Cleveland Electric Illuminating Co. v. Public Utilities Commission

[This opinion has been published in Ohio Official Reports at 

76 Ohio St.3d 521

.]




    CLEVELAND ELECTRIC ILLUMINATING COMPANY, APPELLANT, v. PUBLIC
                 UTILITIES COMMISSION OF OHIO ET AL., APPELLEES.
    [Cite as Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 

1996-Ohio-298

.]
Public Utilities Commission—Dismissal of complaint filed by electric company
         alleging violation of Certified Territory Act—Order reversed by Supreme
         Court and cause remanded to commission to proceed with hearing, when.
The Public Utilities Commission has jurisdiction to consider a complaint alleging
         that a sale of electricity was initiated by a utility to a retail user using a straw
         man to effectuate the deal for the sole purpose of circumventing the
         Certified Territory Act.
        (No. 95-2444—Submitted June 5, 1996—Decided August 21, 1996.)
   APPEAL from the Public Utilities Commission of Ohio, No. 95-458-EL-UNC.
                                      __________________
         {¶ 1} This appeal arose from an order of the Public Utilities Commission of
Ohio (“commission”) that dismissed a complaint filed by appellant, Cleveland
Electric Illuminating Company (“CEI”).                    In its complaint, CEI alleged that
American Electric Power (“AEP”), using its subsidiary, intervening appellee Ohio
Power Company             (“OPC”), sold electricity through Cleveland Public Power
(“CPP”), and that CPP in turn sold the electricity to intervening appellee Medical
Center Company (“MCC”), in violation of the Certified Territory Act.1 In other
words, CEI claims that AEP, through its subsidiary OPC, allegedly sold electricity
in CEI’s territory.



1. The Certified Territory Act is set out in R.C. 4933.81 et seq. Essentially the Certified Territory
Act provides that with the exception set out under Article XVIII of the Ohio Constitution (home
rule), each electrical supplier is assigned a certain territory where it has the exclusive right to provide
service.
                                SUPREME COURT OF OHIO




        {¶ 2} Originally, MCC purchased power from CEI and redistributed it to
some of its member/owners.2 MCC was a retail customer of CEI at that time. MCC
requested that CEI convert it from a retail customer to a wholesale customer. CEI
apparently denied the change. MCC notified CEI that on September 1, 1996, MCC
would terminate service with CEI and acquire its power from CPP.
        {¶ 3} On May 3, 1995 CEI filed a complaint with the commission against
MCC, AEP and its generating subsidiaries, including OPC.3 In re CEI, case No.
95-458-EL-UNC.
        {¶ 4} Count one of the complaint alleged that OPC “has arranged to furnish
service to [MCC] by selling 50 MW of capacity and associated energy to [CPP].”
CEI further alleged that the OPC/CPP transaction and the CPP/MCC transaction
“are two halves of the same transaction.” CEI alleges that these two transactions
“are sham transactions” and were structured to circumvent the Certified Territory
Act. Thus, CEI contends OPC will violate the Certified Territory Act by selling
power to MCC.
        {¶ 5} In count two, CEI alleged that MCC may be an electric light company
as defined in R.C. 4905.03(A)(4) because it resells electricity to its member/owners.
CEI further supports this claim by alleging that MCC intends to build additional
facilities to take power at transmission voltages, to change its billing methodology
and to sell electricity to non-member/owners, which will make MCC, if it is not
already, an electric light company under Ohio law.




2. MCC’s member/owners included University Hospitals of Cleveland, Case Western Reserve
University, the Cleveland Museum of Art, the Church of the Covenant, the Musical Arts
Association, the Cleveland Botanical Garden, the Cleveland Hearing & Speech Center, the
Cleveland Medical Library Association and the Cleveland Institute of Art.

