Summary
In Orr Felt, the Ohio Supreme Court determined that rates charged for electricity and steam by the city of Piqua were reasonable.
Summary of this case from Plymouth v. WillardOpinion
No. 81-1824
Decided January 5, 1983.
Municipal corporations — Municipal utility — Rates for sale of electric power and steam — "Fuel adjustment clause" — Alleged overcharges in billing — Power of municipality to regulate rates.
APPEAL from the Court of Appeals for Miami County.
The city of Piqua, Ohio, appellee, operates a municipal power plant pursuant to Section 4, Article XVIII of the Ohio Constitution. The plant generates electrical power and steam which is distributed to appellee's customers. On March 1, 1977, Orr Felt Company, appellant, filed a class action suit against appellee in the Court of Common Pleas of Miami County alleging that charges for electricity and steam were excessive to those authorized by law. Appellant sought to recover the excess charged together with attorney's fees. Appellee's answer was filed on April 15, 1977, and on April 27, 1977, the trial court filed an order finding that the action was maintainable as a class action. The class was defined to include all electric and steam customers of appellee from March 1, 1971, to April 27, 1977. Notice was provided to the class and some parties filed timely exclusion requests.
Section 4, Article XVIII of the Ohio Constitution provides:
"Any municipality may acquire, construct, own, lease and operate within or without its corporate limits, any public utility the product or service of which is or is to be supplied to the municipality or its inhabitants, and may contract with others for any such product or service. The acquisition of any such public utility may be by condemnation or otherwise, and a municipality may acquire thereby the use of, or full title to, the property and franchise of any company or person supplying to the municipality or its inhabitants the service or product of any such utility."
On July 1, 1977, the trial court granted appellant's motion for judgment on the pleadings finding that appellee "has charged its customers for electrical and steam energy contrary to law, and that, as a result, the customers of Defendant [appellee] have paid charges in excess of those permitted by law." A hearing was ordered for the determination of the exact amounts of the overcharges which was held on September 30, 1977. At that hearing, a "stipulation" was admitted into evidence, signed by both parties, stating that the net fuel adjustment overcharges during the seventy-four month period from March 1, 1971, through April 30, 1977, totalled $2,034,780.58 for electric consumers and $31,943.05 for steam consumers. In March 1978, the case was transferred from Judge Kistler to Judge Vetter who sustained motions to vacate the stipulations on June 28, 1978. On September 13, 1979, appellee filed, with leave of court, an amended answer, and the case was transferred from Judge Vetter to Judge McMonagle in December 1979. The case came to trial on April 21, 1980.
By Ordinance No. 21-63, passed on October 7, 1963, appellee established rates and regulations for the sale of electric power to its customers. Base rates, each to "be adjusted in accordance with the fuel adjustment clause," were established for twelve classes of service to residential and commercial consumers. The fuel adjustment clause, adopted by Ordinance No. 21-63 as applicable to each class of service, was subsequently amended by four later ordinances.
The fuel adjustment clause adopted by Ordinance No. 21-63 provided:
"When the weighted average cost per one million BTU of fuel consumed in the City's generating station during the calendar month immediately preceding the start of the billing month covered by the service bill decreases below 20.00¢ per one million BTU or increases above 26.00¢ per one million BTU, there shall be a decrease or increase in the energy charges of .0110¢ per kilowatt-hour for each change in the cost of 1¢ per one million BTU, and proportionately for each fraction thereof.
"The weighted average cost of fuel, as used above, shall be defined as the sum of (1) the cost, including freight, taxes, demurrage, unloading and analysis of fuel on hand at the first of each month, plus the cost of fuel received during the month, divided by the total amount of fuel on hand and received, and (2) when coal is consumed, the handling costs of such fuels into the bunkers of said plant and when oil or gas is consumed, the handling costs of such fuels at the burners of said plant during said month, said handling costs to be converted to cost per one million BTU of fuel consumed."
