Ohio Attorney General Public Utilities Commission of Ohio Section … Steven T. Nourse (0046705) (COUNSEL OF RECORD) Matthew J. Satterwhite (0071972) American Electric Power Corporation

IN THE SUPREME COURT OF OHIO

State of Ohio ex. rel. Industrial Energy

Users-Ohio,

Relator,

V.

The Public Utilities Commission of Ohio,Todd A. Snitchler, Chairman,Cheryl Roberto, Commissioner,,Steven D. Lesser, Commissioner;Andre T. Porter, Commissioner, andLynn Slaby, Commissioner,

Respondents.

Original Action in Prohibitionand Mandamus

Case No. 12-1494

INDUSTRIAL ENERGY USERS-OHIO'S MEMORANDUMIN OPPOSITION TO MOTIONS TO DISMISS

Samuel C. Randazzo, Esq. (0016386)(COUNSEL OF RECORD)Frank P. Darr, Esq. (0025469)Joseph Oliker, Esq. (0086088)Matthew Pritchard, Esq. (0088070)McNeesWallace & Nurick LLC21 East State Street, 17th FloorColumbus, OH 43215-4228Telephone: (614) 469-8000Fax: (614) 469-4653

ATTORNEYS FOR RELATOR,INDUSTRIAL ENERGY USERS-OHIO

Michael DeWine (0009181)Ohio Attorney General30 E. Broad Street, 17th FloorColumbus, OH 43215-3428Telephone: (614) 466-4320

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William Wright (00 180 10)Section Chief, Public Utilities SectionJohn H.Jones(0051913)(COUNSEL OF RECORD)Thomas W. McNamee (0017352)Public Utilities Commission of Ohio180 East BroadStreetColumbus, OH 43215Telephone: (614) 466-4397Fax:614-644-8764

ATTORNEYS FOR RESPONDENTS,THE PUBLIC UTILITIESCOMMISSION OF OHIO, et al

^ Zt)^t

Ce tRK OF CCURTSUPRENIE COURT OF UHf®

Steven T. Nourse (0046705)(COUNSEL OF RECORD)Matthew J. Satterwhite (0071972)American Electric Power Corporation1 Riverside Plaza, 29a` FloorColumbus, OH 43215Telephone: 614-716-1608Fax: 614-716-2950

Daniel R. Conway (0023058)James A. King (0040270)James B. Hadden (0059315)Porter, Wright, Morris & Arthur LLP41 South High StreetColumbus, OH 43215Telephone: 614-227-2000Fax:614-227-2100

ATTORNEYS FOR INTERVENINGRESPONDENT, OHIO POWERCOMPANY

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TABLE OF CONTENTS

Page

......................................................................... 1L INTRODUCTION .......................................

11. ARGUMENT ......................................................................................................................... 7...........................7.............................A. Standard of Review .............................................

B. The Commission and AEP-Ohio's Claim that IEU-Ohio Cannot Demonstratethe Commission Is About to Exercise Quasi-Judicial Authority Is Meritless . .................8

1. The Commission exercised quasi-judicial authority when it issued orders

in the Capacity and ESP II Cases inventing and applying a cost-based

ratemaking methodology and authorizing illegal collection of the above-.................:.............compensation generation-related capacity service . ......................... ............

market 8

2. TheCommission and AEP-Ohio Incorrectly Characterize the

11........................................ ...... . .Commission's Actions as "Legislative . ...............................................................

C. TheCommission and AEP-Ohio's Claim that the Commission Has Jurisdiction

to Invent and Apply a Cost-Based Ratemaking Methodology and to AuthorizeNon-Bypassable Charges to Collect Deferred Increase Resulting from that 15

....................... .Methodology is Meritless . .................................................

1. The Commission has no legal authority to invent and apply a cost-basedratemaking methodology for the purpose of increasing AEP-Ohio'scompensation for generation-related capacity service because it is a retailelectric service that has been deemed competitive by operation of law ................16

2. The Commission's claim ommission and AEP-Ohio's claim thatgeneration-related capacity service is "wholesale" does not provideauthority for the Commission to invent and apply a cost-based ratemaking 17

........................ ..... .methodology for generation-related capacity service .......................... . . . . . ... . . ........

3. TheCommission and AEP-Ohio's claim that generation-related capacity

service is "non-competitive" does not provide authority for theCommission to invent and apply a cost-based ratemaking methodology for 19

...........................generation-related capacity service ...................... .. . ..

4. The Commission and AEP-Ohio's claim that Chapter 4905, Revised Code,

and the RAA provide the Commission authority to invent and apply a 26

cost-based ratemaking methodology is without merit . ..................................

5. The Commission is patently and unambiguously without authority to 30establish non-bypassable charges to recover the Deferred Increase ..............

6. AEP-Ohio's claim that the Complaint should be dismissed because theCourt should not issue a writ of prohibition to correct a misapplication of a 33statute of limitations is meritless .................................................................. .

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7. AEP-Ohio's Claim that FERC Will Determine the Reasonableness of theCommission's Invented Capacity Compensation Level and Recovery IsIrrelevant to IEU-Ohio's Right to Writs of Prohibition and Mandamus . ..............34

D. The Commission and AEP-Ohio's Claim that IEU-Ohio Has an Adequate 37.................................................. ....Remedy at Law Is Meritless ........................... ^

E. The Commission and AEP-Ohio's Claim that IEU-Ohio Is Not Entitled to a 42...........................................................Writ of Mandamus Is Meritless ..................

F. AEP-Ohio's Claim that the Complaint Is Barred by Laches Is Meritless ......................44............................. 49III. CONCLUSION ...................................................................:...................

TABLE OF AUTHORITIES

Cases

Basic Distribution Corp. v. Ohio Dept. of Taxation,94 Ohio St.3d 287 (2002) ...........................39

............................29City of Washington v. Pub. Util. Comm., 99 Ohio St. 70, 72 (1918) .................

Columbus S. Power Co. v. Pub. Util. Comm.,67 Ohio St.3d 535, 620 N.E.2d 835, 840 (1993)..27

.................................46Conin v. Bailey,

15 Ohio St.3d 34 (1984) ....................................................

Dayton Power and Light Co. v. Pub. Util. Comm'n of Ohio,4 Ohio St.3d 91 (1983) ..................13

Federal Deposit Insurance Corp. v. Board of Finance and Revenue,84 A.2d 495, 499 (Pa. Sup.

.......29Ct. 1951) ..................................................................................... .......

...........29Fox v. Eaton Corp., 48

Ohio St.2d 236, 238 (1976) ...........................................................

In re Columbus Southern Power Co.,128 Ohio St.3d at 520 ..................................................31, 35

29In re Kerry Ford, Inc.,

106 Ohio App.3d 643, 651 (10th Dist. Ct. App. 1995) ............................

Indus. Energy Users-Ohio v. Pub. Util. Comm.,117 Ohio St.3d 486, 2008-Ohio-990 .................39

........39Jones v. Village of Chagrin Falls,

77 Ohio St.3d 456 (1997) ...............................................

Kaufman Racing Equip. v. Roberts,126 Ohio St.3d 81, 2010-Ohio-2551 at ¶ 27 ..................17, 21

O'Brien v. University Community Tenants Union Inc.,42 Ohio St.2d 242, 245 (1975) .................7

Office of Consumers' Counsel v. Pub. Util. Comm'n of Ohio,70 Ohio St.3d 244 (1994)............13

{C38744:11 } 11

Ohio Consumers' Counsel v. Pub. Util. Comm., 111 Ohio St.3d 384, 2006-Ohio-5853 .. ............12

Ohio Domestic Violence Networkv. Pub. Util. Comm.,70 Ohio St.3d 311, 315 (1994) ..............12

State ex rel. Adams v. Gusweiler, 30 Ohio St.2d 326, 329 ( 1972) ............:............:......................38

) .....................State ex rel. Badgett v. Mullen, 177 Ohio App.3d 27, 47 (4th Dist. Ct. App. 2008 47

State ex rel. Bennett v. Board ofEducation,56 Ohio St.3d 1(1990) ............................................42

State ex rel. King v. Summit County Council,99 Ohio St.3d 172, 176 (2003) ..............................47

State ex rel. Mayer v. Henson, 97 Ohio St.3d 276, 278 (2002) .............. ......................................... 9

State ex rel. Ohio Dept. of Mental Health v. Nadel,98 Ohio St.3d 405 2003-Ohio-1632............ 46

State ex rel. Osborn v. Jackson, 46 Ohio St.2d 41, 51-52 (1976) ..................................................38

....7.........State ex rel. Seikbertb. Wilkinson, 69 Ohio St.3d 489, 490 (1994 ....................................

State ex rel. State Fire Marshall v. Curl, 87 Ohio St.3d 568, 569 (2000) ......................... . . 9, 38, 42

State v. Crabtree v. Bureau of Workers' Compensation, 71Ohio St.3d 504 (1994) .....................22

Verizon Communications Inc. v. Federal Communications Comm'n535 U.S. 467, 486 (2001)..28

Statutes

.........:...............................34,35,36Section 205 of the Federal Power Act .....................................

Section 2731.01, Revised Code .....................................................................................................42

Section 2731.05, Revised Code ...........:.........................................................................................42

26Section 4901.02, Revised Code ..................................................................................

.......................3 8Section 4903.10, Revised Code ..............................................................................


......................................19Section 4905.03, Revised Code ..............................................................

Section 4905.04, Revised Code ....... ......................................................................15, 18, 26, 27, 29

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Section 4905.05, Revised Code . ............................................................................15, 18, 26, 27, 29

Section 4905.06, Revised Code .......................................................................15, 17, 18, 26, 27, 29

Section 4927.16, Revised Code .................. ................................................................................... 35

Section 4928.02(H), Revised Code ................................................................................................31

Section 4928.03, Revised Code .........................................................................................16, 18, 34

Section 4928.05(A), Revised Code ............................................................ 12, 17, 18, 20, 21, 23, 26

Section 4928.31, Revised Code .......................................:..........................................................:..33


Section 4928.38, Revised Code ..........:........................................................................30, 31, 33, 34

Section 4928.39, Revised Code .., .....................................................................:............................31


Section 4928.141, Revised Code ...............................................................17, 18, 20, 30, 31, 33, 34

Section 4928.143, Revised Code ..:...........:..............:.................................::....18, 20, 30, 31, 32, 33

Section 4928.144, Revised Code ......................................:......................................5, 32, 33, 40, 49

Section 5703.54, Revised Code ...................................................... !.............................................. 39

Rules

S. Ct. Prac. R. 10.5 ...........................................................................................................................7

S. Ct. Prac. R. 10.6 ...........................................................................................................................7

S. Ct. Prac. R. 10.7 .........................................................................................................................40

Other Authorities

Reliability Assurance Agreement ..............................................1, 15, 18, 24, 26, 27, 28, 29, 36, 47

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Public Utilities Commission of Ohio Orders

In the Matter of the Commission Review of The Capacity Charges of Ohio Power Company and

Columbus Southern Power Company,Case No. 10-2929-EL-UNC, Opinion and Order(JulY 2, 2012) .....................................................:.............................................................................1

In the Matter of the Application of Columbus Southern Power Company and Ohio PowerCompany for Authority to Establish a Standard Service Offer Pursuant to Section 4928.143,Ohio Rev. Code, in the Form of an Electric Security Plan,

Case Nos. 11-346-EL-SSO, et al. Opinion and Order(August 8, 2012) .......................................................................:.........................................:............3

In the Matter of the Application of Duke Energy Ohio, Inc., for the Establishment of a Charge

Pursuant to Revised Code Section 4909.18,Case No. 12-2400-EL-UNC, et al., Application(Aug. 29, 2012) ............................................:.................................................................................50

In the Matter of the Application of Columbus Southern Power Company for Approval of aMechanism to Recover Deferred Fuel Costs Ordered Under Ohio Revised Code 4928.144,

Case No. 11 -4920-EL-RDR, et al., Application for Rehearing of Ohio Power Company(Aug. 31, 2012) ..... ......................................................................................................................... 14

In the Matter of the Application of Ohio Power Company for Approval of the Shutdown of Unit 5of the Philip Sporn Generating Station and to Establish a Plant Shutdown Rider,Case No. 10-1454-EL-RDR, Finding and Order(Jan. ) ..........................................................................................................................11, 2012 18,31

In the Matter of the Application of Columbus Southern Power Company and Ohio PowerCompany for Authority to Recover Costs Associated with the Construction and UltimateOperation of an Integrated Gasifacation Combined Cycle Electric Generating Facility,

Case No. 05-367-EL-UNC, Application(Mar. 18, 2005) ..............................................................................................................................39

In the Matter of the Application of Columbus Southern Power Company and Ohio PowerCompany for a Certificate of Environmental Compatibility and Public Need to Construct an

Electric Generation Facility in Meigs County, Ohio,Case Nos. 06-30-EL-BGN, et al., Entry(July 30, 2012) ...............................................................................................................................39

In the Matter of the Application of Duke Energy Ohio, Inc., for the Establishment of a Charge

Pursuant to Revised Code Section 4909.18,Case No. 12-2400-EL-UNC, et al., Application(Aug. 29, 2012) ................................................................................................................................6

{C38744:11} V

IN THE SUPREME COURT OF OHIO

State of Ohio, ex. rel. Industrial Energy

Users-Ohio

Relators,

Original Action in Prohibitionand Mandamus

V.

