“No-Offset” Rule for Significantly Excessive Earnings
In re Application of Dayton Power & Light Co. (2025-Ohio-2953)

Introduction

The Supreme Court of Ohio, in In re Application of Dayton Power & Light Co., Slip Opinion No. 2025-Ohio-2953, delivered a landmark interpretation of the “significantly excessive earnings test” (SEET) found in R.C. 4928.143(F). The decision arose from consolidated appeals involving:

• Dayton Power & Light Company d/b/a AES Ohio (“DP&L”),
• The Public Utilities Commission of Ohio (“PUCO”), and
• The Office of the Ohio Consumers’ Counsel (“OCC”).

At its core, the case addresses whether PUCO may offset a utility’s significantly excessive earnings (which normally must be refunded to customers) with the utility’s promise to make substantial future capital investments. The Court answered “no,” thereby creating what practitioners will now refer to as the “No-Offset Rule.”

Summary of the Judgment

The Court, per Chief Justice Kennedy, unanimously:

1. Reversed PUCO’s orders that had allowed DP&L to retain $61.1 million in excessive earnings for 2018-2019 by netting them against planned grid-modernisation investments.
2. Held that R.C. 4928.143(F) does not authorize PUCO to let a utility keep significantly excessive earnings on the basis of future investment commitments.
3. Remanded the matter for PUCO to conduct a new SEET analysis that treats “future committed investments” only as a factor within the comparative earnings analysis, not as a justification to withhold refunds.
4. Rejected OCC’s collateral attacks on DP&L’s rate-stabilization charge (RSC) as being outside the scope of this appeal; those issues remain pending in related cases.
5. Rejected DP&L’s protective cross-appeal seeking alternative grounds to uphold PUCO’s order.

Analysis

Precedents Cited and Distinguished

• In re Application of Columbus S. Power Co., 2012-Ohio-5690 – Recognised PUCO’s discretion to refine how to run the SEET, but never suggested utilities could keep excess profits once the SEET ceiling was breached.
• In re Determination … for 2017 under the ESP of Ohio Edison Co., 2020-Ohio-5450 – Court disallowed PUCO’s removal of distribution-modernisation-rider revenue from SEET, emphasising fidelity to statutory text. The 2025 Court used similar textual reasoning.
• In re Application of Ohio Edison Co., 2019-Ohio-2401 (lead opinion) – Found a modernisation rider unlawful, indirectly influencing DP&L’s earlier rider withdrawal and today’s context.
• “SEET Workshop” Order, PUCO No. 09-786-EL-UNC (2010) – Provided early administrative guidance on removing non-recurring items; OCC attempted to rely on it, but the Court deemed that argument procedurally forfeited.

Legal Reasoning

1. Textual Anchoring – The Court focused on two statutory sentences:
   • Sentence 1 tells PUCO to compare the utility’s earned ROE with that of comparable companies.
   • Sentence 2 commands PUCO to “also” consider capital requirements of future committed investments.
   The use of “also” means the investment consideration is an input to the comparative analysis, not a separate, post-hoc escape hatch.
2. Mandatory Refund Clause – Once PUCO “finds” earnings are significantly excessive, the statute says PUCO “shall require” refunds. Permitting an offset would nullify the mandatory refund language and read words (e.g., “offset”) into the statute that the legislature never adopted.
3. Limits of PUCO Discretion – While PUCO may choose the methodology within the comparative test, it lacks authority to override the remedial mandate. Public policy goals in R.C. 4928.02 (e.g., grid modernisation) cannot trump specific statutory commands.
4. Misuse of State-Policy Clause – The Court reaffirmed that PUCO, as a “creature of statute,” cannot rely on broad policy statements to create remedies “beyond the parameters of the law” (Indus. Energy Users-Ohio, 2008).
5. Rejection of “Financial Condition” Exception – Assertions that refunds would strain DP&L’s finances were irrelevant; R.C. 4928.143(F) contains no such carve-out.

Impact of the Decision

• State-wide Utility Regulation – All Ohio electric-distribution utilities now face a bright-line rule: significantly excessive earnings must be refunded; promised future spending cannot erase that duty.
• Rate-payer Benefits – Consumers are positioned to receive refunds whenever utilities beat the SEET threshold, strengthening the test’s consumer-protective function.
• PUCO Practice – PUCO must recalibrate its SEET orders. Settlement stipulations that propose offsets or “trade-offs” (excess earnings for future investments) are unlikely to survive judicial scrutiny.
• Contracting & ESP Drafting – Utilities will need to structure Electric Security Plans with clearer separation between guaranteed recovery mechanisms and potential future investment programs, anticipating that excess-earnings offsets are off-limits.
• Pending & Future Litigation – Similar offset provisions in existing PUCO dockets could be challenged. Expect utilities to advance new theories (e.g., redefining “earnings”) rather than offsets.
• Legislative Dialogue – If the General Assembly wishes to permit offsets, it must amend R.C. 4928.143(F) expressly. The Court’s decision invites policy debate at Statehouse rather than at PUCO.

Complex Concepts Simplified

• Electric Security Plan (ESP) – A multi-year plan under which a regulated utility sets generation-service rates and accompanying riders/charges instead of using a fully market-based offer.
• SEET (Significantly Excessive Earnings Test) – Annual PUCO review to see if a utility’s return on equity (ROE) greatly surpasses that of similar publicly traded firms. If so, excess profits must be refunded.
• Quadrennial Review – For an ESP exceeding three years, PUCO every fourth year predicts future SEET compliance and compares the ESP’s expected overall benefits against a market-rate offer.
• Rate-Stabilization Charge (RSC) – A non-bypassable rider approved years ago in DP&L’s ESP I, ostensibly to compensate provider-of-last-resort risks. Its legality is contested in separate appeals.
• Distribution-Modernisation Rider (DMR) – A charge intended to fund grid upgrades; the Court previously struck down a similar rider in Ohio Edison (2019).

Conclusion

The Supreme Court of Ohio’s 2025 decision erects an unequivocal barrier to PUCO’s long-standing practice of negotiating offsets between excessive earnings and future investments. By interpreting the plain language of R.C. 4928.143(F), the Court realigned the SEET with its original purpose—shielding rate-payers from windfall profits—while leaving utilities free to pursue modernisation initiatives through lawful riders or future ESPlanguage, but not by withholding refunds. The “No-Offset Rule” will reverberate through every current and forthcoming ESP proceeding, compelling utilities, regulators, and consumer advocates to reassess strategies for balancing investment incentives with consumer protection.