3. For purposes of this opinion, Ohio Power Company has acted on behalf of its parent, American
Electric Power.




                                              2
                                     January Term, 1996




         {¶ 6} Count three alleged that CEI installed generation and distribution
systems in reliance on continued service to MCC and its members, and that CEI
will suffer financial loss because of the stranded investment associated with MCC
leaving CEI’s system.
         {¶ 7} OPC and MCC filed separate motions to dismiss CEI’s complaint,
alleging in part that the OPC/CPP power purchase agreement was a wholesale
transaction that is exclusively under the jurisdiction of the Federal Energy
Regulatory Commission (“FERC”).4 CEI has initiated a FERC action seeking to
invalidate the agreement for the sale of electricity from OPC to CPP. Petition of
Cleveland Elec. Illum. Co., FERC Docket No. EL 96-9-000. OPC and MCC also
argued that the Certified Territory Act does not prevent wholesale transactions such
as the sale between OPC and CPP.                 CEI countered the motions to dismiss,
contending that the issue before the commission was not the OPC/CPP wholesale
transaction individually or the CPP/MCC exempt municipal agreement
individually, but rather the “de facto retail” sale between OPC and MCC.
         {¶ 8} After reviewing the various arguments by the parties, the commission
dismissed CEI’s complaint, stating:
         “Pursuant to Article XVIII, Section 4, of the Ohio Constitution,
municipalities in Ohio may own and operate public utilities and may ‘contract with
others for any product or service.’ Moreover, the certified territory statutes
(Sections 4933.81-.84, Revised Code) specifically carve out an exception for
municipal utilities regarding application of certified territories. Thus, even
construing CEI’s allegations in this case as true, the existing constitutional and
statutory constraints preclude granting the relief sought by CEI. Based on our


4. Pursuant to the Federal Power Act, Section 824, Title 16, U.S. Code, FERC has jurisdiction to
regulate the “sale of electric energy at wholesale,” defined as “a sale of electrical energy to any
person for resale.” Section 824(d), Title 16, U.S. Code.




                                                3
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assessment of the agreed-upon facts and the law, we do not believe that a hearing
is warranted or necessary in this case to resolve the strictly jurisdictional issues
raised in CEI’s complaint.”
       {¶ 9} Thus, the commission dismissed CEI’s complaint because it
determined that it did not have jurisdiction over either of the two agreements
pertaining to the sale of electricity—the OPC\CPP agreement and the CPP\MCC
agreement.
       {¶ 10} The cause is before this court upon an appeal as of right.
                               __________________
       Jones, Day, Reavis & Pogue, Paul T. Ruxin and Helen L. Liebman, for
appellant, Cleveland Electric Illuminating Company.
       Betty D. Montgomery, Attorney General, Duane W. Luckey and Steven T.
Nourse, Assistant Attorneys General, for appellee, Public Utilities Commission.
       Bell, Royer & Sanders Co., L.P.A., and Barth E. Royer, for intervening
appellee Medical Center Company.
       Edward J. Brady, Marvin I. Resnik and Kevin F. Duffy, for intervening
appellee Ohio Power Company.
       Chester, Willcox & Saxbe, John W. Bentine and Jeffery L. Small, urging
affirmance for amicus curiae, American Municipal Power-Ohio, Inc.
       Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A., John R.
Climaco, Anthony J. Garofoli, Glenn S. Krassen and Joseph M. Hegedus, urging
affirmance for amicus curiae, city of Cleveland.
                               __________________
       STRATTON , J.
       {¶ 11} The issue to be decided today is, in determining a motion to dismiss
a complaint before the commission alleging a violation of the Certified Territory
Act, can the commission look beyond two individual contracts, over which the




                                         4
                                January Term, 1996




commission admittedly has no jurisdiction, to determine whether the totality of the
evidence alleges a potential violation of the Certified Territory Act?
        {¶ 12} Our review of this issue is a question of law. Accordingly, we
address this issue using a de novo standard of review. Indus. Energy Consumers of
Ohio Power Co. v. Pub.Util. Comm. (1994), 

68 Ohio St. 3d 559, 563

, 

629 N.E. 423

,
426.
                                          I.
                Standard for Dismissal for Failure to State a Claim
        {¶ 13} In a civil case before a court, “it must appear beyond doubt from the
complaint that the plaintiff can prove no set of facts entitling him to recovery”
before a motion to dismiss can be granted. O’Brien v. University Community
Tenants Union, Inc. (1975), 

42 Ohio St. 2d 242

, 71 O.O. 2d 223, 

327 N.E. 2d 753

,
syllabus. Further, in ruling on the motion to dismiss, all material factual allegations
of the complaint must be taken as true. See Vail v. Plain Dealer Publishing. Co.
(1995), 

72 Ohio St. 3d 279

, 

649 N.E. 2d 182

. The commission has adopted the
same standard in reviewing motions to dismiss brought under R.C. 4905.26, i.e.,
that all of the complainants’ factual allegations must be taken as true. In re Toledo
Premium Yogurt v. Toledo Edison Co. (Sept. 17, 1992), case No. 91-1528-EL-CSS,
at 2.
        {¶ 14} The present case is brought under R.C. 4933.83 of the Certified
Territory Act. Thus, the holding in Toledo Premium Yogurt is not directly on point
in this case. However, the commission’s order of dismissal in this matter indicated
that it had accepted all CEI’s allegations as true. Accordingly, the commission must
accept all allegations as true in determining whether to dismiss a complaint brought
under the Certified Territory Act.