Although basic electric rates were amended by subsequent ordinances, the fuel adjustment clause remained the same as set forth in Ordinance No. 21-63 repealed on June 21, 1971, by Ordinance No. 24-71, which provided the following fuel adjustment clause:
"The energy charge for all kilowatt hours billed will be increased or decreased by the amount the average fuel cost per kilowatt hour sold increased or decreased as compared to the base period, the year 1969. Fuel adjustment will be calculated on calendar quarterly averages. The calculated adjustment will be applied to three months billings beginning with the first bill rendered one month after the end of the quarter ( i.e., bills rendered May, June and July will use the calculated adjustment based on January, February and March experience).
"Fuel adjustment shall be determined by using the difference between the actual cost of fuel for the quarter and the calculated cost of fuel to supply the quarter's requirements using the base figures for the year 1969 of 16,438 BTU per net kilowatt generated and 30.790¢ per million BTU. The difference between the actual cost and the calculated cost divided by the kilowatt hours sold shall be the fuel adjustment factor.
"All bills rendered from the effective date of this ordinance until the first bill rendered in August 1971 shall have a calculated fuel adjustment applied using the average costs for the months of January, February and March 1971.
"Fuel costs, as used above, shall be defined as the delivered cost of such fuels, including freight, demurrage, taxes, unloading, analysis and handling costs of fuel consumed."
A new fuel adjustment clause was passed January 21, 1974, Ordinance No. 5-74, which deleted the third paragraph and amended the first paragraph to read:
"The energy charge for all kilowatt hours billed will be decreased by the amount the average fuel cost per kilowatt hour sold increased or decreased as compared to the base period, the year 1969. Fuel adjustment will be calculated on calendar monthly averages. The calculated adjustment will be applied to the bills rendered one month after the end of the base period month and every month thereafter."
On July 1, 1974, by Ordinance No. 28-74, appellee repealed the fuel adjustment clause and enacted an "Energy Acquisition Adjustment Clause," which provided:
"The energy charge for all kilowatt hours billed will be increased or decreased by the amount the average cost per kilowatt hour sold increased or decreased as compared to the base period, the year 1973. Energy adjustment will be calculated on calendar monthly averages. The calculated adjustment will be applied to the bills rendered one month after the end of the base period and every month thereafter.
"Energy adjustment shall be determined by using the difference between the actual cost of acquisition for the month and the calculated cost to supply the month's requirements using the base figures for the year 1973 of 15,482 BTU per net kilowatt generated and 50.3623¢ per million BTU. The difference between the actual cost and the calculated cost divided by the kilowatt hours sold shall be the fuel adjustment factor.
"Acquisition costs, as used above, shall be defined as the delivered cost of fuels, including freight, demurrage, taxes, unloading, analysis and handling costs of fuel consumed, and as the cost at the Power Plant of any purchased energy."
The preceding energy acquisition adjustment clause was repealed on June 16, 1975, by Ordinance No. 21-75, and the following was enacted:
"The energy charge for all kilowatt hours billed will be increased or decreased by the amount the average cost per kilowatt hour sold increased or decreased as compared to the base period, January through October, 1974. The base period cost per kilowatt hour sold equals $0.0155200 per KWH.
"Energy adjustment shall be determined by using the differences between the actual cost of acquisition for the month and the calculated cost to supply the month's requirements using the base figures in accordance with FPC Docket #R-479, wherein Fm/Sm minus Fb/Sb is equal to the calculated adjustment.
"The factors as used above are defined as:
"F = the cost of fossil fuel consumed including freight, demurrage, and taxes plus identifiable fuel costs associated with purchase power less energy sales.
"S = kilowatt hours generated plus purchases plus interchanges less total system losses.
"m = current period and b = base period."
Following trial, the court entered judgment in favor of appellant. The court made findings of fact in which it found that:
"6. Ordinance Nos. 24-71, 5-74, 28-74 and 21-75 provide that the same components of cost be used for both base fuel costs and current fuel costs in calculating the fuel adjustment factor. In violation of said ordinances, the defendant did not use the same components of cost in computing base fuel costs and current fuel costs for calculating the fuel adjustment factor.
"7. Ordinance No. 21-75 provides that only identifiable fuel costs associated with purchased power be included as a component in calculating the fuel adjustment factor. In violation of said ordinance, defendant included the entire cost of purchased power in calculating the fuel adjustment factor."
