R.C. 4928.148 OVEC Rider Audits: No Presumption of Prudence Shifting the Initial Proof Burden; PUCO Must Make a Prudence Determination Even When Utilities Lack Unilateral Control

Introduction

In In re OVEC Generational Purchase Rider Audits Required by R.C. 4928.148, 2026-Ohio-2382, the Supreme Court of Ohio reviewed Public Utilities Commission of Ohio (“PUCO”) orders approving 2020 prudence/performance audits for the “legacy-generation-resource rider” (“LGR Rider”) used by Duke Energy Ohio, Inc. (“Duke”), the Dayton Power and Light Company d.b.a. AES Ohio (“AES Ohio”), and Ohio Power Company d.b.a. AEP Ohio (“AEP Ohio”) (collectively, “the companies”).

The case arose under former R.C. 4928.148 (effective October 2019; later repealed in 2025), which required PUCO to establish a replacement nonbypassable-rate mechanism for retail recovery of prudently incurred costs tied to a “legacy generation resource” such as the Ohio Valley Electric Corporation (“OVEC”) coal plants (Clifty Creek and Kyger Creek), and to conduct periodic retrospective reviews of prudence and reasonableness beginning with calendar year 2020.

Appellants Ohio Environmental Council (“OEC”) and Ohio Manufacturers’ Association Energy Group (“OMAEG”) challenged PUCO’s approval of the audits and its refusal to disallow/refund any LGR Rider charges for 2020. Central issues included evidentiary rulings, the scope of the audit inquiry, OVEC’s market “commitment strategy” (must-run vs. economic commitment), allocation of burdens of proof, PUCO’s compliance with R.C. 4903.09 (findings/reasons requirement), and the jurisdictional limits imposed by R.C. 4903.10 (rehearing preservation).

Summary of the Opinion

The Court affirmed PUCO’s orders. It held, in substance, that:

  • PUCO did not commit reversible error in approving the audits and finding 2020 LGR Rider costs prudent and reasonable.
  • PUCO did not violate R.C. 4903.09 because its orders contained sufficient reasoning and record citations to permit judicial review.
  • PUCO erred by applying a “presumption of prudence” to utility management decisions (relying on In re Syracuse Home Util. Co.), because utilities bear the initial burden to prove prudence under Ohio Supreme Court case law; however, the error was harmless on this record.
  • PUCO also erred to the extent it suggested it could not hold the utilities accountable for OVEC commitment decisions because they lacked unilateral control; nonetheless, PUCO made an alternative prudence finding supported by the record, so no reversal was warranted.
  • Multiple arguments failed for lack of record support, inadequate briefing/record citation, or lack of jurisdiction due to failure to raise the issue in an application for rehearing under R.C. 4903.10.

Analysis

Precedents Cited

1) Standards of review and deference to PUCO fact-finding

  • Constellation NewEnergy, Inc. v. Pub. Util. Comm., 2004-Ohio-6767 and AT&T Communications of Ohio, Inc. v. Pub. Util. Comm., 51 Ohio St.3d 150 (1990): The Court reiterated that under R.C. 4903.13 an appellant must show PUCO’s order is unlawful or unreasonable, and the appellant bears the burden.
  • In re Application of Firelands Wind, L.L.C., 2023-Ohio-2555: Provided the Court’s framework for “unlawful” (legal/procedural error) versus “unreasonable” (abuse of discretion outside permissible statutory construction; or decisions manifestly contrary to evidence).
  • Ohio Edison Co. v. Pub. Util. Comm., 1997-Ohio-196: Confirmed the Court’s “complete and independent power of review” on questions of law.
  • Lycourt-Donovan v. Columbia Gas of Ohio, Inc., 2017-Ohio-7566 and Monongahela Power Co. v. Pub. Util. Comm., 2004-Ohio-6896: Reinforced that the Court will not reweigh evidence; it defers to PUCO where probative evidence supports PUCO’s findings.

2) Evidentiary discretion and the necessity of an adequate record

  • In re Complaint of Harris Design Servs. v. Columbia Gas of Ohio, Inc., 2018-Ohio-2395 and Greater Cleveland Welfare Rights Org., Inc. v. Pub. Util. Comm., 2 Ohio St.3d 62 (1982): Supported PUCO’s broad discretion in conducting hearings (important to OMAEG’s claim that evidence was wrongly excluded).
  • In re Review of the Reconciliation Rider of Duke Energy Ohio, Inc., PUCO No. 20-167-EL-RDR, 2023 Ohio PUC LEXIS 877: PUCO relied on this precedent to treat prior audits as irrelevant even when there are “obvious similarities,” supporting the decision to exclude testimony about prior OVEC riders/audits.
  • Util. Serv. Partners, Inc. v. Pub. Util. Comm., 2009-Ohio-6764: The Court used this principle to reject OMAEG’s PJM Report argument because the proffered report excerpt was not made part of the record, leaving the Court unable to assess relevance or error.
  • In re Application of Duke Energy Ohio, Inc., 2012-Ohio-1509: Cited in two distinct ways—(a) to reject arguments that lacked necessary record citation, and (b) as the controlling burden-of-proof anchor that undercut a presumption of prudence (discussed below).