                                          5
                              SUPREME COURT OF OHIO




        {¶ 15} In its complaint, CEI alleged that “AEP negotiated directly with
Medical Center, either on its own or in conjunction with Cleveland, regarding the
50 MW sale and purchase.” CEI also alleged:
        “The 50 MW transaction between AEP and Cleveland, and the 50 MW
transaction between Cleveland and Medical Center, are two halves of the same
transaction. The purchase is in reality a purchase from AEP, and the service
provided by Cleveland, a wheeling service to effectuate the Medical Center
purchase.”
        {¶ 16} If the above allegations claimed by CEI are taken as true, as is
required by the commission’s own standards in evaluating a motion to dismiss, then
CEI’s complaint must survive a motion to dismiss. While the commission may not
have jurisdiction over either the OPC/CPP contract or the CPP/MCC contract
individually, the totality of the evidence could indicate that the real intention of the
deal was to transfer electricity from OPC to MCC using two independent
transactions, which would violate the Certified Territory Act.
        {¶ 17} In such an instance, the commission must look beyond the surface
of the two contracts to see if there was an underlying deal between OPC and MCC,
thereby establishing a prima facie case of a violation of the Certified Territory Act.
        {¶ 18} As previously mentioned, the commission’s primary reasoning for
dismissing this case was its perceived lack of jurisdiction. Specifically, the
commission found that it did not have jurisdiction because the CPP/MCC
transaction was exempt from being subject to the Certified Territory Act. The
commission apparently made a cursory review of count two of CEI’s complaint as
to whether MCC was an electrical supplier. There was no analysis of count three
of CEI’s complaint. Therefore, upon remand, the commission should consider
CEI’s complaint in its entirety.
        {¶ 19} It is important to note that we make no determination as to the
existence or sufficiency of evidence as to the merits of any of CEI’s allegations.



                                           6
                               January Term, 1996




Such a determination is for the commission alone to make. However, the fact that
at least facially, two discrete transactions were used in this purchase should not
prevent the commission from determining whether the purchase comports with the
Certified Territory Act when viewed in its entirety.
                                        II.
                               FERC’s Jurisdiction
       {¶ 20} The import of this decision does not require the commission to
improperly regulate an area where the federal government has preempted the field
with regard to the FERC’s regulation of wholesale power transactions. The
commission’s review will be of the entire alleged transaction from OPC to MCC
by way of CPP, not an analysis of the OPC/CPP contract. Thus, the commission
would not be encroaching into FERC’s jurisdiction over the OPC/CPP contract.
       {¶ 21} Further, in Fed. Power Comm. v. S. California Edison Co. (1964),

376 U.S. 205, 215-216

, 

84 S. Ct. 644, 651

, 

11 L. Ed. 2d 638, 646

, the Supreme
Court stated:
       “*** Congress meant to draw a bright line easily ascertained, between state
and federal jurisdiction ***. This was done in the [Federal] Power Act making
[FERC] jurisdiction plenary and extending it to all wholesale sales in interstate
commerce except those which Congress has made explicitly subject to regulation
by the States.” (Emphasis added.)
       {¶ 22} Section 824k(h), Title 16, U.S. Code (prohibition on mandatory
retail wheeling and sham transactions) states: “Nothing in this subsection shall
affect any authority of any State or local government under state law concerning
the transmission of electric energy directly to an ultimate consumer.” In examining
the alleged sham transaction (the alleged deal between OPC and MCC by way of
CPP), the commission will be scrutinizing whether OPC has made a retail deal with