The Public Utilities Commission of OhioTodd A. Snitchler, ChairmanCheryl Roberto, Commissioner,Steven D. Lesser, Commissioner,Andre T. Porter, Commissioner, andLynn Slaby, Commissioner,

Respondents.Case No. 12-1494

INDUSTRIAL ENERGY USERS-OHIO'S MEMORANDUMIN OPPOSITION TO MOTIONS TO DISMISS

I. INTRODUCTION

As of June 1, 2012, the market price of generation-related capacity service provided to

Competitive Retail Electric Service ("CRES") providers in Ohio other than in the AEP-Ohiol

service territory was $16/megawatt-day ("MW-day") .2 This price was established through a

multistate capacity auction process which is part of the Reliability Pricing Model ("RPM" or

"RPM-Based Price"), used by PJM Interconnection, LLC ("PJM"), a regional transmission

organization ("RTO") under a contract, the Reliability Assurance Agreement ("RAA"), approved

' The Ohio Power Company and Cofu,inbus Southern Power Company merged in 2011.

Collectively they are referred to as AEP-Ohio.

2 In the Matter of the Commission Review of The Capacity Charges of Ohio Power Company and

Columbus Southern Power Company,Case No. 10-2929-EL-UNC, Opinion and Order at 10

(July 2, 2012) (Appx. at 210) ("Capacity Case" or "Capacity Order"). Hereafter, the IEU-Ohio

Appendix filed with the Complaint is designated as "Appx."

{C38744:11 }

by the Federal Energy Regulatory Commission ("FERC") 3 RPM is the means by which PJM

values capacity resources and compensates providers of those resources within its multi-state

region that includes Ohio. With adjustments to that price specific to AEP-Ohio, the RPM-Based

Price of capacity provided to CRES providers on June 1, 2012 should have been $20.01/MW-

day.4 It was not.

The break-away from RPM-Based Pricing for AEP-Ohio's generation-related capacity

service supplied to CRES providers is recent. Beginning in 2007, AEP-Ohio's compensation for

generation capacity service available to CRES providers was tied to the results of RPM, and

capacity prices moved up and down periodically in line with the results of the RPM auction

process.5 In December 2010, the Public Utilities Commission of Ohio, through its member

Commissioners ( collectively "Commission"), confirmed that AEP-Ohio's compensation for

generation capacity service would remain at the RPM-Based Price because its continuation was

an expected part of the AEP-Ohio electric security plan ("ESP") approved by the Commission in

2009.6

In late 2011, the Commission, with no statutory authority to approve a non-market based

price or approve the recovery of generation-related transition revenue,7 authorized AEP-Ohio to

increase its compensation for generation capacity service through a two-tiered capacity price of

$146 and $255/MW-day, effective January 1, 2012. This change was triggered by a Stipulation

3 Complaint for Writs of Prohibition and Mandamus at 3-10 (Aug. 31, 2012) ("Complaint"). TheRPM-Based Price changes annually on June 1 based on the results of a Base Residual Auction

and up to three Interim Auctions conducted by PJM.

4 Capacity Order at 10 (Appx. at 210).

s Complaint at 9-11.

6 Id. at 10-11; Capacity Case, Entry at 2 (Dec. 8, 2010) (Appx. at 353).

7 Complaint at 12-13.

{C38744:11 } 2

and Recommendation filed on September 7, 2011. In that Stipulation, AEP-Ohio sought

approval to increase its compensation for generation-related capacity service to resolve the

Capacity Case and the pending ESP case ("ESP II Case").8 The Stipulation and

Recommendation proposed a two-tiered capacity pricing scheme ("Pricing Scheme").9 The first

tier of the Pricing Scheme was tied to RPM-Based Pricing and applicable to a percentage of

CRES provider sales made to retail customers in AEP-Ohio's service area. For CRES provider

sales above this stated percentage (the second tier), the capacity price was arbitrarily set at

$255/MW-day.10

The Commission initially approved the Stipulation, but then rejected it on February 23,

2012.11 AEP-Ohio refused to comply with the Commission's directive to restore the RPM-Based

Pricing method of establishing the compensation due from CRES providers and sought relief

from the Commission's order rejecting the Stipulation by motion. The Commission granted

AEP-Ohio's motion on March 7, 2012 and permitted the Pricing Scheme to continue until May

30, 2012, at which time the price of all capacity available to CRES providers was to be based on

the RPM-Based Price as established for the 2012/2013 PJM delivery year beginning June 1,

2012.12 As June 1, 2012 approached, AEP-Ohio sought additional relief to maintain the price of

$145.79/MW-day for first tier capacity, and the arbitrary second tier price of $255/MW-day.

8 In the Matter of the Application of Columbus Southern Power Company and Ohio PowerCompany for Authority to Establish a Standard Service Offer Pursuant to Section 4928.143,

Ohio Rev. Code, in the Form of an Electric Security Plan, Case Nos. 11-346-EL-SSO, et al.

("ESP II Case" when referring to the case generally or "ESP II Order" when referring to the

August 8, 2012 Opinion and Order) (Appx. at 266)

9 Complaint at 12.

1o Id. at 12-13.

Id.at13.

127d.

{C38744:11 } 3

The Commission retreated from its prior directive that AEP-Ohio restore RPM-Based Pricing

and granted the relief requested by AEP-Ohio on May 30, 2012.13 Industrial Energy Users-Ohio

("IEU-Ohio") filed applications for rehearing protesting each of the Commission's orders on the

ground that the Commission lacked jurisdiction to authorize a capacity price other than the RPM-

Based Price, and the Commission granted rehearing for further consideration.14

Then, on July 2, 2012, the Commission issued the Capacity Order inventing and applying

a cost-based ratemaking methodology, thereby authorizing a significant increase in the

compensation AEP-Ohio, an electric distribution utility ("EDU"), is authorized to collect for the

generation-related capacity service available to CRES providers.ls Based on this invented cost-

based ratemaking methodology, the Commission authorized AEP-Ohio to increase its price for

generation-related capacity service to $188.88/MW-day (a price that applies uniformly to all

generation-related capacity service available to CRES providers in the AEP-Ohio service

territory).16 However, the Commission's authorization also precluded AEP-Ohio from imposing

this price on CRES providers. Instead, the Commission directed AEP-Ohio to charge CRES

providers the RPM-Based Price.17 It then authorized AEP-Ohio to adopt accounting practices

that operate to defer, with compounding interest, the difference between the RPM-Based Price

charged to CRES providers and $188.88/MW-day (the "Deferred Increase").18 The Capacity

Order also stated that the Commission would address the means by which AEP-Ohio would

13 Id.

14Id.at14.ls Id. at 15; Capacity Order (App)c. at 201).

16 Capacity Order at 35 (Appx. at 235).

" Id. at 23 (Appx. at 223).

18 Id.

{C38744:11 1 4

collect the Deferred Increase when it issued its decision in the pending AEP-Ohio ESP

proceeding. 19

On August 8, 2012, the Commission issued its decision in the pending ESP II Case20 In

that decision, the Commission authorized AEP-Ohio to collect from all retail customers the

Deferred Increase through two non-bypassable riders, the Retail Stability Rider ("RSR"),21 and a

"Capacity Shopping Tax" that collects any portion of the Deferred Increase not collected through

the RSR.ZZ

During the course of the above-described proceedings, IEU-Ohio, AEP-Ohio, and many

other parties challenged the Commission's jurisdiction to, among other things: regulate

wholesale pricing for generation-related capacity service; deviate from the RPM-Based Pricing

method previously adopted by the Commission; invent and apply a cost-based ratemaking

methodology for purposes of significantly increasing the compensation available to AEP-Ohio

for a competitive service (generation-related capacity service); apply a cost-based ratemaking

methodology for purposes of significantly increasing the compensation available to AEP-Ohio

without adhering to procedural and substantive requirements of Ohio's cost-based ratemaking

laws; and, contrary to Ohio law and a settlement agreement previously approved by the

Commission, authorize AEP-Ohio to collect above-market compensation for generation-related

service otherwise known as "transition revenue" or "stranded cost." These challenges to the

19Id.

20 ESP II Order (Appx. at 266).

21 ESP II Order at 26-38 (Appx, at 294-306). The Commission authorized an initial RSR rate of$3.50/megawatt-hour ("MWH") with $1/MWH to be credited to the Deferred Increase. TheCommission estimated the RSR would recover $144 million of the Deferred Increase over theESP II term. ESP II Order at 75 n.32 (Appx. at 343). The RSR is effective from the beginningof AEP-Ohio's September 2012 billing cycle through May 31, 2015. Id. at 77 (Appx. at 345).

22 The Capacity Shopping Tax will be collected from all retail customers over a three-year period

commencing in June 2015. Id. at 36 (Appx. at 305).

{C38744:11 } 5

Commission's authority went unheeded and often have been simply ignored by the Commission.

As a result, the one-two punch provided by the Capacity Case and the ESP II Case has uniquely

landed on retail customers in AEP-Ohio's EDU service area, and other EDUs are asking the

Commission to provide them with the compensation bonanza the Commission awarded to AEP-

Ohio. 23

In response to the Connnission's failure to act within the limits of its authority and

decisions by the Commission that indicate that it intends to continue to operate outside such

limits, IEU-Ohio filed the Complaint on August 31, 2012. On September 25, 2012, the

Commission filed a motion to dismiss, arguing, among other things, that the appellate process

(pushed off by the Commission's practice of granting rehearing to avoid addressing the merits of

rehearing applications) is sufficient to protect customers' interests. Also on September 25, 2012,

AEP-Ohio filed a motion to intervene and attached a motion to dismiss presenting the same

positions set forth in the Commission's motion to dismiss Z4

The Commission's motion to dismiss (and that of AEP-Ohio if the Court permits AEP-

Ohio to intervene) is without merit and IEU-Ohio urges the Court to reject the motion. The

allegations of the Complaint set out in detail the facts and legal requirements that demonstrate

that the Commission lacked and lacks any authority whatsoever to invent and apply a cost-based

ratemaking methodology to authorize the above-market compensation and to collect the Deferred

Increase through non-bypassable charges.

23 In the Matter of the Application of Duke Energy Ohio, Inc., for the Establishment of a Charge

Pursuant to Revised Code, Section 4906.18, Case Nos. 12-2400-EL-UNC, et al., Application

(Aug. 29, 2012) (available athttp://dis.puc.state.oh.us/TiffToPDf/A1001001 A12H29B61617D87661.pdf).

24 In addition to this Memorandum in Opposition the Motions to Dismiss, IEU-Ohio is filing a

Memorandum in Opposition to AEP-Ohio's motion to intervene. As set out in the Motion in

Opposition to AEP-Ohio's Motion to Intervene, AEP-Ohio has not demonstrated that the

Commission does not adequately protect AEP-Ohio's interests.

(C38744:11 ) 6

As the Complaint also demonstrates, all Ohio retail customers will suffer significant and

irreparable financial losses if the Commission's unlawful orders remain in effect until the Court

addresses the inevitable appeal.

Because the Commission patently and unambiguously lacked and lacks authority to

invent and apply a cost-based ratemaking methodology and to authorize the collection of above-

market compensation for generation-related capacity service through non-bypassable retail

charges, IEU-Ohio urges the Court to deny the motions to dismiss and to issue the altemative

writs of prohibition and mandamus staying the Capacity Case and ESP II Case as it relates to the

collection of the Deferred Increase, direct the Respondents to answer, and set a schedule for

filing evidence and briefs?5

II. ARGUMENT

A. Standard of Review

This matter is before the Court on motions to dismiss. 26 "In reviewing a complaint upon

a motion to dismiss pursuant to Civ. R. 12(B)(6), a court must presume that all factual

allegations are true and all reasonable inferences must be made in favor of the nonmoving

party."27 The Complaint may not be dismissed unless it appears "beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would entitle him to relief."28 Because

the motions to dismiss fail to satisfy this heavy burden, they should be denied. In fact, IEU-

Ohio's Complaint demonstrates that the Commission unambiguously and patently does not have

jurisdiction to invent and apply a cost-based ratemaking methodology to uniquely authorize

ZS S.Ct. Prac. R. 10.5 & 10.6.

26 This Memorandum in Opposition addresses the motion to dismiss filed by the Commissionand the motion to dismiss that AEP-Ohio attached to its motion to intervene.

27 State ex rel. Seikbert v. Wilkinson, 69 Ohio St.3d 489, 490 (1994).

28 O'Brien v. University Community Tenants Union Inc., 42 Ohio St.2d 242, 245 (1975).

{C38744:11 } 7

AEP-Ohio to significantly increase and recover, on a non-bypassable basis, compensation for

generation-related capacity service available to CRES providers (regardless of whether the

increase is collected from CRES providers, all retail customers, or both).

B. The Commission and AEP-Ohio's Claim that IEU-Ohio Cannot Demonstrate

the Commission Is About to Exercise Quasi-Judicial Authority Is Meritless

1. The Commission exercised quasi-judicial authority when it issued

orders in the Capacity and ESP II Cases inventing and applying acost-based ratemaking methodology and authorizing illegal collectionof above-market compensation for generation-related capacity

service.

Initially, the Commission and AEP-Ohio seek to dismiss the Complaint on the basis that

an action for prohibition is not available because, as the Commission explained, "[t]he Tariffs are

already in effect."29 In its Motion, the Commission argues "Relator is not challenging actions

that the Commission is `about to' take"30 and a writ of prohibition is precluded as a result31 °

because a writ of prohibition "is a preventive, not a corrective remedy."32 AEP-Ohio makes an

identical argument.33 The Commission and AEP-Ohio's argument that prohibition is not

available if the Commission has already issued orders improperly asserting jurisdiction is

premised on an incomplete statement of the applicable law concerning prohibition and

mandamus, the Commission's assertion of jurisdiction, and the relief IEU-Ohio is seeking.