3) R.C. 4903.09 (findings and reasoning) and what it does—and does not—require

  • Tongren v. Pub. Util. Comm., 1999-Ohio-206, Payphone Assn. v. Pub. Util. Comm., 2006-Ohio-2988, MCI Telecommunications Corp. v. Pub. Util. Comm., 32 Ohio St.3d 306 (1987), and Allnet Communications Servs. v. Pub. Util. Comm., 1994-Ohio-460: These decisions framed the inquiry: strict compliance is not required, but PUCO must provide sufficient detail to allow the Court to understand the factual basis and reasoning.
  • In re Application of E. Ohio Gas Co., 2023-Ohio-3289: Used as a contemporary example of adequate R.C. 4903.09 compliance.
  • In re Application of Ohio Power Co., 2024-Ohio-2890 and Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 4 Ohio St.3d 107 (1983): The Court emphasized that R.C. 4903.09 is about enabling review (articulated reasons with record support), not about whether PUCO weighed evidence correctly.

4) Rehearing preservation and jurisdictional bars

  • R.C. 4903.10 was enforced through cases such as In re Application of Ohio Power Co., 2014-Ohio-4271 and Discount Cellular, Inc. v. Pub. Util. Comm., 2007-Ohio-53: The Court repeatedly declined to consider claims not specifically raised in an application for rehearing, including due-process and certain statutory-interpretation issues (e.g., R.C. 4928.01(A)(42) arguments).

5) Prudence, “presumption of prudence,” and the burden of proof

  • In re Syracuse Home Util. Co., PUCO No. 86-12-GA-GCR, 1986 Ohio PUC LEXIS 1: PUCO relied on this to apply a rebuttable presumption of prudence and shift the initial burden of production to intervenors.
  • In re Application of Duke Energy Ohio, Inc., 2012-Ohio-1509: The Court treated Duke as foreclosing any approach that effectively requires challengers to prove “imprudence” in the first instance. A utility must “prove a positive point: that its expenses had been prudently incurred,” and if evidence is “inconclusive or questionable,” PUCO may reduce/disallow recovery without needing other parties to prove imprudence.
  • Cincinnati v. Pub. Util. Comm., 1993-Ohio-79: Although this Court cited Syracuse Home in Cincinnati, it did not endorse the presumption-of-prudence guideline, instead adopting the retrospective, no-hindsight conception of prudence.

6) Statutory interpretation and “reasonableness” under R.C. 4928.148(A)(1)

  • Consumers' Counsel v. Pub. Util. Comm., 1992-Ohio-122 and In re Application of Ohio Power Co., 2018-Ohio-4698: OEC invoked these to argue “reasonableness” includes a ratepayer-benefit/public-interest test (from PUCO’s stipulation-approval framework). The Court rejected extending that framework into R.C. 4928.148(A)(1).
  • Indus. Energy Consumers of Ohio Power Co. v. Pub. Util. Comm., 1994-Ohio-435: Used to show the stipulation “reasonableness” framework is context-specific and reviewed under R.C. 4903.13, not a free-floating statutory definition.
  • In re Application of Columbus S. Power Co., 2014-Ohio-462: Supplied the plain-language principle: courts give effect to words used and may not add requirements the General Assembly did not include (here, no express “public interest” or “ratepayer benefit” element in R.C. 4928.148(A)(1)).

Legal Reasoning

1) Scope of the R.C. 4928.148 audit and evidentiary boundaries

A central theme was the Court’s acceptance of PUCO’s framing of the audit’s scope: it is a retrospective review of prudence and reasonableness of actions and costs during calendar year 2020 under the LGR Rider regime created by R.C. 4928.148. On that basis, PUCO excluded (and the Court upheld the exclusion of) evidence aimed at earlier OVEC riders, earlier audits, and legislative “backstory,” treating it as outside scope, irrelevant, or prejudicial.

The Court did not announce a blanket rule that prior proceedings can never be relevant, but its reasoning strongly signals that, in R.C. 4928.148 audit proceedings, parties must tie proffered evidence to the statutory audit questions and the audited period—while also ensuring the proffer is actually preserved in the record (the PJM Report dispute failed largely because the proffered excerpt was not made part of the record).

2) OVEC commitment strategy: PUCO cannot avoid prudence review due to shared governance, but an alternative prudence finding can cure the error

The Court held PUCO erred insofar as it suggested the companies “cannot be found to have acted imprudently” because OVEC’s must-run commitment strategy was not the management decision of any single sponsoring company. R.C. 4928.148(A)(1) unambiguously requires PUCO to determine the prudence and reasonableness of utility actions “including their decisions related to offering the contractual commitment into the wholesale markets.”