                                         7
                             SUPREME COURT OF OHIO




MCC. As stated above, retail deals are explicitly excluded from FERC’s exclusive
jurisdiction.
                                          III
     A Municipality’s Rights pursuant to Section 4, Article XVIII of the Ohio
                                    Constitution
        {¶ 23} Under Article XVIII, municipalities have certain powers, including
the authoritiy to “acquire *** any public utility the products or service of which is
or is to be supplied to the manicipality or its inhabitants, and may contract with
others for any such product or service.” Section 4, Article XVIII of the Ohio
Constitution. The Certified Territory Act excepts from its coverage muncipalities
acting pursuant to Article XVIII of the Ohio Constitution. R.C. 4933.83(A).
However, this court’ decision does not eviscerate a manicipality’s powers to buy or
sell electricity under Article XVIII, of the Ohio Constitution. That is not a result
of this opinion, nor should it be the practical result. Rather, this decision is to
prevent a utility from circumventing the Certified Territory Act by selling
electricity to an entity to which it cannot sell under the Act, by inserting a straw
man to legitimize the deal. It is only in a fact-specific situation such as the case at
bar, where the complaint alleges that there was an agreement between OPC and
MCC to sell electricity from OPC to MCC using CPP as the straw man conduit,
that the commission has jurisdiction to hear a complaint alleging a violation of the
Certified Territory Act. Failure to reach this narrow factual threshold will result in
a failure to state a claim upon which relief could be granted.
        {¶ 24} The commission is free to find, based on the evidence, that each
transaction stands on its own merit and was not merely a sham transaction, and that
each contractual transaction must be honored regardless of whether the other
contract proceeds. Essentially, this decision should provide a delicate balance by
preserving a municipality’s right to freely purchase electricity pursuant to the Ohio
Constitution, yet preventing utilities from eviscerating the Certified Territory Act



                                          8
                                 January Term, 1996




on the rare occasion when there is evidence that shows that a utility has used a straw
man to effectuate a sale of electricity for the sole purpose of circumventing the
Certified Territory Act. Accordingly, we hold that the Public Utilities Commission
has jurisdiction to consider a complaint alleging that a sale of electricity was
initiated by a utility to a retail user using a straw man to effectuate the deal for the
sole purpose of circumventing the Certified Territory Act.
                                          IV
                                     Conclusion
        {¶ 25} Within these narrow definitions, we find that CEI’s complaint sets
out sufficient allegations to withstand a motion to dismiss for lack of jurisdiction.
The commission failed to take the essence of CEI’s allegations as true for purposes
of a motion to dismiss, relying solely on its technical analysis of a lack of
jurisdiction over the separate transactions.
        {¶ 26} Therefore, the court reverses the commission’s dismissal of CEI’s
complaint and remands the cause to the commission with instructions to reinstate
CEI’s complaint and proceed with a hearing on the same.
                                                                       Order reversed
                                                                 and cause remanded.
        DOUGLAS, F.E. SWEENEY, PFEIFER and COOK, JJ., concur.
        DOUGLAS, J., concurs separately.
        MOYER, C.J., and RESNICK, J., dissent.
                                __________________
        DOUGLAS, J., concurring.
        {¶ 27} I agree with the well-reasoned and enlightened judgment of the
majority. I write separately to address the dissent. Reading the majority opinion
and the dissent together, one wonders if we are talking about the same case.
Contrary to what the dissent may imply, all that the majority decides today is that




                                           9
                              SUPREME COURT OF OHIO




the Public Utilities Commission of Ohio (“PUCO”) must hold a hearing to
determine whether American Electric Power (“AEP”) and its subsidiary, Ohio
Power Company (“OPC”), created a sham transaction in consort with Cleveland
Public Power (“CPP”) to sell electricity to Medical Center Company (“MedCo”)
in violation of the Certified Territory Act.
        {¶ 28} Both the majority and dissent are agreed that a direct sale of
electricity from OPC to MedCo would be a violation of R.C. 4933.83.                 R.C.
4933.83(A), of the Certified Territory Act, guarantees each electric supplier “the
exclusive right to furnish electric service to all electric load centers [i.e., customers]
located presently or in the future within its certified territory * * *.” In this case,
the exclusive right to furnish electricity to MedCo (a load center or customer within
the meaning of section R.C. 4933.81[E] of the Certified Territory Act) belongs to
Cleveland Electric Illuminating Company (“CEI”).              Thus, OPC, which is a
competitor of CEI, may not invade CEI's exclusive territory.
        {¶ 29} The Certified Territory Act (R.C. 4933.81 et seq.), however,
explicitly carves out an exception for municipal utilities regarding the application
of the Act. It is well established that, pursuant to Section 4, Article XVIII of the
Ohio Constitution, municipalities may own and operate public utilities “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.” Akron v. Pub. Util.
Comm. (1948), 