When a complainant demonstrates that the judicial or quasi-judicial authority is patently

and unambiguously without jurisdiction, the Court may stay prior and future unlawful assertions

of jurisdiction by the inferior court or agency through a writ of prohibition. "If a lower court

29 Commission Motion to Dismiss at 3.

30 Id. at 3.31

Id.

3Z Id. at 5.

33 AEP-Ohio Motion to Dismiss at 8-11.

{C38744:11 } 8

patently and unambiguously lacks jurisdiction to proceed in a cause, prohibition ... will issue to

prevent any future unauthorized exercise of jurisdiction and to correct the results ofprior

jurisdictionally unauthorized actions."34 As demonstrated in the Complaint and discussed

below, IEU-Ohio has alleged, and the Court should find, that the Commission patently and

unambiguously lacks jurisdiction to issue orders inventing and applying a cost-based ratemaking

methodology to increase AEP-Ohio's compensation for and establish prices applicable to

generation-related capacity service.35 A writ of prohibition, therefore, is not precluded because

the Commission has issued orders in the Capacity and ESP II Cases.

Further, IEU-Ohio has sought relief through the Court's authority to issue writs of

prohibition and mandamus. As the Court made clear in State ex rel. State Fire Marshall v.

Curl,36 the Court may order a lower court, or in this case the Commission, by writ of mandamus

to correct the results of any jurisdictionally unauthorized actions. Thus, even if a writ of

prohibition were not available to address the Commission's unlawful assertion of jurisdiction in

the Capacity Case and ESP II Case because the Commission has already issued orders in those

cases, the Court may issue a writ of mandamus directing the Commission to correct the results of

its unlawful orders.

Finally, the Commission and AEP-Ohio's argument that the Court cannot issue a writ of

prohibition is premised on a narrow and inaccurate reading of the Commission's Capacity Order

and ESP II Order. The Commission and AEP-Ohio treat the illegal assertion of jurisdiction in

these cases as a "fait accompli,"37 an accomplished fact.38 The Commission, however, still has

34 State ex rel. Mayer v. Henson, 97 Ohio St.3d 276, 278 (2002) (emphasis added).

35 Complaint at 20-21 and 51-70.

36 87 Ohio St.3d 568, 569 (2000).

37 Commission Motion to Dismiss at 3; AEP-Ohio Motion to Dismiss at 8.

{C38744:11 1 9

before it applications for rehearing in both cases where AEP-Ohio has challenged the

Commission's general authority to set a wholesale capacity price and IEU-Ohio has challenged

the Commission's specific authority to set a non-market based price or a price based on the

Commission's invented cost-based ratemaking methodology. To date, the Commission has not

addressed the merits of AEP-Ohio's or IEU-Ohio's applications for rehearing.39 Instead, it has

granted rehearing for additional consideration, which, practically speaking, seems to be designed

to delay the ability of a party to challenge the Commission's action through the more typical

appeal process. (In the case of the AEP-Ohio application for rehearing, the Commission issued

an entry granting rehearing on February 2, 2011.)

Additionally, the Commission has asserted on-going jurisdiction to apply the unlawful

results of its Capacity Case and ESP II Case decisions. The Commission invented and applied

the cost-based ratemaking methodology to increase AEP-Ohio's generation-related capacity

compensation via a price of $188.88/MW-day, and made all retail customers responsible for

paying the Deferred Increase through the RSR during the remainder of the ESP II term and a

future non-bypassable rider, the Capacity Shopping Tax. Since the Capacity Shopping Tax is

designed to collect (with compounding interest) the portion of the Deferred Increase that is not

collected by the RSR and the Commission has authorized the Capacity Shopping Tax to go into

effect in June 2015, the Commission's assertion of jurisdiction in the Capacity and ESP II Cases

is not a "one-off' decision, the effects of which are certain. The Commission's actions in the

Capacity and ESP II Cases include a continuing assertion of jurisdiction so as to permit AEP-

38 Webster's Ninth New Collegiate Dictionary at 446 ("a thing accomplished and presumably

irreversible").

39 Capacity Case, Entry on Rehearing (Feb. 2, 2010) (Appx. at 385); Entry on Rehearing (Feb.

23, 2012) (Appx. at 388); Entry on Rehearing (Apr. 11, 2012) (Appx. at 419); Entry on

Rehearing (July 11, 2012) (Appx. at 423).

{C38744:11 } 10

Ohio to collect, through current and future non-bypassable charges, a significant increase in

generation-related compensation for capacity service available to CRES providers. Without

immediate intervention by this Court, the Commission's willingness to kick rulings on

challenges to its jurisdiction down the road by granting rehearing for the purpose of giving it

more time to consider such challenges and thereby stymie timely appeals, and the Commission's

continuing assertion of jurisdiction to complete the undertaking initiated by theCapacity and

ESP II Casesmean all retail customers of AEP-Ohio (shopping and non-shopping) will pay, now

and later, hundreds of millions of dollars through unlawful non-bypassable charges for

generation-related service available to CRES providers.

The Commission's argument-that a writ of prohibition should not be issued because

"tariffs are already in effect"40-is not a valid basis for granting the motions to dismiss. Because

the Commission has unlawfully asserted jurisdiction to invent and apply a cost-based ratemaking

methodology and asserted jurisdiction to approve and adjust prices and charges to collect the

total compensation increase resulting from that methodology for years to come, IEU-Ohio sought

both preventive and corrective orders from the Court. Due to the unambiguous and patently

unlawful nature of the Commission's assertion of jurisdiction, the Court may and should grant

the writs of prohibition and mandamus to prevent the Commission from acting without

jurisdiction and to correct the unlawful orders that it has issued previously.

2. The Commission and AEP-Ohio Incorrectly Characterize theCommission's Actions as "Legislative."

In addition to incorrectly arguing that the Commission's unlawful assertion of

jurisdiction is a "fait accompli" and therefore not a proper subject for a writ of prohibition, the

4o Commission Motion to Dismiss at 3.

{C38744:11 } I I

Commission argues that it has not engaged in a quasi-judicial function.41 According to the

Commission, prohibition is unavailable because the Commission was exercising legislative

authority when it invented and applied a cost-based ratemaking methodology.42 AEP-Ohio

makes the identical argument43 Once again, the Commission and AEP-Ohio are legally and

factually incorrect.

Fundamentally, the process by which the Commission invented and applied the cost-

based ratemaking methodology in the Capacity Case and the ESP II Case was quasi-judicial.

The Commission conducted hearings preceded by discovery, took sworn testimony and evidence

from witnesses, created a record, issued an opinion and order based on findings of fact and

conclusions of law,44 and granted rehearing for further consideration. These steps are the classic

elements of a judicial or quasi-judicial process 45

41Id.at5.

42 Id. at 6.


44 Section 4903.09, Revised Code, requires the Commission in contested cases to make acomplete record and to file the record, findings of fact and written opinions setting forth thereasons prompting the decisions arrived at; based upon said findings of fact. If the Commissionwas exercising authority under Chapter 4909, Revised Code, the increase in compensation wouldhave been governed by the hearing process set out in Section 4909.19, Revised Code. As allegedin the Complaint, the Commission could not act under that provision due to the operation ofSection 4928.05(A)(1), Revised Code, and made no attempt to comply with the detailedrequirements of Section 4909.19, Revised Code. Complaint at 20-21.

45 Ohio Consumers' Counsel v. Pub. Util. Comm., 111 Ohio St.3d 384, 2006-Ohio-5853 at ¶ 19

(quoting Ohio Domestic Violence Network v. Pub. Util. Comm., 70 Ohio St.3d 311, 315 (1994)

(Commission proceedings "characterized by notice, hearing, and the making of an evidentiaryrecord" are quasi-judicial)); Complaint at 20 & 51. The Commission, however, did not take

evidence in the ESP II Case concerning the proper treatment of the Deferred Increase because

the record in the ESP II Case had already closed when the Commission transferred the resolution

of the recovery of the Deferred Increase to the ESP II Case. Complaint at 47.

{C38744:11 } 12

The Consumers' Counsel case46 cited by both the Commission and AEP-Ohio supports

IEU-Ohio's position that the Commission engaged in a quasi-judicial exercise of authority when

it invented and applied the cost-based ratemaking methodology in the Capacity and ESP II

Cases. At issue in the Consumers' Counsel case was the Office of the Ohio Consumers'

Counsel's ("OCC") claim that it had a right to an evidentiary hearing before the Commission

approved rates for a small telephone company pursuant to alternative regulation procedures

enacted by the General Assembly. In addressing OCC's claim that the General Assembly

extended, to the alternative regulation process, the right to a hearing that existed under traditional

and general ratemaking processes, the Court noted that ratemaking was "a legislative function,"

but "absent express statutory provision, a ratepayer has no right to notice and hearing under the

Due Process Clauses of the Ohio and United States Constitutions."47 The Court then rejected

OCC's claim because the legislative changes did not provide the same procedural requirements

contained in the general ratemaking statutes.48

In contrast to the altemative regulation requirements that did not provide for an

evidentiary hearing under the circumstances of the case the Court was reviewing, the Court noted

that "[u]nder Ohio's traditional ratemaking process, the General Assembly provides for quasi-

judicial ratemaking hearings in which ratepayers in general (R.C. 4909.18, 4909.19, 4903.221)

and OCC in particular (R.C. 4911.02) may participate."49 The quasi-judicial process found in

46 Office of Consumers' Counsel v. Pub. Util. Comm'n of Ohio, 70 Ohio St.3d 244 (1994).

47 Id. at 248.

48 Id. at 249.

49 Id. at 249 (emphasis added). The other case cited by both the Commission and AEP-Ohio,

Dayton Power and Light Co. v. Pub. Util. Comm'n of Ohio, 4 Ohio St.3d 91 (1983), is also

inapposite. In the DP&L case, the Court addressed whether a disallowance of DP&L's request

to treat investment in cancelled plant was an amortizable cost. Id. at 97. The full quotation from

which both the Commission and AEP-Ohio draw a single quotation concerns a historical

{C38744:11 } 13

Chapter 4909, Revised Code, and described by the Court in the Consumers' Counsel case is

relevant here since the Commission's decision in the Capacity Case relies (wrongly but

nonetheless) on Chapter 4909, Revised Code, as a source of the Commission's authority to set a

cost-based price.50 Thus, the Consumers' Counsel case cited for the proposition that the

Commission is engaged in a legislative function actually supports IEU-Ohio's statement in the

Complaint that the Commission has acted and is about to act further through the exercise of

quasi-judicial authority.

In contrast to the position it has taken in its motion to dismiss in this case, AEP-Ohio

itself has argued to the Commission that proceedings to set rates are adjudicatory in nature. In an

August 2012 application for rehearing, AEP-Ohio challenged a Commission order lowering the

carrying charges on a deferred balance created under its first ESP on the ground that the

Commission lacked authority to revise "adjudicatory orders to which resjudicata principles

apply „5i

The Commission and AEP-Ohio's claim that the Commission was exercising its

"legislative authority" when it conducted the hearings in the Capacity and ESP II Cases,

therefore, is groundless. The Commission was exercising quasi-judicial authority when it

addressed discovery disputes, heard dispositive motions, conducted evidentiary hearings in

discussion of the power of the judiciary to review a rate order to determine if it operates as an

unconstitutional taking. Id. at 98-99.

50 Capacity Order at 22 (Appx. at 222) ("We further find, pursuant to our regulatory authorityunder Chapter 4905, Revised Code, as well as Chapter 4909, Revised Code, that it necessary andappropriate to establish a cost-based state compensation mechanism for AEP-Ohio.").

51 In the Matter of the Application of Columbus Southern Power Company for Approval of aMechanism to Recover Deferred Fuel Costs Ordered Under Ohio Revised Code, 4928.144, Case

No. 11-4920-EL-RDR, et al., Application for Rehearing of Ohio Power Company at 9 (Aug. 31,

2012) (viewed on Sept. 28, 2012 athttp://dis.puc.state.oh.us/TiffI'oPDf/Al 001001 A12H31 B60238I18909.pdf).

{C38744:11 } 14

which sworn testimony and exhibits were presented subject to cross-examination and motions to

strike, considered the record evidence, and issued orders in the contestedCapacity and ESP II

Cases.

C. The Commission and AEP-Ohio's Claim that the Commission HasJurisdiction to Invent and Apply a Cost-Based Ratemaking Methodology andto Authorize Non-Bypassable Charges to Collect the Deferred Increase

Resulting from that Methodology is Meritless.

IEU-Ohio's Complaint demonstrates that the Commission has no authority whatsoever to

invent and apply a cost-based ratemaking methodology to substantially increase the

compensation of AEP-Ohio for generation-related capacity services supplied to CRES providers.

In support of their motions to dismiss, the Commission and AEP-Ohio argue that IEU-Ohio has

failed to establish that the Commission lacked jurisdiction. In support of that claim, they allege

that generation-related capacity service supplied to CRES providers is a wholesale, non-

competitive service, which the Commission may supervise and regulate pursuant to Sections

4905.04, 4905.05, and 4905.06, Revised Code, and the RAA. Alternatively, the Commission

and AEP-Ohio argue that if the ratemaking requirements of Chapter 4909, Revised Code, apply,

it is unclear which sections are strictly applicable and the determination of the applicability of

those provisions can be addressed on appeal.52

These arguments do not demonstrate that it is beyond doubt that IEU-Ohio can prove no

set of facts in support of its Complaint which would entitle it to relief. Beyond demonstrating

grounds for relief, the Complaint also demonstrates that the Commission and AEP-Ohio's claims

that the Commission had jurisdiction to invent and apply a cost-based ratemaking methodology

to substantially increase AEP-Ohio's compensation for generation-related capacity service are

without merit.


