million in bribes through a dark money group to multiple officials to secure the bailout. House Bill 15, signed into law in January, repealed parts of House Bill 6.

As previously reported, AEP was ordered to reimburse customers after Ohio regulators curtailed the utility’s rate increase request.