149 Ohio St. 347

, 

37 O.O. 39

, 

78 N.E.2d 890

; Pfau v. Cincinnati
(1943), 

142 Ohio St. 101

, 

26 O.O. 284

, 

50 N.E.2d 172

; E. Ohio Gas Co. v. Pub.
Util. Comm. (1940), 

137 Ohio St. 225

, 

18 O.O. 10

, 

28 N.E.2d 599

; Columbus Bd.
of Edn. v. Columbus (1928), 

118 Ohio St. 295

, 

160 N.E. 902

. Therefore, the
municipality in the case herein is excepted from the Certified Territory Act when it
operates CPP, its own utility, for the purpose of generating power to serve the
municipality or its inhabitants. It may also secure by contract from another utility
a product or service for the municipality’s needs.



                                           10
                                 January Term, 1996




        {¶ 30} However, this does not permit a municipal utility to act merely as a
conduit for the transfer of electricity from an outside utility into the municipality.
If this were permissible, then a municipality could set up a public utility operation,
acquire power from an outside utility, and convey that power to its municipal
inhabitants without ever operating a generating facility. This would result in the
negating of the laudatory purposes of the Certified Territory Act. Clearly, this
would be impermissible.
        {¶ 31} The dissent calls MedCo’s activities an “artful compliance.” The
dissent makes, I believe, the majority’s point. What we and the commission should
be concerned with is whether AEP, OPC, CPP and MedCo have “artfully” or
otherwise created a series of transactions which, taken together, contravene the laws
of this state.
        {¶ 32} The PUCO was specifically created by the Ohio legislature to handle
these types of issues, and it has the expertise to do so. Thus, we grant the
commission permission to review such matters. The dissent broadens our order for
a hearing into the proposition that a municipality cannot buy electricity from other
electric power providers.
        {¶ 33} The majority opinion does not say that a municipality may not
contract with an outside supplier of power to satisfy its needs. A home-rule
municipality may still elect not to contract with its local public utility to supply the
municipality’s energy requirements. What the majority is saying, however, is that
when, as here, allegations of foul play are made, the PUCO may look beyond two
individual contracts to determine whether the totality of the contracts evidences a
sham transaction in direct violation of the Certified Territory Act. That is all the
majority opinion holds. The other issues are left to another day when they are
properly presented in cases coming before the court. Accordingly, I concur.
                                __________________




                                          11
                             SUPREME COURT OF OHIO




       MOYER, C.J., dissenting.
       {¶ 34} Because the majority decision applies Section 4, Article XVIII of the
Ohio Constitution and the Certified Territory Act (“Act”) in violation of plain
language and certain intent, I must respectfully dissent.
       {¶ 35} CEI acknowledges that the commission has no jurisdiction over
either the Ohio Power/CPP contract or the CPP/MedCo contract. Yet CEI asked
the commission, and now this court, to look beyond this lack of jurisdiction and
recognize a cause of action under the Act. Simply put, MedCo’s artful compliance
with the plain words in the Act to reduce its energy costs does not violate the Act
and does not create an actionable claim under the facts presently before the
commission or this court. The majority decision reaches beyond the allegations
contained in CEI’s complaint to create an allegation that there actually is a contract
between Ohio Power and MedCo: the only possible factual circumstance which
could violate the Act and give rise to a cause of action between these parties.
       {¶ 36} 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. * * * ” (Emphasis added.)
       {¶ 37} Until today this provision meant that a municipality could choose to
contract with any wholesale energy provider for the provision of energy to the
municipal inhabitants. This is the situation no longer.
       {¶ 38} Moreover, the Act expressly provides:
       “* * * In the event that a municipal corporation refuses to grant a franchise
or contract for electric service within its boundaries to an electric supplier whose
certified territory is included within the municipality, any other electric supplier
may serve the municipal corporation under a franchise or contract with the
municipal corporation.” (Emphasis added.) R.C. 4933.83(A).