15{C38744:11 }

1. The Commission has no legal authority to invent and apply a cost-based ratemaking methodology for the purpose of increasing AEP-Ohio's compensation for generation-related capacity service becauseit is a retail electric service that has been deemed competitive by

operation of law.

As IEU-Ohio demonstrated in the Complaint, generation-related capacity service

supplied to CRES providers is not within the regulatory and supervisory jurisdiction of the

Commission.53 The scope of the Commission's jurisdiction over retail electric service is

contained in the definitions and statutory limitations contained in Chapter 4928, Revised Code.

"Retail electric service" is defined as:

any service involved in supplying or arranging for the supply of electricity to

ultimate consumers in this state,from the point of generation to the point of

consumption.For the purposes of this chapter, retail electric service includes one

or more of the following "service components": generation service, aggregation

service, power marketing service, power brokerage service, transmission service,

distribution service, ancillary service, metering service, and billing and collection

service. 54

The definition of "retail electric service" includes any service, i.e., generation, transmission, and

distribution service, from the point of generation to the point of consumption.55 A component of

that retail electric service, "retail electric generation," has been deemed competitive as a matter

of law:

Beginning on the starting date of competitive retail electric service, retail

electric generation, aggregation, power marketing, and power brokerage servicessupplied to consumers within the certified territory of an electric utility are

competitive retail electric services thatshthe consumers may obtain subject to this

chapter from any supplier or suppliers.


54 Section 4928.01 (A)(27), Revised Code, (emphasis added).

ss Id.56 Section 4928.03, Revised Code. The definition of "retail electric service" (in combination

with the balance of Chapter 4928) also makes it clear that a service component or function iseither competitive or non-competitive. Because non-competitive service components are defined

{C38744:11 1 16

Because generation-related capacity service has been declared competitive, the Commission has

no supervisory or regulatory authority under Chapter 4905 or Chapter 4909, Revised Code,

except within some narrowly defined exceptions.57 As discussed below, none of those

exceptions applies to generation-related capacity service supplied to CRES providers. From

these definitions and limitations, IEU-Ohio's Complaint, viewed in a light most favorable to

IEU-Ohio,58 clearly sets forth a legal basis that demonstrates that the Commission's actions were

unauthorized by law.

2. The Commission and AEP-Ohio's claim that generation-related

capacity service is "wholesale" does not provide authority for theCommission to invent and apply a cost-based ratemakingmethodology for generation-related capacity service.

In their motions to dismiss, the Commission and AEP-Ohio first argue that the

jurisdictional limitations in Chapter 4928, Revised Code, do not apply because generation-

related capacity service provided to CRES providers is "wholesale." According to the

Commission and AEP-Ohio, the Commission's determination that this service provided to CRES

to be everything except competitive service components or functions, a service component must

be either competitive or non-competitive.

57 Section 4928.05(A)(1), Revised Code, provides in part:On and after the starting date of competitive retail electric service, a competitiveretail electric service supplied by an electric utility or electric services companyshall not be subject to supervision and regulation ... by the public utilitiescommission under Chapters 4901. to 4909., 4933., 4935., and 4963. of theRevised Code, except sections 4905.10 and 4905.31, division (B) of section4905.33, and sections 4905.35 and 4933.81 to 4933.90 ; except sections 4905.06,4935.03, 4963.40, and 4963.41 of the Revised Code, only to the extent related toservice reliability and public safety; and except as otherwise provided in thischapter. ... Nothing in this division shall be construed to limit the commission'sauthority under sections 4928.141 to 4928.144 of the Revised Code.

58 Kaufman Racing Equip. v. Roberts, 126 Ohio St.3d 81, 2010-Ohio-2551 at ¶ 27.

{C38744:11 1 17

providers is "wholesale" permits the Commission to regulate the price of the service under

Sections 4905.04, 4905.05, 4905.06, Revised Code, and the RAA.59

The Commission and AEP-Ohio do not contest that generation-related capacity service is

a generation-related service, nor could they legitimately do so 60 Because generation-related

capacity service is a component of generation service, it is by operation of law a competitive

retail electric service.61 As a result, generation-related capacity service is not subject to the

Commission's supervision or regulation except as may be specifically permitted by Sections

4928.141 to 4928.143, Revised Code, (which relate exclusively to the establishment of a

standard service offer ("SSO") for retail electric customers), and Section 4905.06, Revised Code,

as it provides for public safety and reliability.62 The Commission has not claimed, nor could it,

that it is regulating generation-related capacity services under any of the exceptions. Thus, the

Commission's finding that the service is "wholesale" does not support its conclusion that it has

s9 Commission Motion to Dismiss at 7; AEP-Ohio Motion to Dismiss at 14.

60 In its decision regarding the closure of AEP-Ohio's Sporn 5 generating facility in which AEP-Ohio sought recovery of the stranded costs resulting from the early closure of a coal-fired

generation plant, the Commission held:

[p]ursuant to Sections 4928.03 and 4928.05(A)(1), Revised Code, retail electricgeneration service is a competitive retail electric service and, therefore, notsubject to Commission regulation, except as otherwise provided in Chapter 4928,

Revised Code. Just as the construction and maintenance of an electricgeneratingfacility are fundamental to the generation component of electricservice, we find that so too is the closure of an electric generating faciliry.

In the Matter of the Application of Ohio Power Company for Approval of the Shutdown of Unit 5of the Philip Sporn Generating Station and to Establish a Plant Shutdown Rider, Case No. 10-

1454-EL-RDR, Finding and Order at 16 (Jan. 11, 2012) (emphasis added) (Appx. at 261). Therecan be no legitimate argument that if the closure costs of a generation facility are a component of

retail electric generation service, capacity service, i.e. the ability to produce energy is also

"fandamental to the generation component of electric service." Id.

61 Section 4928.03, Revised Code.

62 Section 4928.05(A), Revised Code.

{C38744:11 } 18

jurisdiction to invent and apply a cost-based ratemaking methodology to increase the

compensation that AEP-Ohio receives for generation-related capacity service.

If it is assumed, for purposes of argument, that generation capacity service is a wholesale

service, AEP-Ohio and the Commission's retreat to a wholesale label offers them no advantage.

Neither AEP-Ohio nor the Commission has identified the source of the Commission's authority

to regulate or supervise a wholesale electric service.

The statutory definitions fundamental to the Commission's jurisdiction are contained in

Sections 4905.02 and 4905.03, Revised Code. Those Sections specify that a public utility

subject to the Commission's jurisdiction must be a company engaged in the business of

supplying electricity to consuiners. The definition of a public utility specifically exempts RTOs

such as PJM, the entity that actually bills CRES providers for wholesale capacity service.

Moreover, the electric bill increases unleashed by the Commission's unauthorized actions do not

fall on CRES providers; they fall squarely on retail customers through the application of the non-

bypassable RSR and Capacity Shopping Tax.

Regardless of whether capacity is considered a wholesale or retail service, IEU-Ohio's

Complaint is focused on the significant compensation increase that the Commission has

authorized AEP-Ohio to collect from retail customers, on a non-bypassable basis, through the

RSR and the Capacity Shopping Tax. From the above statutory definitions, IEU-Ohio's

Complaint, viewed in a light most favorable to IEU-Ohio, clearly sets forth a legal basis that

demonstrates that the Commission's actions were unauthorized by law.

3. The Commission and AEP-Ohio's claim that generation-related

capacity service is "non-competitive" does not provide authority for

the Commission to invent and apply a cost-based ratemakingmethodology for generation-related capacity service.

{C38744:11 } 19

The Commission and AEP-Ohio's motions to dismiss attempt to defeat IEU-Ohio's

Complaint by alleging that capacity service is non-competitive63 and any procedural problems

that the Commission may have committed should be addressed through the appellate process.64

Once again, the Commission and AEP-Ohio's argument ignores the statutory requirements

governing the Commission. The General Assembly has deemed retail electric generation service

a competitive electric service, and by operation of law it is not subject to Commission

supervision or regulation under the statutory ratemaking provisions applicable to non-

competitive services.65 Section 4928.05(A), Revised Code, specifically prohibits the

Commission from supervising or regulating a competitive service under Chapter 4909, Revised

Code.66

AEP-Ohio and the Conunission's claim that generation capacity service is a non-

competitive service is one of the foundations they attempt to lay down to support the

Commission's invention and application of a cost-based ratemaking method for purposes of

significantly increasing AEP-Ohio's compensation for generation capacity service. But, the law

of Ohio makes it clear that AEP-Ohio's compensation for generation-related service is not to be

based on a cost-based ratemaking method. For example, under Sections 4928.14 through

4928.143, Revised Code, an EDU, such as AEP-Ohio, is responsible for providing generation

supply to any customer not receiving such supply from a CRES provider. An EDU is the only

provider that can provide default generation supply. Yet, Sections 4928.141 through 4928.143

63 The claim that generation capacity service is a non-competitive service is also completelyinconsistent with the Commission's resort to non-bypassable charges to make sure AEP-Ohio

collects the increased compensation.

64 Commission Motion to Dismiss at 9-10; AEP-Ohio Motion to Dismiss at 19-20.

61 Section 4928.05(A), Revised Code.


{C38744:11 } 20

and 4928.05(A), Revised Code, deny the Commission the opportunity to resort to a cost-based

ratemaking method for purposes of establishing AEP-Ohio's compensation for such service.

Where the General Assembly has provided for exclusivity for an EDU's generation

service obligation in the provision of the SSO, the General Assembly has specified that the

Commission may not resort to a cost-based ratemaking method to establish compensation for

such service. The Commission and AEP-Ohio's theory about the relationship between the

exclusivity of a generation-related service obligation and the Commission's ability to invent and

apply a cost-based ratemaking method is, according to Ohio law, fundamentally defective as a

theory.

Even if generation-related capacity service could be considered a non-competitive

service, the Complaint alleges facts that set forth a basis for the issuance of writs of prohibition

and mandamus. As alleged in the Complaint, the Commission entirely failed to comply with the

substantive and procedural requirements of Chapter 4909, Revised Code 67 If, as AEP-Ohio and

the Commission now claim, generation capacity service is a non-competitive service, the

Commission's authorization of a significant increase in AEP-Ohio's compensation is also an

unauthorized act when measured by the procedural and substantive requirements that the

Commission must satisfy before authorizing an increase in compensation for a non-competitive

electric service. Therefore, even if capacity service is not deemed competitive as IEU-Ohio has

alleged, the Complaint alleges facts that, when viewed in a light most favorable to IEU-Ohio,68

support the issuance of writs of prohibition and mandamus to correct the Commission's complete

67 Id. at 15 & 21.

68 Kaufinan Racing Equip. v. Roberts, 126 Ohio St.3d 81, 2010-Ohio-2551 at ¶ 27.

{C38744:11 1 21

failure to even minimally comply with the substantive and procedural statutory requirements in

Chapter 4909, Revised Code. 69

Neither AEP-Ohio nor the Commission contest IEU-Ohio's assertion of substantive and

procedural non-compliance in this alternative context, a context in which generation capacity

service is classified as a non-competitive retail electric service. Rather, they suggest that the

Court should indulge the Commission's complete disregard for these procedural and substantive

requirements (again, based on the assumption that generation capacity service is a non-

competitive service) by dismissing IEU-Ohio's Complaint which asks the Court to intervene to

block the Commission from exercising quasi-judicial authority outside the bounds of its statutory

authority. In effect, the Commission and AEP-Ohio ask the Court, through their motions to

dismiss, to deprive IEU-Ohio of the opportunity to pursue a remedy for the Commission's

unauthorized actions in circumstances where they both acknowledge that the Commission went

outside the limits of its authority and in circumstances where AEP-Ohio continues to maintain

that the Commission has no authority whatsoever over any wholesale electric service provided

by AEP-Ohio to a CRES provider.70

While the Commission strains to distract the Court's attention from the Commission's

acknowledgement that the Commission did not follow the substantive and procedural

requirements associated with authorizing rate increases for a non-competitive service (on the

assumption that generation capacity service is non-competitive), all retail customers are paying

the price for the Commission's unauthorized actions through the RSR that went into effect in

September 2012. If Chapter 4909, Revised Code, is applicable, no future curing of the

69 State v. Crabtree v. Bureau of Workers' Compensation, 71 Ohio St.3d 504 (1994) (writs of

prohibition and mandamus appropriate to address agency's failure to follow statutory process).

70 Commission Motion to Dismiss at 9-10; AEP-Ohio Motion to Dismiss at 19-20 & 21-23.

{C38744:11 1 22

"procedural" category of unauthorized Commission acts will alter the fact that the Commission's

rate increase authorization ignored mandatory compliance with the Commission's ratemaking

duties as those duties have been specified by the General Assembly.

Whether generation capacity service is classified as a competitive service (thereby

placing the Commission's cost-based ratemaking authority off limits) or a non-competitive

service (thereby requiring the Commission to comply with the mandatory procedural and

substantive requirements associated with rate increase requests as more specifically delineated in

Chapter 4909, Revised Code), the fact remains that the Commission authorized a significant

increase in AEP-Ohio's compensation for generation capacity service. The Complaint alleges

that the Commission acted outside the law and will do so in the future as it allows the Capacity

Shopping Tax to complete the RSR's illegal mission.

Additionally, the Commission and AEP-Ohio's argument that the service is non-

competitive is inconsistent with the Commission's treatment of generation capacity service. If it

is a non-competitive service, the Commission is required by Section 4928.05(A)(2), Revised

Code, to supervise and regulate that service pursuant to the traditional regulatory requirements of

Chapter 4909, Revised Code. The Commission, however, previously adopted the market-based

RPM-Based Price rather than requiring AEP-Ohio to comply with the requirements of Chapter

4909, Revised Code.71 Further, it has authorized recovery of the Deferred Increase under

provisions for approval of an ESP.72 Thus, the Commission and AEP-Ohio's argument that

capacity-related generation service is a non-competitive service not only is inconsistent with

legal requirements declaring it competitive but also with the Commission's treatment of this

service.