Additionally, the court found that during the period involved, appellee overcharged its electric energy customers as follows:
Ordinance No. Amount of Net Overcharge 21-63 $ 48,303 24-71 153,969 5-74 65,388 28-74 158,959 21-75 1,481,132 $1,907,751
Steam energy customers were found to have been overcharged as follows:
Ordinance No. Amount of Net Overcharge (Undercharge) 12-70 34-71 $(7,076) 22-75 11,383 $ 4,307
In its conclusions of law, the trial court concluded that the relevant ordinances of appellee and "the purpose of fuel adjustment clauses" mandate that identical components be used with respect to both base fuel costs and current fuel costs in calculating the fuel adjustment factor, and that Ordinance No. 21-75 provided that appellee pass through to its electric customers only identifiable fuel costs, not all costs, associated with purchased power. The trial court concluded that appellee did not so charge its customers during the period involved and that excessive charges, made as fuel adjustment charges, were illegal and void. Accordingly, on December 4, 1980, the trial court entered judgment for appellant as follows: $1,665,842 as overcharges to electric customers, $421,732.09 as interest on the electric overcharges, $5,300 as overcharges to steam customers, $1,848.11 as interest on the overcharges to steam customers, for a total of $2,094,722.20. The court rendered a further judgment of $523,680 as counsel fees and $111,149.75 as expenses, to be paid out of the fund to be created by the judgment in favor of the class.
Upon appeal to the court of appeals, the judgment was reversed and vacated with regard to overcharges for electrical energy. Attorney's fees and expenses of suit incurred on behalf of the class were modified by reducing the total thereof to $5,300. Further, all costs were assessed to the appellant. The court of appeals rejected the conclusion of the trial court that electric overcharges of $823,129 occurred because base rates were too low or energy adjustment figures were too high. The court concluded that appellee "had plenary authority to operate its utility without regulation by statute or otherwise and establish its own rates for the products which it sold so long as the rates were reasonable." Moreover, the court held that "no statutory, common or regulatory law" binding on appellee required any symmetry between base and current fuel components, nor did an examination of the ordinances themselves evidence an intention of appellee that such components shall be the same.
The portion of the judgment relating to steam overcharges was not appealed to this court.
The court also rejected the argument that $1,084,623 of non-fuel costs paid to Dayton Power Light Co. for purchased electric power were overcharges because the trial court did not include such costs to be included in the "FM" factor of Ordinance No. 21-75. The court concluded that the reference in the ordinance to FPC Docket #R-479 "supports the inclusion of all intersystem purchased energy costs in the `FM' factor of the energy adjustment equation." Furthermore, the court noted that since the cost of purchasing energy from Dayton Power Light Co. was less than if appellee had generated it, appellant had failed to show sufficient evidence of overcharging.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Pratt, Freed Virzi Co., L.P.A., and Mr. Frederick D. Freed, for appellant.
Mr. Irving I. Saul, Messrs. Spiegel McDiarmid, Mr. Thomas N. McHugh, Jr., Schwarzwald, Robiner, Wolf Rock Co., L.P.A., and Mr. Donald M. Robiner, for appellee.
Bell Randazzo Co., L.P.A., and Mr. John W. Bentine, urging affirmance, for amicus curiae Ohio Municipal Electric Association.
The issue presented in this case is whether appellant class is entitled to a refund by appellee of alleged overcharges in electric rates. Appellant's argument is essentially twofold. First, it asserts that appellee set base rates which were too low to recover the costs of operation of the municipal power facility, ostensibly to impress local voters with the economy of their administration, and then billed for fuel adjustment charges which were excessive in order to recover costs. The fuel adjustment figures were, appellant argues, arbitrarily selected by appellee without relation to the ordinance then in force and were excessive. Second, appellant contends that appellee improperly passed through the fuel adjustment factor of Ordinance No. 21-75 costs associated with the purchase of power from Dayton Power Light Co., which also resulted in excessive fuel adjustment factor charges. For the following reasons, we reject the arguments of appellant and affirm the judgment of the court of appeals.