                                         12
                                   January Term, 1996




           {¶ 39} The plain words of the statute have, until today, meant that a home-
rule municipality could elect not to contract with its local public utility to supply
the municipality’s energy requirements but, instead, could contract with any other
energy provider of its choice to supply those needs.
           {¶ 40} The majority decision will have the effect of diminishing these rights
of the municipality. It will discourage municipalities from contracting with the
Ohio electrical supplier of their choice to satisfy the energy needs of the
municipality. If a municipality wishes to purchase energy competitively to supply
the needs of its citizens, it must either buy from the local public utility or go outside
the state of Ohio to satisfy its energy needs. Home-rule municipalities will be
unlikely to satisfy their energy requirements from a nonlocal Ohio energy producer,
such as Ohio Power in this case, because such a purchase would create the very real
threat of possible Act litigation at the commission by the aggrieved local public
utility.
           {¶ 41} Additionally, Ohio’s low-cost energy producers will lose the
opportunity to sell large blocks of electric energy in the wholesale market to Ohio’s
home-rule municipalities. These sales will likely be forced out of state in the face
of potential Act litigation by local public utilities. Neither municipal inhabitants
nor Ohio’s low-cost energy producers benefit from such a circumstance.
           {¶ 42} The commission is a creature of statute, and, as such, may exercise
only that jurisdiction conferred upon it by statute. Time Warner AxS v. Pub. Util.
Comm. (1996), 

75 Ohio St.3d 229, 234

, 

661 N.E.2d 1097

, 1101; Canton Storage
& Transfer Co. v. Pub. Util. Comm. (1995), 72 Ohio St.3d. 1, 5, 

647 N.E.2d 136

,
141; Columbus So. Power Co. v. Pub. Util. Comm. (1993), 

67 Ohio St.3d 535, 537

,

620 N.E.2d 835, 838

. A complaint that fails to trigger the commission’s jurisdiction
is subject to dismissal. See Cincinnati v. Pub. Util. Comm. (1992), 

64 Ohio St.3d 13

                             SUPREME COURT OF OHIO




279, 

595 N.E.2d 858

; Dayton Communications Corp. v. Pub. Util. Comm. (1980),

64 Ohio St.2d 302

, 

18 O.O.3d 478

, 

414 N.E.2d 109

.
       {¶ 43} The General Assembly has narrowly prescribed the commission’s
statutory authority over home-rule municipal utility operations. The commission
has express authority over the voluntary and forced abandonment of utility facilities
and services inside municipal limits under the Miller Act, R.C. 4905.20 and
4905.21 (State ex rel. Klapp v. Dayton Power & Light Co. [1967], 

10 Ohio St.2d 14

, 

39 O.O.2d 9

, 

225 N.E.2d 230

), and the state has the authority to control
municipal utility actions in situations involving statewide public health and safety,
for example, water fluoridation (Canton v. Whitman [1975], 

44 Ohio St.2d 62

, 

73 O.O.2d 285

, 

337 N.E.2d 766

), and approval of sewage projects (Delaware Cty. Bd.
of Commrs v. Columbus [1986], 

26 Ohio St.3d 179, 184

, 26 OBR 154, 158-159,

497 N.E.2d 1112, 1117

).
       {¶ 44} But the commission has no authority over a municipal decision to
purchase power from a public utility. Section 4, Article XVIII of the Ohio
Constitution provides that municipalities have the right to choose their wholesale
energy suppliers. This right is not subject to statutory restriction or to commission
review or control. Link v. Pub. Util. Comm. (1921), 

102 Ohio St. 336

, 

131 N.E. 796

, paragraph two of the syllabus; In re Complaint of Residents of Struthers
(1989), 

45 Ohio St.3d 227

, 

543 N.E.2d 794

, paragraphs one and three of the
syllabus. Accord Lucas v. Lucas Local School Dist. (1982), 

2 Ohio St.3d 13

, 2
OBR 501, 

442 N.E.2d 449

; Columbus v. Pub. Util. Comm. (1979), 

58 Ohio St.2d 427

, 12 O.O. 3d 361, 

390 N.E.2d 1201

; Columbus v. Ohio Power Siting Comm.
(1979), 

58 Ohio St.2d 435

, 

12 O.O.3d 365

, 

390 N.E.2d 1208

. Thus, CPP had the
constitutional authority to contract with Ohio Power to purchase electrical energy.
Moreover, the terms of that contract are not subject to commission review. Link,
supra, at paragraph two of the syllabus; In re Complaint of Residents of Struthers,




