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Court Affirms PUCO Decision Allowing Dominion to Exit Merchant Function

September 16, 2015 By Cheryl Kaften

On September 8, the Ohio Supreme Court affirmed [Slip Opinion No. 2015-OHIO-3627] a Public Utilities Commission of Ohio (PUCO) decision authorizing East Ohio Gas (d.b.a. Dominion East Ohio) to terminate its standard choice rate offer to commercial and industrial customers.

In doing so, the court took another step toward deregulation of the gas company’s commodity sale services – enabling Dominion to continue moving away from its merchant function to focus more on its fundamental role as a distribution-service provider.

The decision in favor of PUCO now clears the way for Dominion’s application to become a “pipes-only” company, first filed in 2005. Originally the utility had proposed that the transition could be completed in two steps:

  • First, the utility proposed an interim wholesale model, which would enable it to continue to provide commodity service using an auction process to obtain wholesale gas supplies.
  • Second, Dominion planned to transfer any remaining non-shoppers to third-party retail suppliers.

Only when the company realized in 2013 that many ratepayers were not interested in signing up with retailers did it consider motivating them to do so by withdrawing the option of the rock-bottom standard rate choice offer.

However, what some would characterize as forward progress for the utility and retailers immediately triggered significant pushback. Within weeks of PUCO’s 2013 final ruling discontinuing the standard choice offer for commercial and industrial customers, a consumer advocacy group, Ohio Partners for Affordable Energy (OPAE), challenged the decision in the Ohio Supreme Court.

In arriving at the decision to withdraw the standard choice rate, PUCO had modified one of its previous orders. On that basis, OPAE mounted a legal appeal on grounds that PUCO “lacked [both] statutory authority and an evidentiary basis to modify its previous order.” Indeed, OPAE claimed that PUCO and Dominion had acted illegally to limit competitive options for consumers.

The court did not accept that rationale  and now has dismissed the case — refusing to second-guess PUCO on its decision. The justices held that (1) Dominion was entitled to a modification of an exemption order under Ohio Rev. Code 4929.08(A); and (2) the order did not violate Ohio Rev. Code 4903.09.

“Whether Dominion’s requested modification is consistent with policy objectives – such as whether discontinuation of the standard choice offer will encourage innovation [R.C. 4949.02(A)(4)] or help achieve effective competition and transactions between willing buyers and willing sellers [R.C. 4929.02(A)(7)] – [these] are issues best-suited for the regulatory agency assigned to implement state policy,” the justices said. “We accord due deference to the agency’s ability to determine how best to further a competitive natural-gas market.”

They ruled, “The bottom line is that OPAE has not established that the commission ‘ignored,’ ‘deliberately mischaracterized,’ or ‘rewrote’ any prior order to reach its decision in this case.”

The court further stated that, in affirming PUCO’s order, it relied on the commission’s “stated willingness to re-establish the standard choice offer, if it later determines that Dominion’s exit from the merchant function is unjust or unreasonable for any customer class.”

Finally, while the case settled the dispute among Dominion, PUCO, and OPAE, some discord remained in the court: Three of the Supreme Court justices concurred on the ruling, but a dissenting opinion was written by Senior Associate Justice Paul Pfeifer, who said, “”The modification of the order makes commercial users guinea pigs for Dominion’s eventual withdrawal from the merchant function for residential customers.”

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