" Complaint at 9-10.

72 Id. at 17; ESP II Order at 26-38 & 49-52 (Appx. at 294-306 & 317-20).

{C38744:11 } 23

Further, the Commission and AEP-Ohio claim that generation-related capacity service is

non-competitive because no other entity may provide capacity service until June 1, 2015 due to

AEP-Ohio's election under the RAA to be Fixed Resource Requirement ("FRR") Entity.73 The

claim that AEP-Ohio is an FRR Entity is factually wrong and legally irrelevant to the

determination of the Commission's jurisdiction to invent and apply a cost-based ratemaking

methodology to substantially increase AEP-Ohio's compensation for generation-related capacity

service. As explained in the Complaint, American Electric Power Service Corporation

("AEPSC"), not AEP-Ohio, made an election on behalf of the AEP-East operating companies to

operate as an FRR Entity under the RAA, and made that single election on behalf of the entire

combined load of all of the American Electric Power Co. Inc. ("AEP") operating companies in

PJM.74 The Complaint also demonstrates that the compensation for capacity available to CRES

providers serving customers in the AEP-Ohio service territory while operating pursuant to

AEPSC's FRR election, beginning in 2007, was set at the RPM-Based Price, and this was done

with Commission approval.75 The claim that an FRR election supports the Commission's

invention and application of a cost-based ratemaking methodology to increase AEP-Ohio's

compensation is groundless.

Finally, AEP-Ohio's status as an FRR Entity terminates, according to the Commission's

directions in the Capacity Order, on or before May 31, 2015.76 Whatever obligations may be

associated with AEP-Ohio's status as an FRR Entity, that status ends long before the burden of

the Capacity Shopping Tax ends according to the Capacity Order and the ESP II Order. At that

73 Commission Motion to Dismiss at 9-10; AEP-Ohio Motion to Dismiss at 18-19.

74 Complaint at 8.

^s Id. at 9-10.

76 Capacity Order at 10 (Appx. at 210);

{c38744:11 1 24

point, generation supply (capacity and energy) provided by AEP-Ohio as the default supplier will

be procured through a competitive bidding process ("CBP").77 Thus, as the burden of the

Commission's non-bypassable Capacity Shopping Tax begins to materialize in retail electric

bills, the Commission's Capacity Order and ESP II Order dictate that generation capacity supply

will be procured by AEP-Ohio through a CBP much like the process that has been used in other

parts of Ohio where electric prices have declined rather than, as in AEP-Ohio's area, increased.

If generation-related capacity service is a non-competitive service under Ohio law, how is it that

the Commission can direct AEP-Ohio to obtain,.price, and supply such service through a CBP

commencing June 1, 2015? .

Thus, the Commission and AEP-Ohio have not demonstrated that the Complaint failed to

allege a basis upon which relief could be granted; their argument based on their claim that

generation-related capacity service is non-competitive is without merit. First, their legal claim is

wrong: by operation of law, generation-related capacity service is declared competitive and the

Commission therefore is without supervisory or regulatory authority over the service. Second, if

generation-related capacity service is non-competitive, then the Commission and AEP-Ohio

admit that the Commission utterly failed to apply the substantive and procedural requirements of

Chapter 4909, Revised Code, to substantially increase AEP-Ohio's compensation for the service.

In either case, the motions to dismiss should be denied. Calling generation-related capacity

service a wholesale service does not mean that the Commission has been delegated authority to

regulate or supervise generation-related capacity service; applying a wholesale label ignores the

reality that the electric bill increases authorized by the Commission fall on retail customers.

" ESP II Order at 38- 40 (Appx. at 306-08).

{C38744:11 } 25

4. The Commission and AEP-Ohio's claim that Chapter 4905, Revised

Code, and the RAA provide the Commission authority to invent and

apply a cost-based ratemaking methodology is without merit.

Having patently and unambiguously ignored or misapplied the statutory requirements of

Chapter 4928, Revised Code, the Commission and AEP-Ohio fnrther claim that the Commission

may exercise jurisdiction based on the Commission's general supervisory provisions in Chapter

4905, Revised Code, and the RAA.78 Neither the Commission's general supervisory authority,

nor the RAA, however, vests such authority in the Commission.

The Commission and AEP-Ohio's claim that Sections 4905.04, 4905.05 and 4905.06,

Revised Code, provide it with supervisory or regulatory authority is contradicted by the express

limitation on Commission authority contained in Section 4928.05(A), Revised Code, discussed

above.

Moreover, as the Court has previously held, the Commission cannot use its general

supervisory powers in contravention of the specific ratemaking processes that the General

Assembly has developed and which is contained elsewhere in Title 49 of the Revised Code. In

reviewing whether the seemingly broad grant of authority contained in Section 4901.02, Revised

Code, provided the Commission with independent authority to establish rates outside the

Commission's traditional ratemaking process, the Court held:

[t]he comprehensive ratemaking formula provided by the General Assembly ismeant to protect and balance the interests of the public utilities and their

ratepayers alike.Dayton Power & Light Co. v. Pub. Util. Comm., supra, 4 Ohio

St.3d 91, 4 OBR 341, 447 N.E.2d 733. We cannot conclude that it was theGeneral Assembly's intent under the above enabling statute, R.C. 4901.02(A), to

permit the PUCO to disregard that very formula in instances in which it simply

did not agree with the result Cf. Consumers' Counsel, supra, 67 Ohio St.2d at

165, 21 0.O.3d at 104, 423 N.E.2d at 828 ("the General Assembly undoubtedly


26{C38744:11.}

did not intend to build into its recently revised [19761 ratemaking formula ameans by which the PUCO may effortlessly abrogate that very formula").79

Although, in this instance the Commission suggests it has authority under Sections 4905.04,

4905.05, and 4909.06, Revised Code, instead of the Section analyzed by the Court above, the

same principles apply to bar the Commission from resorting to its general supervisory powers to

usurp the statutory ratemaking process and award AEP-Ohio a significant increase in

compensation for generation capacity service available to CRES providers.

Additionally, the Commission and AEP-Ohio argue the Complaint should be dismissed

because the Commission has jurisdiction under the RAA.80 In fact, however, the Commission

did not rely on the RAA for jurisdictional authority in the Capacity Order. In that Order, it stated

that it relied on its general supervisory authority under Sections 4905.04, 4905.05 and 4905.06,

Revised Code, to regulate all public utilities to establish a state compensation mechanism.81 Its

reference to the RAA in the Capacity Order arose because of concern with federal preemption

prompted by AEP-Ohio's challenge to the Commission's jurisdiction. In response to that

concern, the Commission stated that its exercise of jurisdiction to set the state compensation

mechanism was "consistent" with the RAA. Thus, the Commission did not, as now claimed,

state that it was relying on the RAA as a basis for its unlawful exercise of jurisdiction.

Further, the RAA is a FERC-approved contract (goverued by the laws of Delaware)

between and among its signatories.82 It does not and cannot authorize the Commission to invent

or apply a cost-based ratemaking methodology to significantly and uniquely increase the

79 Columbus S. Power Co. v. Pub. Util. Comm.,67 Ohio St.3d 535, 620 N.E.2d 835, 840 (1993).


81 Capacity Order at 12 (Appx. at 212) (Commission bases its authority to act on Sections

4905.04, 4905.05, and 4905.06, Revised Code).

12 RAA , Art. 2 (Appx. at 24).

{C38744:19 1 27

compensation available to AEP-Ohio for generation capacity service made available to CRES

providers. Previously, AEP-Ohio itself has argued to both the Commission and FERC that the

RAA does not permit the Commission to establish a wholesale capacity charge.83 The RAA only

recognizes that a state compensation mechanism shall control if a state regulator has adopted a

state compensation mechanism in accordance with its lawful authority.8A Further, the RAA

states a purpose to encourage the development of a robust competitive marketplace.85 If the

RAA could Iawfully delegate subject matter jurisdiction to the Commission (and it cannot), the

Commission's award to AEP-Ohio of above-market compensation for generation-related

capacity service is hardly consistent with the pro-competitive purpose of the RAA. And, the

„s6RAA specifically states that any option that AEP-Ohio may have to recover its "cost of

83 Capacity Case, Ohio Power Company's and Columbus Southern Power Company's

Application for Rehearing at 21 (Jan. 7, 2011) (Appx. at 375); American Electric Power Service

Corporation, Docket No. ER11-2183-001, Request for Rehearing of American Electric Power

Service Corporation at 11-14 (Feb. 22, 2011), available at:http://elibrary.ferc. gov/idmws/common/OpenNat.asp?fileID=12569314).

84 RAA., Schedule 8.1, § D.8 (Appx. at 123).

as Id., Art. 2 (Appx. at 24).

86 In Verizon Communications Inc. v. Federal Communications Comm'n 535 U.S. 467, 486

(2001), the United States Supreme Court discusses the capacity of utilities to manipulate theinputs used in a traditional cost-based system of rate regulation (like the ratemaking methodcontained in Chapter 4909, Revised Code) and the role that this manipulation played inprompting pro-competitive regulatory reforms designed to eliminate barriers to competition. Thedecision addresses the claim, made by incumbent utilities, that the word "cost" must be definedto require the use of the incumbent's past investment (historical or embedded cost). In response,

the United States Supreme Court said (at 498-99):

The incumbents have picked an uphill battle. At the most basic level ofcommon usage, "cost" has no such clear implication. A merchant who is askedabout "the cost of providing the goods" he sells may reasonably quote theircurrent wholesale market price, not the cost of the particular items he happens tohave on his shelves, which may have been bought at higher or lower prices.

When the reference shifts from common speech into the technical realm,the incumbents still have to attack uphill. To begin with, even when we have

(C38744:11 ) 28

providing generation-related capacity service from CRES providers is to occur through an

application to FERC, not the Commission.87

Neither Sections 4905.04, 4905.05 and 4905.06, Revised Code, nor the RAA provide the

Commission with the authority to invent and apply a cost-based ratemaking methodology to

increase the compensation AEP-Ohio receives for generation capacity service. The

Commission's subject matter jurisdiction is set by the General Assembly.88 As demonstrated

previously, the General Assembly has not delegated authority to the Commission to invent or

apply a cost-based ratemaking methodology to substantially and uniquely increase the

compensation available to AEP-Ohio for generation capacity service available to CRES

providers operating in AEP-Ohio's service area.89 Because there is no basis in Ohio law for the

Commission to assert jurisdiction, through the RAA, to invent or apply a cost-based ratemaking

methodology to substantially and uniquely increase compensation available to AEP-Ohio for

generation capacity service available to CRES providers, the RAA standing alone cannot extend

the jurisdiction of the Commission to permit it to authorize increase AEP-Ohio's compensation

for the generation capacity service it provides CRES providers.90 The Commission and AEP-

dealt with historical costs as a ratesetting basis, the cases have never assumed asense of"cost" as generous as the incumbents seem to claim.

87 RAA, Schedule 8.1, § D.8 (Appx. at 123).

88 City of Washington v. Pub. Util. Comm., 99 Ohio St. 70, 72 (1918); see also Federal Deposit

Insurance Corp. v. Board of Finance and Revenue, 84 A.2d 495, 499 (Pa. Sup. Ct. 1951) (an

agency cannot confer jurisdiction on itself).

89 The General Assembly on occasion has indicated that the Commission must apply federal lawas part of its regulatory decision-making. Section 4928.12, Revised Code, (requiring transfer of

control of transmission facilities to a FERC-approved RTO). See, also, Section 4927.15,

Revised Code, (9-1-1 Service governed by rules adopted by the Commission and Federal

Communications Commission).

90 Fox v. Eaton Corp., 48 Ohio St.2d 236, 238 (1976); In re Kerry Ford, Inc., 106 Ohio App.3d

643, 651 (10th Dist. Ct. App. 1995).

(C38744:111 29

Ohio, therefore, have failed to demonstrate that there is no basis alleged in the Complaint on

which the Court may issue orders issuing the writs of prohibition and mandamus.

5. The Commission is patently and unambiguously without authority toestablish non-bypassable charges to recover the Deferred Increase.

The Commission and AEP-Ohio claim that the Complaint should be dismissed because

the Commission lawfully authorized the non-bypassable RSR under Section 4928.143(B)(2)(d),

Revised Code, a section that applies to only retail prices.91 AEP-Ohio further argues that the

additional Capacity Shopping Tax that the Commission authorized under Section 4928.144,

Revised Code, "hinges" on the RSR. As demonstrated by the allegations in the Complaint,

however, the Commission lacks the authority to authorize either of these unlawful charges.

The Commission and AEP-Ohio's reliance on Section 4928.143(B)(2)(d), Revised Code,

to claim that the Commission had authority to issue the RSR does not demonstrate that the

Complaint fails to allege any theory on which the Court may issue the relief IEU-Ohio has

requested. Section 4928.143(B)(2)(d), Revised Code, itself does not explicitly provide the

Commission authority to authorize a non-bypassable charge to collect an above-market increase

in compensation for generation-related capacity service.

Further, Section 4928.143(B)(2), Revised Code, must be read in light of the prohibition

on the recovery of transition revenue. As alleged in the Complaint, the Commission's

authorization of the RSR and the Capacity Shopping Tax authorize AEP-Ohio to recover an

increasein compensation that could not be recovered through the auction process that establishes

93RPM-Based Prices 92 This additional compensation is nothing other than transition revenue.