                                         14
                                January Term, 1996




supra, at paragraph three of the syllabus. See, also, Wooster v. Graines (1990), 

52 Ohio St.3d 180, 181

, 

556 N.E.2d 1163

.
       {¶ 45} CPP also had the exclusive right to contract with and sell electrical
energy to MedCo, a retail customer within CPP’s service territory. This unfettered
right is expressly recognized by the Act:
       “[N]othing in [the Certified Territory Act] shall impair the power of
municipal corporations to require franchises or contracts for the provision of
electric services within their boundaries * * *.” R.C. 4933.83(A).
       “Nothing contained in [the Act] shall be construed to affect the right of
municipal corporations to generate, transmit, distribute, or sell electric energy. The
rights and powers of municipal corporations as they exist on or after the effective
date of this section to acquire, construct, own, lease, or operate in any manner a
public utility or to supply the service or product * * * under Section 4, Article
XVIII, Ohio Constitution in any portion of the state is not affected by [the Act].”
R.C. 4933.87.
       {¶ 46} Thus, the commission had no authority to regulate or otherwise
control the CPP / MedCo power agreement.
       {¶ 47} More important, jurisdiction over wholesale power purchases like
the Ohio Power / CPP agreement has expressly been preempted by federal law.
Under the Federal Power Act, Section 824, Title 16, U.S. Code, the FERC has
exclusive jurisdiction over the sale of wholesale electric energy. The United States
Supreme Court has long ago established the preemptive effect of the Federal Power
Act:
       “* * * Congress meant to draw a bright line easily ascertained, between
state and federal jurisdiction * * *. This was done in the [Federal ] Power Act by
making [FERC] jurisdiction plenary and extending it to all wholesale sales in
interstate commerce except those which Congress has made explicitly subject to




                                         15
                             SUPREME COURT OF OHIO




regulation by the States.” Fed Power Comm. v. S. California Edison Co. (1964),

376 U.S. 205, 215-216

, 

84 S. Ct. 644, 651

, 11 Ed.2d 638, 646. Intrastate wholesale
transactions, like the one at bar, are also considered to be made in interstate
commerce and preempted by the Federal Power Act. Fed. Power Comm. v. Florida
Power & Light Co. (1972), 

404 U.S. 453

, 

92 S.Ct. 637

, 

30 L.Ed.2d 600

.
       {¶ 48} The majority holds that the commission has concurrent jurisdiction
over an alleged sham transaction under the Act. I disagree. If preemption retains
any force whatsoever, then the commission cannot have concurrent jurisdiction
over this situation. Pursuant to Section 824K(h), Title 16, U.S. Code, the “sham
transaction” of which CEI complains is subject to the FERC’s jurisdiction. Only
the FERC has the authority over this contract. Cf. Marketing Research Services,
Inc. v. Pub. Util. Comm. (1987), 

34 Ohio St.3d 52

, 

517 N.E.2d 540

. In fact, CEI
has, understanding this, initiated a FERC proceeding under this section to invalidate
the Ohio Power / CPP power contract. Petition of CEI (Nov. 2, 1995), FERC
Docket No. EL 96-9-000, at 4, 14.
       {¶ 49} That is not to say that the commission might not have jurisdiction
over this matter at some later date. If the FERC agrees with CEI that this situation
constitutes a “sham transaction,” the FERC has the authority to strike down the
Ohio Power / CPP wholesale power contract. Armed with the FERC’s “sham
transaction” finding, the commission would then have jurisdiction to determine
CEI’s damages under the Act.        However, absent such a FERC finding, the
commission correctly held that it has no right to render any decision related to the
substance of a contract that is exclusively within FERC’s domain. Cf. Marketing
Research Services, Inc., supra.
       {¶ 50} Even if we could put aside the determinative issue of jurisdiction,
the question at the heart of this case is whether Ohio Power and MedCo contracted
to sell 50 MW of power in violation of the Act. If CEI alleged that they did, then
the complaint was not subject to being dismissed, because the complaint would



                                         16
                                January Term, 1996




have alleged a prima facie violation of CEI’s certified territory under the Act.
However, the complaint contains no such allegation.
       {¶ 51} The complaint alleges in count one that:
       (1) Ohio Power “has arranged to furnish electric service to [MedCo] by
selling 50 MW of capacity and associated energy to [CPP]”;
       (2) Ohio Power “negotiated directly with [MedCo] * * * regarding the 50
MW sale and purchase”;
       (3) CPP will bill MedCo under the same method that Ohio Power was
billing CPP for the 50 MW of power;
       (4) the Ohio Power / CPP and CPP / MedCo power agreements “are two
halves of the same transaction”;
       (5) these two transactions “are sham transactions” structured to circumvent
the Act; and
       (6) Ohio Power will violate the Act by selling power through CPP to
MedCo.
       {¶ 52} Neither the commission nor the court is required to accept
allegations in a complaint as true which are contradicted by documents attached to
the complaint. See State ex rel. Edwards v. Toledo City School Dist. Bd. of Edn.
(1995), 