However, the error was not reversible because PUCO made an alternative finding: even if the companies were responsible, OVEC’s combined must-run and temporary economic-commitment approach in 2020 was prudent given start-up/shut-down costs, baseload design, plant reliability metrics, COVID-era market conditions, and coal-contract constraints. This illustrates a pragmatic appellate lesson: when PUCO makes a potentially flawed threshold statement but also makes a fully supported alternative merits determination, the alternative finding may render the error harmless.

3) Burdens of proof and the “presumption of prudence”: error identified, but treated as harmless on this record

The most precedent-setting portion of the decision is the Court’s express holding that PUCO erred in applying a presumption of prudence to utility management decisions (as derived from In re Syracuse Home Util. Co.). The Court treated In re Application of Duke Energy Ohio, Inc., 2012-Ohio-1509, as establishing that a utility must carry the initial burden to prove prudence; it is not enough that challengers fail to prove imprudence.

Yet the Court refused to reverse, concluding the presumption did not drive the outcome because PUCO also cited affirmative evidence supporting prudence (competitive bidding and contract structure testimony; extensive data review; auditor testimony finding no imprudence). In effect, the Court policed the doctrinal boundary—no presumption that shifts the initial evidentiary onus—while still applying harmless-error principles to uphold the order where the utility evidence independently supported the result.

4) R.C. 4903.09: adequacy of explanation is distinct from evidentiary sufficiency or weight

Both OMAEG and OEC invoked R.C. 4903.09 as a vehicle to attack the substance of PUCO’s findings. The Court drew a sharp line: R.C. 4903.09 is satisfied if PUCO provides enough explanation and record citation to permit review; it is not a backdoor way to relitigate weight-of-the-evidence or to demand that PUCO discuss every counterpoint.

5) R.C. 4903.10 preservation: rehearing remains the gatekeeper

The Court repeatedly declined review for lack of jurisdiction where arguments were not specifically raised on rehearing, including due process, alleged statutory violations under R.C. 4928.01(A)(42), and challenges directed at PUCO’s rehearing entry itself. The decision underscores that utility-regulation appeals in Ohio are “issue-preservation intensive”: even strong merits arguments can be forfeited by incomplete rehearing practice.

Impact

  • Clarifies burden allocation in prudence audits: The Court’s holding that PUCO erred in applying a presumption of prudence provides litigants a concrete citation to challenge any future attempt to shift the initial burden of production away from utilities in cost-recovery prudence proceedings.
  • Limits PUCO’s ability to avoid statutory review based on governance structure: Even where decisions are made through OVEC’s multi-utility operating committee and unanimity/majority rules, PUCO must still make the prudence determination required by R.C. 4928.148(A)(1) (and, by analogy, similarly phrased review statutes).
  • Elevates record discipline for intervenors: The Court’s treatment of the PJM Report highlights that intervenors must ensure excluded/proffered evidence becomes part of the record for appellate review, and must support arguments with precise citations.
  • Reinforces R.C. 4903.09’s limited role: Parties should not expect R.C. 4903.09 arguments to succeed unless they can show PUCO failed to articulate its reasoning and record basis—mere disagreement with conclusions will not do.
  • Continues strict rehearing preservation: The case is another warning that R.C. 4903.10 is jurisdictional in practice; appellate strategy must be built at the rehearing stage.

Complex Concepts Simplified

  • Nonbypassable-rate mechanism: A charge paid by all customers (including those who “shop” for competitive generation supply) and cannot be avoided. The Court referenced the definition in In re Application of Columbus S. Power Co., 2016-Ohio-1608.
  • LGR Rider (legacy-generation-resource rider): The rider through which Duke/AES Ohio/AEP Ohio recovered OVEC-related costs from retail customers under R.C. 4928.148 during the audit period.
  • Prudence vs. reasonableness (in this case): Prudence is judged retrospectively based on what was known or reasonably knowable when decisions were made, without hindsight. The Court rejected the notion that “reasonableness” adds an extra “public interest/ratepayer benefit” test not found in the statute.
  • Must-run vs. economic commitment: “Must-run” means the plant runs continuously regardless of whether market prices cover variable operating costs; “economic commitment” means the plant runs only when market prices justify operation.
  • R.C. 4903.09 findings requirement: PUCO must explain what it decided and why, with enough record citation to allow the Supreme Court of Ohio to review the decision; it is not a requirement that PUCO discuss every piece of evidence.
  • R.C. 4903.10 rehearing requirement: To raise an issue on appeal, a party must first specifically raise it in an application for rehearing at PUCO; otherwise, the Supreme Court of Ohio generally lacks jurisdiction to consider it.

Conclusion

In re OVEC Generational Purchase Rider Audits Required by R.C. 4928.148 is chiefly significant for two clarifications: (1) PUCO cannot apply a presumption of prudence that shifts the initial evidentiary burden away from utilities seeking cost recovery, and (2) PUCO must perform the prudence review required by R.C. 4928.148(A)(1) even where utilities operate through shared governance mechanisms and lack unilateral control over OVEC operational strategy. Even so, the Court affirmed because PUCO’s alternative findings and record-supported reasoning rendered identified errors harmless and because multiple appellate arguments were forfeited or unsupported by the record.