93 Under Ohio law related to the transition period created by Amended Substitute Senate Bill 3,

an electric utility was permitted to file an application seeking transition revenue for allowable

{C38744:11 } 30

Sections 4928.141 and 4928.38, Revised Code, specifically preclude the recovery of transition

revenue, and there is no exception in Section 4928.143(B)(2), Revised Code, that would pennit

AEP-Ohio to recover generation-related transition revenue that is precluded by Sections

4928.141 and 4928.38; Revised Code.

Additionally, the collection of a part of the Deferred Increase through the RSR violates

the statutory prohibition on recovering generation-related costs through transmission or

distribution rates. Section 4928.02(H), Revised Code, states that it is the policy of the State to

ensure effective competition in the provision of retail electric service "by prohibiting the

recovery of any generation-related costs through distribution or transmission rates." The

Commission previously concluded that a non-bypassable generation-related charge, i. e., a charge

collected from all distribution service customers, is prohibited by Section 4928.02(H), Revised

Code 94 In the ESP II Case, however, the Commission ignored Section 4928.02(H), Revised

Code, as well as its prior decision and authorized the recovery of the Deferred Increase. It did so

without legal authority.

Moreover, under Section 4928.143(B)(2), Revised Code, the Commission may only

authorize provisions of an ESP that "fit within one of the categories listed."95 Only two

subdivisions allow for the establishment of a non-bypassable charge as part of an ESP, Sections

4928.143(B)(2)(b) and (c), Revised Code. These provisions allow for a non-bypassable charge

for construction work in progress ("CWIP") and newly constructed generating facilities provided

transition costs. Among other requirements, transition costs are those "costs ... unrecoverable in

a competitive market." Section 4928.39(C), Revised Code.

94 In the Matter of the Application of Ohio Power Company for Approval of the Shutdown of UnitRider, Case No. 10-

5 of the Philip Sporn Generating Station and to Establish a Plantat 264).1454-EL-RDR, Finding and Order at 19 (Ja_n_. 11, 2012) (App x. )•

95 In re Columbus Southern Power Co., 128 Ohio St.3d 512, 520 (2011).

{C38744:11 } 31

that the statutory conditions are satisfied. The RSR, however, was not authorized under either of

these provisions. Thus, the Commission and AEP-Ohio's reliance on Section 4928.143(B)(2)(d),

Revised Code, which, again, applies to retail prices (not wholesale prices), if it applies at all,

does not demonstrate that the Complaint should be dismissed.

AEP-Ohio's reliance on Section 4928.144, Revised Code, to justify its claim that the

Commission had authority to authorize the Capacity Shopping Tax also is misplaced. The

Commission may authorize the phase-in of a rate or price approved as part of an ESP through a

non-bypassable charge under Section 4928.144, Revised Code. If the Commission authorizes a

phase-in under that Section the Commission may then establish a non-bypassable charge to

collect the "incurred costs" deferred for future collection. The increase of generation-related

capacity service compensation that will be collected through the Capacity Shopping Tax,

however, is not the result of a rate or price approved as part of an ESP.

As alleged in the Complaint,96 the Commission authorized an increase in compensation

for AEP-Ohio that is reflected in the $188.88/MW-day price for capacity service available to

CRES providers serving retail customers in the AEP-Ohio service territory, based on the cost-

based ratemaking methodology that the Commission invented. In the Capacity Case, the

Commission directed AEP-Ohio to recover part of the total capacity compensation from CRES

providers by billing CRES providers the RPM-Based Price.

The Capacity Casethen dumped the portion of the total compensation increase not billed

to CRES providers (the Deferred Increase) into the fully-litigated ESP II Case. In the ESP II

Case,the Commission then proceeded to establish two non-bypassable charges (payable by


(C38744:11 ) 32

shopping and non-shopping customers alike) to fund the Deferred Increase portion of the total

compensation increase.

As explained above, the total compensation increase for generation-related capacity

service was not authorized by the Commission under Sections 4928.141 to 4928.143, Revised

Code; tlius, Section 4928.144, Revised Code, is inapplicable. The non-bypassable charge

opportunity provided by the phase-in mechanism of Section 4928.144, Revised Code, is clearly

limited to a rate or price established under Sections 4928.141 to 4928.143, Revised Code. Thus,

the Commission was without authority to authorize the Capacity Shopping Tax.

Once again, IEU-Ohio's Complaint alleges facts in support of its claim which entitle it to

the relief requested. The Complaint demonstrates that the Commission is patently and

unambiguously prohibited from authorizing the non-bypassable collection of the Deferred

Increase as part of an ESP through the RSR or the Capacity Shopping Tax.

6. AEP-Ohio's claim that the Complaint should be dismissed becausethe Court should not issue a writ of prohibition to correct amisapplication of a statute of limitations is meritless.

AEP-Ohio's motion to dismiss also claims that the Court should dismiss the Complaint

because IEU-Ohio's claim that Ohio law prohibits AEP-Ohio from collecting transition revenue

is nothing more than a dispute over the application of a statute of limitations, which AEP-Ohio

alleges is not a proper basis for a writ of prohibition.97 AEP-Ohio misstates IEU-Ohio's

allegations, and AEP-Ohio's description of the statutory bar contained in Section 4928.38,

Revised Code, as a statute of limitations is wrong.

97 AEP-Ohio Motion to Dismiss at 20-21 (arguing that a writ of prohibition cannot be issued toaddress a misapplication of a statute of limitations based on the 90-day window for anapplication seeking transition revenue under Section 4928.32, Revised Code).

33{C38744:11 }

As the Complaint states, "[t]he Commission is without authority to increase electric

prices to permit AEP-Ohio to bill and collect generation-related transition revenue or any

equivalent revenue except as specifically authorized in Sections 4928.31 to 4928.40, Revised

Code," and that recovery is now barred by law.98 The Complaint relies upon Section 4928.38,

Revised Code, which prohibits the Commission from authorizing transition revenue or its

equivalent after December 31, 2005: "The commission shall not authorize the receipt of

transition revenues or any equivalent revenues by and electric utility ... ."99 The bar on the

authorization of transition revenue is jurisdictional. Just as the Commission may no longer

supervise or regulate retail electric services declared competitive under Section 4928.03, Revised

Code, it may no longer authorize transition revenue under the terms of Section 4928.38, Revised

Code. And Section 4928.141, Revised Code, confirms that an SSO, whether in the form of an

ESP or a market rate offer ("MRO"), does not provide an opportunity to bypass this

prohibition.too Because the bar on authorizing transition revenue is jurisdictional, IEU-Ohio's

Complaint has alleged facts that entitle it to the requested relief.

7. AEP-Ohio's claim that FERC will determine the reasonableness ofthe Commission's invented capacity compensation level and recoveryis irrelevant to IEU-Ohio's right to writs of prohibition and

mandamus.

AEP-Ohio states that the compensation and pricing the Commission established for

generation-related capacity service are subject to FERC review under Section 205 of the Federal

Power Act because it is a wholesale price.101 According to AEP-Ohio, it may not charge a price

for this service until it is approved by FERC, notwithstanding the fact that AEP-Ohio is already

98 Complaint at 22.

99 Section 4928.38, Revised Code.

1oo Section 4928.141, Revised Code.

101 AEP-Ohio Motion to Dismiss at 21.

{c38744:11 } 34

billing the portion of the generation capacity compensation increase that is embedded in the

RSR.102 AEP-Ohio then states that "there is a significant question present regarding either

compliance with, or preemption by, federal law regarding the [State Compensation

Mechanism]," but "there is no need or justification for addressing the federal law issues prior to

,e103

the Commission issuing its final orders in the proceedings below.

AEP-Ohio's argument provides no support for its motion to dismiss. Initially, it does not

address IEU-Ohio's Complaint which demonstrates that the Commission, a creature of state

statute, is not authorized under Ohio law to invent and apply a cost-based ratemaking

methodology to substantially increase AEP-Ohio's compensation for generation-related capacity

service. If anything, AEP-Ohio's argument demonstrates that the Commission does not have

jurisdiction to do so because FERC will have the final say under Section 205 of the Federal

Power Act.

io2 Id. at 22.

103 Id,at 23. AEP-Ohio also states that the Commission has addressed intrastate telephone

services in the past under Chapter 4905 and 4909, Revised Code.Id. at 24. In the

Telecommunications Act of 1996, Congress adopted a "hybrid jurisdictional scheme with theFCC setting a basic, default methodology for use in setting rates when carriers fail to agree, but

leaving it to state utility commissions to set actual rates °"Verizon Communications;Inc. v.

Federal Communications Comm.,535 U.S. 467, 489 (2002). For instance, the Federal

Communications Comniission is authorized to prescribe procedures that state commissions are touse to set rates for unbundled network elements. 47 U.S.C. § 252. Ohio law requires theCommission to comply with federal statutes and regulations. Section 4927.16, Revised Code.These procedures carry no requirement that the Commission use "embedded cost" to set the priceof unbundled network elements. Thus, AEP-Ohio's claim that telephone regulation providessupport that the Commission can invent and apply a cost-based ratemaking methodology toincrease its compensation for generation-related capacity services is not supported by reference

to telephone service regulation.Verizon Communications, Inc. v. Federal Communications

Comm., supra(rejecting challenge of an FCC-approved ratemaking methodology that was not

based on embedded cost). As a creature of statute, the Commission must comply with the

statutory requirements applicable to retail electric service.In re Columbus Southern Power Co.,

128 Ohio St.3d at 520.

35{C38744:11 }

Moreover, AEP-Ohio's attempt to preserve its claim that the Commission is preempted

from regulating the price AEP-Ohio may charge CRES providers for capacity service has led it

into nonsensical and inconsistent positions. As noted in the Complaint and now in its motion to

dismiss, AEP-Ohio has repeatedly stated that the Commission has no jurisdiction to regulate the

compensation that AEP-Ohio may obtain for generation capacity service available to CRES

providers under either state or fede'ral law. Yet, it also argues that the Complaint should be

dismissed because the Commission has jurisdiction to invent and apply a cost-based ratemaking

methodology for the purpose of substantially increasing the compensation AEP-Ohio may collect

for generation capacity service available to CRES providers. AEP-Ohio's inability to identify a

coherent position in its motion to dismiss demonstrates that it, the only beneficiary of the

Commission's unlawful orders, understands that the Commission acted well beyond its authority.

Now, in its self-interest, AEP-Ohio is scrambling to find a way to legitimize what the

Commission has done or fend off efforts by injured customers to block the Commission's

unauthorized actions as they are manifested in the electric bill increases that arrived beginning in

September. It is clear that AEP-Ohio likes the outcome approved by the Commission (higher

electric bills) and is looking to do whatever it takes to preserve this Commission-sanctioned

outcome or move to preempt Ohio's role in defining compensation for generation capacity

service available to CRES providers in the event the Commission's actions are judged to be

outside the law. AEP-Ohio wants the Commission to have jurisdiction only if the Commission

indulges AEP-Ohio's demands.

AEP-Ohio's claims about what FERC must yet do to validate any generation capacity

service compensation increase awarded by the Commission show that AEP-Ohio believes that it

can yet turn to FERC in the event that IEU-Ohio's Complaint is sustained. The RAA, and

(c38744:11 ) 36

specifically Section D.8 of Schedule 8.1, references a Section 205 action under the Federal

Power Act and AEP-Ohio presently has such an action pending before FERC. To the extent that

AEP-Ohio proceeds with a Section 205 action, IEU-Ohio and other parties will have the ability

to protest proposed changes in capacity pricing and do it before the federal agency that has clear

and unambiguous authority over the wholesale capacity service available to CRES providers and

the capacity service which is relied upon by AEP-Ohio, the EDU, to meet the default generation

supply requirements of its SSO customers.

D. The Commissionand AEP-Ohio's Claim that IEU-Ohio Has an AdequateRemedy at Law Is Meritless

The Commission claims the Court should dismiss the Complaint because IEU-Ohio has

an adequate remedy at law by way of appeal. In support of its claim, the Commission argues that

prohibition is not a substitute for appeal,104 that there is a comprehensive scheme for

Commission and Court review of the Commission's orders,tos and that the lack of a right to

refund while the appellate process proceeds does not demonstrate that the appellate remedy is

inadequate.106 AEP-Ohio makes identical claims.107 Additionally, the Commission advances the

claim that IEU-Ohio must "exhaust administrative remedies."108 AEP-Ohio further argues that

the Court should dismiss the Complaint because a writ of prohibition would be "unfair to the

Court and the Commission" and so that the Court can review the jurisdictional basis of the

Commission's unlawful actions on a "complete record."' 09

1 04 Commission Motion to Dismiss at 12.

105 Id

106Id.at13.


108 Commission Motion to Dismiss at 13-14.


{C38744:11 } 37

Initially, the Commission and AEP-Ohio's claim that there is a comprehensive scheme of

appellate review ignores the question of whether the Commission has jurisdiction to invent and

apply a cost-based ratemaking methodology to significantly increase AEP-Ohio's compensation

for generation-related capacity service which they claim is non-competitive and a wholesale

service in any event. Because the Commission patently and unambiguously lacks such

jurisdiction, the availability of an adequate remedy of law is immaterial to the Court's authority

to grant a writ of prohibition.l lo Further, the Court may and should issue a writ of mandamus

directing the Commission to correct the results of any jurisdictionally unauthorized actions

because of the Commission's patent and unambiguous lack of jurisdiction.111

Even if there were some support for the Commission and AEP-Ohio's claim that the

Court should consider the availability of an adequate remedy in deciding the motions to dismiss,

the administrative and appellate process available to IEU-Ohio does not provide an adequate

remedy at law. The Commission and AEP-Ohio offer that the Commission lacks authority to

order refunds for amounts AEP-Ohio illegally collects should the Commission be reversed

through the normal appeal process.I12 During the ESP II term alone, delay can translate into an

increase of $144 million paid by both shopping and non-shopping customers.li3 Further,

because the Commission has repeatedly granted rehearing in the Capacity Case to give itself

more time to consider the same challenges that have been before the Commission since early

io State ex rel. Adams v. Gusweiler, 30 Ohio St.2d 326, 329 (1972). See also State ex rel.