Appellee is a chartered municipal corporation of the state of Ohio. Pursuant to the self-executing provisions of Section 4, Article XVIII of the Ohio Constitution, municipal corporations are authorized to establish, maintain and operate municipal lighting, power, and heating plants, for the generation, transmission and supplying of electricity to the municipal corporation and its inhabitants. "[T]he General Assembly is without authority to impose restrictions or limitations upon that power." Swank v. Shiloh (1957), 166 Ohio St. 415 [2 O.O.2d 401], paragraph one of the syllabus. See, also, State, ex rel. McCann, v. Defiance (1958), 167 Ohio St. 313 [4 O.O.2d 369], paragraph one of the syllabus; Euclid v. Camp Wise Assn. (1921), 102 Ohio St. 207, paragraph one of the syllabus; and Bd. of Edn. of Columbus v. Columbus (1928), 118 Ohio St. 295, paragraph three of the syllabus.
When a municipal corporation chooses to operate a public utility pursuant to a constitutional grant of authority, it functions in a proprietary capacity and is entitled to a "reasonable profit." Niles v. Union Ice Corp. (1938), 133 Ohio St. 169, 181 [10 O.O. 239]. The only restraint imposed by law upon a municipality's proprietary undertaking of providing electrical energy is "that the rates charged be reasonable and that there be no unjust discrimination among the customers served, taking into account their situation and classification." State, ex rel. Mt. Sinai Hospital, v. Hickey (1940), 137 Ohio St. 474, 477 [19 O.O. 159].
Given these well-established principles, we decline to discover, as did the trial court, a common law of municipal utility rate making. In particular, we find no Ohio authority to support the proposition that a municipality must conform to a symmetry between the components of base rates and adjustment clauses. Rate making is, as the court of appeals pointed out in its well-reasoned opinion, an inexact science. The critical focus in an examination of the reasonableness of a rate ordinance is the totality of the ordinance, not isolated factors such as a fuel adjustment clause, which clause a municipality is not required to adopt.
In the instant case, the record does not reveal sufficient evidence to indicate that appellant class has carried its burden of demonstrating that the aggregate revenues collected under the base rates and adjustment clauses exceeded that permitted by both the base rate and the fuel ordinances. This is especially so with regard to Ordinance No. 21-75, where the record revealed that appellee's energy purchases from Dayton Power Light Co. cost $877,000 less than the cost appellee would have had to incur to have generated the energy itself. Accordingly, the judgment of the court of appeals is affirmed.
Judgment affirmed.
W. BROWN, SWEENEY, LOCHER, HOLMES, C. BROWN and KRUPANSKY, JJ., concur.
CELEBREZZE, C.J., dissents.
The majority opinion states that the only restraint imposed upon a utility is that the rates charged be reasonable and nondiscriminatory. Does this imply that a municipal utility need not comply with the municipality's ordinances and that charges, beyond those set by ordinances, are permissible unless they are unreasonable or discriminatory? To the contrary, I believe that a utility is bound to comply with an ordinance which specifies allowable charges.
Appellee maintains that the ratepayer must prove that the aggregate revenues collected under the base rates and the adjustment clauses exceeded those permitted by both the base rates and the fuel ordinances. Appellee's position, adopted by the majority, unfairly places the burden of compliance on the customer. It forces the ratepayer to closely scrutinize each bill received and compare charges with those allowed by the city ordinances. Clearly this is an onerous burden because the average ratepayer does not have the time or expertise to analyze ordinances and check the application of the prescribed formulas to his bill. Instead the burden properly should be on the utility to strictly follow the mandates of the ordinances.
The majority focuses on the aggregate revenues collected. This approach ignores the language of the city ordinance which provides that the fuel adjustment clause includes the "cost of fossil fuel consumed including freight, demurrage, and taxes plus identifiable fuel costs associated with purchase power * * *." (Emphasis added.) Based upon this ordinance, the trial court made the following finding of fact: "7. Ordinance No. 21-75 provides that only identifiable fuel costs associated with purchased power be included as a component in calculating the fuel adjustment factor. In violation of said ordinance, defendant included the entire cost of purchased power in calculating the fuel adjustment factor."
The majority seems to conclude that because the purchased power cost less than if the utility had generated it, the ratepayers cannot complain that the charges were illegal. The savings due to the purchase are irrelevant to the issue of proper charges. The ordinance specifies the allowable charges in purchased power and the utility is bound to comply, whether municipally owned or otherwise.
For the foregoing reasons, I respectfully dissent.