In the recent Ohio Supreme Court decision in DiFranco, et al. v. FirstEnergy Corporation, et al. (2012), 134 Ohio St. 3d 144, the High Court clarified the test to apply in determining whether common-law tort claims fall within the exclusive jurisdiction of the Public Utilities Commission of Ohio (“PUCO”). In holding that the fraud claims alleged in DiFranco were within the exclusive jurisdiction of PUCO, the Ohio Supreme Court applied the two-part test adopted as a result of Allstate Ins. Co. v. Cleveland Elec. Illum. Co. (2008), 119 Ohio St. 3d 301.
In DiFranco, a class of customers of FirstEnergy and its wholly owned subsidiaries, The Cleveland Electric Illuminating Company and Ohio Edison Company, filed a Complaint against FirstEnergy alleging breach of contract, fraud, and other injunctive relief. The customers had alleged that the companies promised to charge them a discounted rate for electricity if they purchased all-electric homes or equipped their homes with electrical heating systems and applicances. The customers also alleged that the companies guaranteed the discounted rate for as long as the customers maintained the all-electric status. The customers’ alleged that the companies unilaterally terminated the discounted rates in 2009 and that they are now being charged higher rates.
The trial court dismissed the customers’ fraud, breach of contract and injunctive relief claims, holding that these claims stemmed from the companies’ alleged breach of promise to charge discounted rates and are within the exclusive jurisdiction of PUCO. The court of appeals affirmed the dismissals of the breach of contract and injunctive relief claims. However, the court of appeals reversed the trial court’s dismissal of the fraud claim. The court of appeals held that fraud is a common law civil action in Ohio, and that prior case law determined that fraud claims are not within PUCO’s jurisdiction.
The Ohio General Assembly enacted Ohio Revised Code Title 49 to regulate the business activities of public utilities, including the regulation of utility service and the fixing of rates. Ohio Revised Code § 4905.26 confers exclusive jurisdiction on PUCO to adjudicate complaints filed against a public utility and states:
Upon complaint in writing against any public utility . . . that any rate, fare, charge, toll, rental, schedule, classification, or service, . . . is in any respect unjust, unreasonable, unjustly discriminatory, unjustly preferential, or in violation of law, . . . and, upon complaint of a public utility as to any matter affecting its own product or service, if it appears that reasonable grounds for complaint are stated, the commission shall fix a time for hearing and shall notify complainants and the public utility thereof.
Here, the Ohio Supreme Court was charged with determining whether the customers’ fraud claim relates to utility rates or service, or whether it was purely a state-law tort claim.
In holding that the fraud claim was within the exclusive jurisdiction of PUCO, the Court first reasoned that jurisdiction in a state court is not conferred in cases involving public utilities based solely on the form of action. Merely casting the allegations in the complaint to sound in tort or any other state law claim is not sufficient to confer jurisdiction upon the state court. The Court held that courts must examine the substance of the allegations in the complaint to determine the proper jurisdiction.
The Court then applied the two-part test adopted as a result of Allstate to determine whether the fraud claim at issue was within PUCO’s exclusive jurisdiction. Under the Allstate test, the court inquires, (1) whether the PUCO’s administrate expertise is required to resolve the issue in dispute; and (2) whether the action complained of constitutes a practice normally authorized by the utility. If the answer to either question is “no”, the claims is not within PUCO’s exclusive jurisdiction.
The Court first turned to the question of whether PUCO’s expertise was required to resolve the issue. In holding that PUCO’s expertise was required, the Court reasoned that a determination as to whether the customers were overcharged would require a review of the companies’ residential rate schedules and billing records, as well as a review of a PUCO orders setting rates and approving tariff schedules. The Court reasoned that PUCO was in the best position to review and analyze various charged rates to determine whether the companies were overcharging all-electric customers.
Next, the Court determined whether the alleged fraudulent act constitutes a practice normally authorized by the utility. In the holding the Court noted that the offering of special or discounted rates is a practice authorized by PUCO pursuant to Ohio Revised Code § 4905.31. As such, the Court held that PUCO is best situated to adjudicate any claims regarding the reasonableness and lawfulness of the companies’ offer to charge a discounted rate to customers who use electricity as their main source of energy.
The Ohio Supreme Court’s decision in DiFranco is important in that it clarifies the standard to apply in determining whether a claim falls within PUCO’s exclusive jurisdiction. The Court noted that it is important to look beyond the form of the claim and focus on the substance of the allegations to determine whether PUCO is better situated to adjudicate the matter. The Court also applied the Allstate test to make the necessary determination. The Court recognized that many activities of public utilities may be highly complicated matters that are beyond the expertise of the state courts. The Court’s confirms that PUCO is in the best position to regulate and adjudicate the sometimes complicated business activities of public utilities, as it was enacted to do.