Osborn v. Jackson, 46 Ohio St.2d 41, 51-52 (1976).

iii State ex rel. State Fire Marshall v. Curl, 87 Ohio St.3d 568, 569 (2000).



{C38744:11 } 38

2011 and has now granted rehearing in the ESP II Case to the same end,l Ia the Commission can

frustrate and has thwarted the appellate review that would afford customers an opportunity to

hold the Commission accountable for compliance with Ohio law.115

114 Section 4903.10, Revised Code, states that an application for rehearing is denied by operationof law unless the Commission grants rehearing within thirty days. On January 7, 2011, AEP-

Ohio filed an application for rehearing in the Capacity Case asserting, among other things, that:

"The Commission's Entry establishing an interim wholesale capacity rate is unreasonableand unlawful because the Commission is a creature of statute and lacks jurisdiction underboth Federal and Ohio law to issue an order affecting wbolesale rates regulated by the

Federal Energy Regulatory Commission." Capacity Case, Ohio Power Company's and

Columbus Southern Power Company's Application for Rehearing at 3 (Jan. 7, 2011)(Appx. at 357). The Commission granted AEP-Ohio's January 7, 2011 application forrehearing on February 2, 2011 for "further consideration" and has done nothing since.The numerous applications for rehearing filed by IEU-Ohio and other parties since the

Capacity Case was initiated have suffered a similar fate. As these rehearing applicationsare granted "for further consideration," the Commission has nonetheless awarded AEP-

Ohio significant rate increases. Complaint at 11-14.

115 Even if the Commission ordered rates collected subject to refund, customers may sufferirreparable harm. The Commission has ordered rates collected subject to refund, but it failed to

direct AEP-Ohio to refund the amounts determined to be illegally collected. In 2005, AEP-Ohiofiled and the Commission approved an application seeking recovery of preconstruction costs for

a planned Integrated Gas Combined Cycle ("IGCC") generating facility, In the Matter of the

Application of Columbus Southern Power Company and Ohio Power Company for Authority to

Recover Costs Associated with the Construction and Ultimate Operation of an Integrated

Gasification Combined Cycle Electric Generating Facility, Case No. 05-367-EL-UNC,

Application (Mar. 18, 2005) ("IGCC Proceeding"), but ordered the amounts collected reilanded

if AEP-Ohio had not "commenced a continuous course of construction of the proposed facilitywithin five years of the date of issuance of this entry on rehearing, all Phase I charges collectedfor expenditures associated with items that may be utilized in projects at other sites, must be

refunded to Ohio ratepayers with interest:" IGCC Proceeding, Entry on Rehearing at 16 (June

28, 2006) (emphasis added). In an appeal, the Court held that the "evidence does not support theorder permitting [AEP-Ohio] to recover the costs associated with the research and developmentof the proposed generation facility," and remanded the case back to the Commission for further

proceedings. Indus. Energy Users-Ohio v. Pub. Util. Comm., 117 Ohio St.3d 486, 2008-Ohio-

990 at ¶¶ 34-37. AEP-Ohio successfully argued that the Commission should not consider issues

on remand for five years because of the terms of the original order. IGCC Proceeding, Motion

for Schedule, on Remand from the Supreme Court of Ohio, to Provide a Refund of Revenues thatAEP Collected from Customers by the Office of the Ohio Consumers' Counsel, IndustrialEnergy Users-Ohio, Ohio Energy Group, and Ohio Partners for Affordable Energy at 2-3 (June28, 2011). After five years, the Commission has not ordered refunds despite several requests.Id.; In the Matter of the Application of Columbus Southern Power Company and Ohio Power

Company for a Certifzcate of Environmental Compatibility and Public Need to Construct an

{C38744:11 } 39

The Commission's additional claim that IEU-Ohio must exhaust administrative remedies

is incorrect and unsupported.116 Because the Commission lacks any jurisdiction to invent and

apply the cost-based ratemaking methodology to significantly increase AEP-Ohio's

compensation for generation capacity service, the Court can prohibit the Commission from

taking any further actions and order the Commission to correct those actions it has already taken

based on that unlawful exercise of authority. There is no requirement that the Relator exhaust

administrative review before the Court acts to prevent the continuing unlawful assertion of

jurisdiction. If the Commission is without jurisdiction, the Court may act to suspend the orders

the Commission has granted and IEU-Ohio need not seek relief through the appellate process.

AEP-Ohio's claim that the Court should dismiss the Complaint because the Commission

has not completed its rehearing process is a variation on the Commission's argument that IEU-

Ohio must exhaust its administrative remedies and is equally meritless. The only explanation

AEP-Ohio offers for further delay is that the Court should have a "complete record." The

evidentiary process afforded by the Court's rules regarding original actions, however, will afford

all parties sufficient opportunity to provide the Court the record it needs to issue a final order

prohibiting the Commission from unlawfully exercising jurisdiction.117 Further, the record

includes cost and other price-related information that is not relevant to the fundamental issue of

the Commission's jurisdiction to invent and apply a cost-based ratemaking methodology to a

Electric Generation Facility in Meigs County, Ohio, Case Nos. 06-30-EL-BGN, et al., Entry at

2-3 (July 30, 2012) (cancellation of siting approval).

116 The two cases the Commission cites in its brief to support its "exhaustion" argument do not

concetn a complaint seeking a writ of prohibition. Jones v. Village of Chagrin Falls, 77 Ohio

St.3d 456 (1997 (declaratory judgment action); Basic Distribution Corp. v. Ohio Dept. of

Taxation, 94 Ohio St.3d 287 (2002) (taxpayer complaint based on Section 5703.54, Revised

Code).

117 Sup.Ct. Prac. R. 10.7.

{C38744:11 1 40

competitive retail electric service for the purpose of authorizing a significant increase in the

compensation available to AEP-Ohio for generation capacity service available to CRES

providers, to violate the prohibitions on granting AEP-Ohio additional transition revenue, to

resort to Section 4928.144, Revised Code, to "phase-in" a rate or price not established in an ESP

proceeding, or to resort to non-bypassable charges to guarantee that AEP-Ohio collects the

unlawful Deferred Increase for a "wholesale", "non-competitive" service from retail customers.

Thus, the motions to dismiss do not support the Commission and AEP-Ohio's claim that

the Court should dismiss IEU-Ohio's Complaint because it has an adequate remedy at law.

Under the applicable law, the availability of an adequate legal remedy is immaterial when the

Commission patently and unambiguously lacks jurisdiction. Even if IEU-Ohio were required to

show that it does not have an adequate remedy at law, the Court cannot fairly and justly find that

IEU-Ohio has such a remedy. As outlined in the Complaint and accepted as true by the

Commission, the appellate rights on which the Commission and AEP-Ohio place so much weight

are stymied by the Commission's practice of granting rehearing in perpetuity for the purpose of

giving the Commission more time to consider applications for rehearing. As discussed above,

the Commission first granted rehearing to further consider AEP-Ohio's challenges to its

jurisdiction in the Capacity Case on February 2, 2011, and the Commission has done nothing

further since. While the Commission strains to evade and delay a determination that it lacks

jurisdiction to invent and apply a cost-based ratemaking methodology to increase AEP-Ohio's

compensation for generation-related capacity service available to CRES providers, all AEP-Ohio

customers will suffer substantial financial losses. In the event IEU-Ohio's Complaint is

sustained, AEP-Ohio will undoubtedly fully explore the opportunities it may have under the

Federal Power Act to secure "just and reasonable" compensation for such service.

{c38744:11 } 41

E. The Commission and AEP-Ohio's Claim that IEU-Ohio Is Not Entitled to a

Writ of Mandamus Is Meritless

The Commission and AEP-Ohio claim that IEU-Ohio is not entitled to a writ of

mandamus in this proceeding. Initially, the Commission and AEP-Ohio generally argue that

IEU-Ohio failed to allege grounds supporting mandamus and more specifically failed to claim

that IEU-Ohio has an inadequate remedy at law. ' 18 Neither claim is correct.

Under law applicable to the Complaint, a writ of mandamus is appropriate to correct the

errors the Commission has committed prior to the issuance of a writ of prohibition if the

Commission is patently and unambiguously without jurisdiction, as is the case here.19

Therefore, the Court may and should issue the writ of mandamus directing the Commission to

correct those orders issued without authority prior to the issuance of the writ of prohibition.

Further, the Complaint alleges facts that satisfy the requirements for a writ of mandamus.

To support issuance of a writ of mandamus, the relator must show that the respondent has a clear

legal duty to perform a requested act, the relator has a legal right to the relief, and the relator has

no adequate remedy at law.120 In satisfaction of the first and second requirements, IEU-Ohio has

alleged in the Complaint that the Commission is without jurisdiction to authorize AEP-Ohio to

collect above-market compensation for generation capacity service, to invent and apply a cost-

based ratemaking methodology for purposes of increasing AEP-Ohio's compensation for such

service if classified as a competitive service (as it should be) or, in the event generation capacity

service is classified as a non-competitive electric service, to authorize a significant increase in

AEP-Ohio's compensation for such service without first complying with the substantive and

11$ Commission Motion to Dismiss at 15; AEP-Ohio Motion to Dismiss at 29.

119 State ex rel. State Fire Marshall v. Curl, 87 Ohio St.3d 568, 569 (2000).

120 Sections 2731.01 & 2731.05, Revised Code; State ex rel. Bennett v. Board of Educalion, 56

Ohio St.3d 1 (1990).

{C38744:11 1 42

procedural requirements applicable to rate increases for non-competitive services. Further, the

Complaint alleges that IEU-Ohio has sought relief from the Commission's unlawful assertion of

jurisdiction and the Commission has refused to grant the requested relief by unlawfully denying

IEU-Ohio's motion to dismiss filed before the evidentiary hearing in the Capacity Case began,

has granted rehearing requests for fiirther consideration without correcting the legal violations,

and has ultimately held that it can invent and apply a cost-based ratemaking methodology in the

Capacity and ESP II Cases.

As to the third requirement that the relator lacks an adequate remedy at law, IEU-Ohio

need not demonstrate that it is without an adequate legal remedy because the Commission is

patently and unambiguously without jurisdiction to issue orders inventing and applying a cost-

based ratemaking methodology for purpose of increasing AEP-Ohio's compensation for

generation capacity service. But in any case, IEU-Ohio's legal remedy, an appeal, has been

frustrated by the Commission's practice of granting rehearing without ever reaching the merits,

and the Commission and AEP-Ohio state that customers will not be able to obtain refunds of

amounts AEP-Ohio is illegally authorized to charge as part of the normal appeal process. Thus,

the Commission and AEP-Ohio's claim that IEU-Ohio has failed to make out a claim for a writ

of mandamus is incorrect.

Additionally, the Commission argues that the Complaint should be dismissed based on

the prayer for relief requesting that the Court direct the Commission to restore prices to the levels

set by the RPM-Based Pricing method. According to the Commission, this request for relief

"concedes ... that Respondents have jurisdiction to authorize a capacity rate and state

compensation mechanism for AEP-Ohio "1z1 Further, the Commission argues that IEU-Ohio

121 Commission Motion to Dismiss at 15.

{c38744:11 } 43

concedes that it has alleged only a procedural error that should be addressed by the appellate

process by requesting that the Court issue an order requiring the Commission to comply with

ratemaking statutes if the Court finds that the Commission has authority to set a cost-based

ratemaking methodology under Ohio law.1Z2

As is clear from the Complaint and supporting memorandum, the Commission's motion

misstates IEU-Ohio's Complaint. The Complaint seeks a determination that the Commission

was without authority to invent and apply a cost-based ratemaking methodology to increase

AEP-Ohio's compensation for generation-related capacity services and then to authorize AEP-

Ohio to require all retail customers to pick up the tab for the Deferred Increase through the non-

bypassable RSR and Capacity Shopping Tax. If the Court issues writs of prohibition and

mandamus, current Commission orders will have to be corrected and the future effects of the

Commission's Capacity and ESP II Orders vacated. While the Commission has left CRES

providers in the position they would have been but for the Commission's unlawful assertion of

jurisdiction to invent and apply a cost-based ratemaking methodology, the retail customers of

AEP-Ohio will pay millions of dollars to AEP-Ohio that the Commission could not legally

authorize. Unless the Court issues the requested relief, there is no effective means to remedy the

Commission's actions. Rather than being some sort of concession to the views expressed by the

Commission and AEP-Ohio, the requested relief is necessary because the Commission has

refused to acknowledge and operate within its jurisdictional mandate and issued decisions in the

Capacity Case and the ESP II Case that must be corrected.

F. AEP-Ohio's Claim that the Complaint Is Barred by Laches Is Meritless

122 Id. at 16.

{C38744:11 } 44

On one hand, the Commission accuses IEU-Ohio of not exhausting its administrative

remedies. At the same time, AEP-Ohio claims that IEU-Ohio should have come to the Court

sooner. According to AEP-Ohio, IEU-Ohio, "[w]ithout any excuse, and to the material prejudice

of AEP Ohio, ... has unreasonably delayed seeking this Court's intervention to prohibit

Commission proceedings."123 AEP-Ohio's factual claims and legal argument are without merit.