72 Ohio St.3d 106, 109

, 

647 N.E.2d 799

, 802. The two contracts before us
today are totally independent of each other, and fully effectuate the power transfer
in question. These contracts do not impose reciprocal obligations upon each other.
As a matter of fact, Article 10.3 of the CPP/MedCo agreement specifically states
that it creates no third-party beneficiaries and that the only parties to the agreement
are CPP and MedCo. CPP is not required to use Ohio Power as the source of its
energy under the CPP/MedCo contract. Additionally, CPP is obligated to provide
MedCo with all of its energy needs under Article 1.1 of the CPP/MedCo agreement,
including any amounts over 50 MW, while Ohio Power, on the other hand, is




                                          17
                             SUPREME COURT OF OHIO




obligated only to provide 50 MW to CPP. Moreover, Article 5.8 of the CPP/MedCo
agreement specifically contemplates interconnection with wholesale electric
providers other than Ohio Power. Two halves of a whole? The documents clearly
state otherwise.
       {¶ 53} Further, changes in billing practices and methods between a
municipality and its retail customers have no meaning under the Act. Nor do
negotiations between MedCo and Ohio Power without some type of contract.
Additionally, every party to this litigation agrees that these two power contracts are
not subject to the commission’s jurisdiction.          The fact that this alleged
“arrangement” is regulated by and subject to a remedy at FERC, under Section
824K(h), Title 16, U.S. Code does not vest the commission with jurisdiction to hear
CEI’s complaint.
       {¶ 54} Under these circumstances, the commission was free to question the
allegations in CEI’s complaint and determine that this complaint did not set forth
“reasonable grounds for a complaint.” The allegations in count one do not trigger
commission jurisdiction.
       {¶ 55} In count two, CEI alleges that:
       (1) although CEI never raised the issue before this complaint, MedCo is an
electric light company under Ohio law because it sells the power that it buys from
CEI to its member/owners;
       (2) MedCo intends at some point in the future to build additional facilities
to take power at transmission voltages, change its billing methodology regarding
its member/owners, and sell electricity to non-member/owners;
       (3) these changes will make MedCo, if it is not already, an electric light
company under Ohio law; and
       (4)    after the changes, MedCo will be selling electricity to its
member/owners in violation of the Act.




                                         18
                                January Term, 1996




       {¶ 56} Speculative future changes in billing methods to member/owners,
the construction of facilities to take power at transmission voltages, and speculation
that MedCo may provide electricity to new member/owners do not violate the Act.
Nor do they convert a retail customer of over sixty years into an electric supplier
that is subject to the Act. Simply stated, speculative future activity which may or
may not occur is not the basis for a valid complaint at the commission. Cleveland
v. Pub. Util. Comm. (1980), 

64 Ohio St.2d 209, 216-217

, 

18 O.O.3d 418, 422-423

,

414 N.E.2d 718, 723

.
       {¶ 57} Additionally, the commission properly stated that electric suppliers
(if that is what MedCo is in this case) in existence before January 1, 1977 are
exempt from the Act. In re CEI, case No. 95-458-EL-UNC, Entry at 7. Therefore,
even if MedCo were considered an electric supplier under the Act, MedCo is
exempt from the Act until it actually provides energy to new customers or otherwise
violates that Act. The commission did not err in determining that there were no
reasonable grounds for CEI’s complaint.        CEI argues here and in its FERC
complaint that there is a contract between MedCo and Ohio Power for the sale of
50 MW of electricity and associated power. CEI’s complaint simply does not
support these arguments. Absent that specific allegation, the commission has no
jurisdiction over the Ohio Power / CPP / MedCo power transfer. Even if the
complaint included that specific allegation, I seriously question whether the
commission has jurisdiction over this power transfer in light of the Federal Power
Act’s jurisdiction over “sham transactions” under Section 824K(h), Title 16, U.S.
Code, and the acknowledged lack of jurisdiction by the commission over either
power contract.
       {¶ 58} For the foregoing reasons, I respectfully dissent.
       RESNICK, J., concurs in the foregoing dissenting opinion.
                               __________________




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