American Electric Power doesn’t have to refund $74.5 million paid by utility customers in 2018 and 2019, following a unanimous ruling from the Ohio Supreme Court. The justices sided with the state utility regulators and AEP in the operation of two coal-fired power plants that were costing the company millions in losses, and in the collection of subsidies for them.
The court ruled AEP acted properly in continuing to operate the Kyger Creek plant in southern Ohio and the Clifty Creek plant in Indiana as part of the Ohio Valley Electric Corporation, or OVEC, though the plants were losing money.
The justices also said AEP acted properly in collecting the subsidies through a power purchase agreement rider. And they said the Public Utilities Commission of Ohio did as well in allowing those charges following an independent audit.
"The commission recognized that in retrospect, it may have been more prudent in some months to favor an economic strategy over a must-run strategy, but it noted that a prudency inquiry assesses the soundness of a decision as of the time that it was made," wrote Justice Pat Fischer in the majority opinion.
The subsidies in this case had been collected starting in 2016, to back up the plants financially when they were losing money - which they repeatedly did. The subsidies for those OVEC plants were included in the scandal-tainted nuclear power plant bailout House Bill 6, but were repealed last year in House Bill 15.
“This court and the commission has approved the rider for as a mechanism that provides rate stability that benefits customers," said assistant attorney general Julian Johnson, representing the PUCO in oral arguments before the court in December. "Under the law as it existed at the time, recovery of the cost for these plants was appropriate."
Justices asked several questions about the claim from the Ohio Consumers Counsel and the Ohio Manufacturers Association that the audit didn't include a line from a draft report that said that “keeping the plants running does not seem to be in the best interests of the ratepayers.” They'd found the line in the draft through a public records request, and suggested it had been scrubbed from the final report under pressure from a PUCO staffer.
Johnson said the draft report wasn't the final document, and told the court: "The commission found that the OVEC costs—not the OVEC contract, the OVEC costs—were prudently incurred and in the best interests of ratepayers, based on the auditor's final report."
"Because they had managed to get the auditor to take a sentence out that would not have been consistent with that finding, correct?" asked Justice Jennifer Brunner.
"The auditor testified that she removed the draft language because she believed it was overbroad and outside the scope," Johnson responded. "She recognized that her job was not to criticize the rider itself, and therefore she determined that that language was inappropriate and should be removed."
The justices found the auditor maintained independence from PUCO staff.
The Ohio Consumers Counsel had argued for refunds, saying AEP couldn't show that running these money-losing plants was in the best interest of customers who were paying the subsidies.
"When the PUCO passed this and approved this power purchase agreement rider, in no uncertain terms and directly it said that recovery of costs by AEP will be disallowed if AEP cannot demonstrate that bidding behavior is prudent and in the best interest of ratepayers. They didn't do that here," said John Varanese with the OCC. "You know why? Because they knew that their losses would be covered out of the pocketbooks of hardworking Ohio consumers."
The OCC said in a statement: “Today’s decision leaves Ohio consumers paying for tens of millions of dollars in costs from outdated, uneconomic coal plants. While policymakers have acted to stop these charges going forward through Ohio House Bill 15, the Court’s ruling denies consumers relief from past overcharges-even when cheaper energy options were available. It reflects a troubling pattern where utility decisions shift financial risk onto consumers. At a time when many families are struggling to afford their energy bills that is simply not fair.”