As a result, AEP-Ohio argues that the Complaint is barred by laches.

AEP-Ohio has failed to demonstrate that IEU-Ohio unreasonably delayed filing the

Complaint. According to AEP-Ohio, IEU-Ohio sat on its claim for nearly two yearslZ4 and fails

to "justify why it waited two years to seek prohibition and mandamus."125 Additionally, AEP-

Ohio argues that IEU-Ohio should have acted sooner because it was aware of the Commission

investigation that resulted in the Capacity Order and the ESP II Case and participated in both.

As demonstrated by the Complaint, generation-related capacity service was priced at the

default RPM-Based Price until January 1, 2012,126 because the Commission agreed with the

positions advanced by IEU-Ohio.127 Deviation from RPM-Based Pricing for capacity as such

pricing applied to CRES providers first occurred January 1, 2012. On February 23, 2012, the

Commission rescinded its decision allowing AEP-Ohio to move away from RPM-Based Pricing

and directed AEP-Ohio to restore RPM-Based Pricing. When AEP-Ohio refused to comply with

the Commission's order, however, the Commission relented and authorized the continuation of

the arbitrary two-tiered pricing structure for generation-related capacity service.


124 jd. at 30.

"s Id. at 31.

126 Complaint at 9; see, also, Capacity Case, Entry (Dec. 12, 2010) (Appx. at 352).

127Id.

(C38744:11 ) 45

The Commission did not invent and apply a cost-based ratemaking methodology to

determine compensation for generation-related capacity service until it issued the July 2, 2012

order in the Capacity Case. 128 The Commission did not explain how or when AEP-Ohio would

recover the difference between the RPM-Based Price it authorized AEP-Ohio to charge CRES

providers and the $188.88/MW-day price until it issued its order in the ESP II Case on August 8,

2012, effective with the September 2012 billing cycle.129

IEU-Ohio filed this Complaint on August 31, 2012, 23 days after the Commission issued

the ESP II Order.

At every stage of the Commission proceedings in which AEP-Ohio was eventually

successful, one installment after another, in evading the Commission's direction to restore RPM-

Based Pricing, IEU-Ohio and other parties strenuously objected to any action by the Commission

that would allow AEP-Ohio to move away from RPM-Based Pricing whether the movement

resulted in hardship on CRES providers or more directly on ultimate customers. Until June

2012, AEP-Ohio's movement away from RPM-Based pricing was limited to those shopping

customers not eligible for the RPM-Based Price that applied to the first tier of shopping

transactions and customers in aggregation programs.130 Thus, AEP-Ohio's claim that IEU-Ohio

unreasonably delayed filing its complaint is frivolous and groundless.131

AEP-Ohio also argues that it will be prejudiced if the unwarranted and unlawful rate

increases produced by the Commission's decisions in the Capacity Case and the ESP II Case are

1 21jd. at 15-16; Capacity Order at 24-36 (Appx. at 224-36).

129Id. at 23 (Appx. at 223); ESP II Order at 36 & 51-52 (Appx. at 304 & 319-20).


131 "Delay" measured in years between the unlawful assertion of jurisdiction and the filing of a

complaint seeking an original writ is not unreasonable. State ex rel. Ohio Dept. of Mental Health

v. Nadel, 98 Ohio St.3d 405 2003-Ohio-1632 (two and a half years); Conin v. Bailey, 15 Ohio

St.3d 34 (1984) (35 years).

{c38744:1i } 46

halted.132 It claims that it has expended considerable time and effort on the Commission

proceedings and a stay of the Commission's unlawful orders would have financial consequences

to it.133 AEP-Ohio's claim that the Commission's orders should be maintained because it has

expended considerable resources pursuing Commission orders establishing and applying a cost-

based ratemaking methodology is clearly at odds with its claim, advanced throughout the

proceedings before the Commission and FERC, that the Commission does not have jurisdiction

to regulate wholesale generation capacity service prices.134 AEP-Ohio cannot be unreasonably

burdened if the Court vacates orders that AEP-Ohio itself has stated the Commission is without

authority to issue.

Moreover, AEP-Ohio has not asserted facts that would demonstrate the type of prejudice

recognized under the doctrine of laches. To demonstrate prejudice, the respondent must show

that evidence helpful to defend itself has been lost due to the passage of time or that it has

changed its position in a manner that would not have occurred had the relator not delayed in

asserting its claim.13s

In its motion to dismiss, however, AEP-Ohio does not claim it is prejudiced on either

basis. First, AEP-Ohio does not make any claim that it will not be able to secure the evidence it

needs to present its defense to the Complaint, nor could it. Second, AEP-Ohio's claim that it

may suffer a financial injury if the writs are granted does not meet the factual requirements

necessary to show prejudice. If the Court issues an alternative writ or writs directing the

Commission to stay its unlawful assertion of jurisdiction, total compensation for generation


i33 Id. at 32-33.

13" Complaint at 11-12; AEP-Ohio Application for Rehearing at 3 (Appx. at 357).

135 State ex rel. Badgett v. Mullen, 177 Ohio App.3d 27, 47 (4th Dist. Ct. App. 2008). See State

ex rel. King v. Summit County Council, 99 Ohio St.3d 172, 176 (2003).

{C38744:11 } 47

capacity service would return to the default RPM-Based Prices pursuant to the FERC-approved

RAA, the same result that would yet be in place but for the Commission's unlawful action.

RPM-Based Pricing is the same compensation mechanism that AEP-Ohio agreed to as part of its

execution of the RAA and is in place everywhere else in Ohio where retail customers have the

right to select their supplier of retail electric service. AEP-Ohio, therefore, is placed in no worse

position than it would have been but for the Commission's unlawful assertion of jurisdiction.

Further, any financial injury that results when the Court grants the requested writs would

not be because of any delay caused by IEU-Ohio, but rather by AEP-Ohio's decision to pursue

an unlawful cost-based compensation mechanism while also claiming that the Commission

lacked jurisdiction to regulate wholesale generation capacity service. Over AEP-Ohio's own

claim that the Commission lacked jurisdiction to set capacity prices, it and the Commission Staff

presented the evidence on which the Commission applied its unlawful cost-based ratemaking

methodology to determine AEP-Ohio's compensation for generation-related capacity service.136

Nothing that IEU-Ohio did, despite its extensive efforts to have the Commission not invent and

apply a cost-based ratemaking methodology for generation-related capacity service, caused AEP-

Ohio to pursue a cost-based compensation mechanism at the Commission. Thus, any financial

harm AEP-Ohio suffers because of a Court order granting the alternative writ or writs of

prohibition and mandamus is the result of AEP-Ohio's actions and is the necessary consequence

of actions by the Commission that permit AEP-Ohio to unlawfully increase its compensation for

generation capacity service through the imposition of non-bypassable charges (the RSR and the

Capacity Shopping Tax) imposed on retail customers.

136 Capacity Order at 24-36 (Appx. at 224-36).

{C38744:11 } 48

Remedying unlawfully authorized increases may well eliminate the unlawfully obtained

benefit that is currently flowing to AEP-Ohio from shopping and non-shopping customers

through the RSR and prevent any future unlawful wealth transfer through the Capacity Shopping

Tax. But, AEP-Ohio is not entitled to be unlawfully enriched by the Commission at customers'

expense or to maintain the benefit of such unlawful enrichment simply because AEP-Ohio's one

shareholder may be better off.

III. CONCLUSION

For the reasons stated in this Memorandum in Opposition, the motions to dismiss by the

Commission and AEP-Ohio (if it is permitted to intervene) should be denied. The standard of

review applicable to motions to dismiss requires that the Complaint may not be dismissed unless

it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which

would entitle him to relief.

Among other things, the Complaint demonstrates that the Commission acted beyond its

authority by relying on its general supervisory authority in Chapter 4905, Revised Code, and its

ratemaking authority in Chapter 4909, Revised Code, when both of these sources of authority are

unavailable to the Commission in the case of any service declared competitive (such as

generation-related capacity service). The Complaint shows that, if generation-related capacity

service is classified as a non-competitive service, the Commission acted beyond its authority by

authorizing AEP-Ohio to collect a significant increase in compensation for such service without

following the procedural and substantive requirements in Chapter 4909, Revised Code. The

Complaint demonstrates that the Commission acted beyond its statutory authority by granting

AEP-Ohio additional transition revenue (above-market compensation for generation-related

service). The Complaint demonstrates that the Commission acted beyond its authority by

{C38744:11 1 49

authorizing AEP-Ohio to collect the Deferred Increase through non-bypassable charges (the RSR

and the Capacity Shopping Tax). The Complaint demonstrates that the Commission acted

beyond its authority by using Section 4928.144, Revised Code, to "phase-in" a price or rate that

was not authorized as part of an ESP. And, the Complaint shows the burden of the

Commission's unlawfully authorized increase in a "wholesale", "non-competitive" service is

falling on shopping and non-shopping retail customers currently through the RSR and will do so

in the future through the Capacity Shopping Tax.

Finally, as briefly noted above, the unlawful conduct of the Commission in the case of

AEP-Ohio has been noticed, with envy, by other EDUs. For example, on August 29, 2012, a few

weeks after the Commission's Capacity Order, Duke Energy Ohio, Inc. ("Duke"), also an FRR

Entity, filed an application137 with the Commission seeking what the Commission awarded AEP-

Ohio. Duke states that the Commission decisions in the Capacity and ESP II Cases entitle Duke

to an increase of some $776 million in compensation for generation capacity service payable

through non-bypassable charges applicable to shopping and non-shopping retail customers. On

October 3, 2012, the Commission issued a procedural schedule to address, through another

quasi-judicial process, the Duke application with comments due January 2, 2013, reply

comments due February 1, 2013, testimony due March 1, 2013 or March 19, 2013 depending on

a party's status and a hearing that is to commence on Apri12, 2013.138 Now, consumer

representatives and other parties must invest time and money to defend themselves from the

137 In the Matter of the Application ofDuke Energy Ohio, Inc., for the Establishment of a Charge

Pursuant to Revised Code, Section 4909.18, Case No. 12-2400-EL-UNC, et al., Application

(Aug. 29, 2012) (hereinafter, "Duke Capacity Case") (available at

http://dis.puc.state.oh.us/TiffI'oPDf/A 1001001 A12H29B61617D87661.pdf).

138 Duke Capacity Case, Entry (Oct. 3, 2012) (available athttp://dis.puc.state.oh.us/Tiffl'oPDf/A 1001001 AI 2J03B60509B08600:pdf).

{C38744:11 1 50

contagious aspects of the Commission's disregard for the limits of its authority in the AEP-Ohio

cases.

If the Commission's unlawful conduct is not stopped now, the ripple effects of the

Commission's disregard for the law will result in further senseless litigation, rehearings granted

by the Commission to avoid addressing jurisdictional challenges on the merits, a parade of

appeals (if the normal appeal process is the only option available), and on and on. In these

circumstances, it is proper, necessary, and in the public interest, based on the demonstration in

the Complaint and in light of the contagious consequences of the Commission's unlawfulness,

for the Court to hold the Commission accountable for failing to stay within the limits of Ohio

law and to do so forthwith.

Accordingly, IEU-Ohio urges the Court to deny the motions, issue the alternative writs

IEU-Ohio has requested, and direct the Commission and, if permitted to intervene, AEP-Ohio to

answer. Further IEU-Ohio requests the Court to set a schedule for filing evidence and briefs and

proceed to a final order granting the writs of prohibition and mandamus.

Respectfully

Samuel C. Randazzo, PSIT'(M7-6386)(COUNSEL OF RECORD)Frank P. Darr, Esq. (0025469)Joseph Oliker, Esq. (0086088)Matthew Pritchard, Esq. (0088070)McNees Wallace & Nurick LLC21 East State Street, 17ti' FloorColumbus, OH 43215-4228(614) 469-8000Fax No. (614) 469-4653

ATTORNEYS FOR RELATOR,dllTI2iJSTRdAL ENERCY USERS-OHIO

{C38744:11 } 51

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Industrial Energy Users-Ohio's

Memorandum in Opposition to Motions to Dismiss was served upon the parties of record this 5th

day of October 2012 via electronic transmission, hand-delivery, or ordinary U.S. mail, postage

prepaid.

Michael DeWine (0009181)Ohio Attorney General30 E. Broad Street, 17th FloorColumbus, OH 43215-3428(614) 466-4320

William Wright (0018010)Section Chief, Public Utilities SectionJohn H.Jones(0051913)(COUNSEL OF RECORD)Thomas W. McNamee (0017352)Public Utilities Commission of Ohio180 East Broad StreetColumbus, OH 43215(614) [email protected] ohn. j one s@puc. state. o h. [email protected]

ATTORNEYS FOR RESPONDENTS,THE PUBLIC UTILITIESCOMMISSION OF OHIO, et aL

Steven T. Nourse (0046705)(COUNSEL OF RECORD)Matthew J. Satterwhite (0071972)American Electric Power Corporation1 Riverside Plaza, 29tb FloorColumbus, OH 43215Telephone: 614-716-1608Fax: [email protected] [email protected]

Daniel R. Conway (0023058)James A. King (0040270)James B. Hadden (0059315)Porter, Wright, Morris & Arthur LLP41 South High StreetColumbus, OH 43215Telephone: 614-227-2000Fax: [email protected]@[email protected]

ATTORNEYS FOR INTERVENINGRESPONDENT, OHIO POWER

COMPANY

{C38744:11 }

Documents

Ohio Attorney General Public Utilities Commission of Ohio Section … Steven T. Nourse (0046705) (COUNSEL OF RECORD) Matthew J. Satterwhite (0071972) American Electric Power Corporation